Household‐level credit constraints in urban Ethiopia

Abstract

There is a dearth of empirical evidence on the determinants of household credit constraints in Sub‐Saharan Africa. Most studies have disproportionally focused either on household credit constraints in rural areas or credit constraints facing firms. There are also a number analytical problems linked with identifying credit constrained households. Using the Fourth Round Ethiopian Urban Household Survey conducted in 2000 which provides a unique set of variables in relation to access to credit, we extended the approach of Jappelli (1990) to identify credit constrained households directly. We find a high percentage of credit‐constrained households. After controlling for potential endogeneity and selectivity bias, our econometric models showed that current household resources, number of dependants and location are significant correlates of credit constraints. Further, we discuss the policy implications of our findings.

Keywords: credit constrained households; credit policy; endogeneity; instrumental variables; selectivity bias, urban Ethiopia; Africa

Ethiopian Journal of Economics, vol 20(1) 2011