Effect of credit constraints on intensity of fertilzer adoption and agriclutural productivity in Amhara Region, Ethiopia: an endogenous switching regression analysis

Abstract

Access to finance to the rural households is a powerful intervention to facilitate the adoption of farm inputs and boost agricultural productivity in developing countries like Ethiopia. Credit constraints limit the ability of households to use inputs at optimal level and thereby stifles agricultural productivity. However, evaluation of the impact of credit constraints on agricultural technology adoption and productivity have faced methodological problems and most of the existing studies have failed to explicitly measure and analyze the amount of productivity loss and the magnitude increase in intensity of fertilizer adoption if the farm households are found credit unconstrained. This study has examined the possible effect of credit constraint on the intensity of fertilizer adoption and productivity among households who vary in their credit constraint status. The study used cross sectional farm household level data collected in 2013 from 1165 randomly sampled households. An endogenous switching regression model is used for analytical purpose so as to account for selection bias and heterogeneity problem. The result evidence that intensity of fertilizer adoption and agriculture productivity would be higher among farm households who are found to be credit unconstrained. The result revealed that factors that affect the intensity of fertilizer adoption and agriculture productivity among credit constrained farm households are different from their counterparts. Age and age square of the household head, primary cooperative membership, number of Oxen, ownership of TV, hired labor as dummy and use of manure have significant effect on the intensity of fertilizer adoption among credit unconstrained regimes. Whereas, household size, altitude of land, ownership of land, way of land cultivation, and being risk averse household have significant effect on the intensity of fertilizer adoption in the credit constrained regimes. The result shown that size of land has negative and significant effect on the intensity of fertilizer adoption in the constrained regime while it has positive and significant effect on the intensity of adoption in the unconstrained regime. Age and age square of the household head, TLU, hired labor as dummy are the factors that significantly affect the productivity in the unconstrained  regimes. The number of oxen and distance of farm land from residence also affect the productivity. Land size has found the significant and negative effect on the productivity in the constrained regime, but it has the positive and significant effect in the credit constrained regime. The policy implication is that the policy makers should account the credit constraint heterogeneity among farm households when they design agricultural policy to increase intensity of fertilizer adoption and thereby boost productivity of agriculture.

Keywords: Credit constraint, agricultural productivity, intensity of fertilizer application, an endogenous switching regression, Ethiopia