Publication: Credit Constraints, Agricultural Productivity, and Rural Nonfarm Participation : Evidence from Rwanda
Loading...
Date
2014-02
ISSN
Published
2014-02
Author(s)
Editor(s)
Abstract
Although the potentially negative impacts of credit constraints on economic development have long been discussed conceptually, empirical evidence for Africa remains limited. This study uses a direct elicitation approach for a national sample of Rwandan rural households to assess empirically the extent and nature of credit rationing in the semi-formal sector and its impact using an endogenous sample separation between credit-constrained and unconstrained households. Being credit constrained reduces the likelihood of participating in off-farm self-employment activities by about 6.3 percent while making participation in low-return farm wage labor more likely. Even within agriculture, elimination of all types of credit constraints in the semi-formal sector could increase output by some 17 percent. Two suggestions for policy emerge from the findings. First, the estimates suggest that access to information (education, listening to the radio, and membership in a farm cooperative) has a major impact on reducing the incidence of credit constraints in the semi-formal credit sector. Expanding access to information in rural areas thus seems to be one of the most promising strategies to improve credit access in the short term. Second, making it easy to identify land owners and transfer land could also significantly reduce transaction costs associated with credit access.
Link to Data Set
Citation
“Duponchel, Marguerite; Ali, Daniel Ayalew; Deininger, Klaus. 2014. Credit Constraints, Agricultural Productivity, and Rural Nonfarm Participation : Evidence from Rwanda. Policy Research Working Paper;No. 6769. © http://hdl.handle.net/10986/17305 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Geopolitics and the World Trading System(Washington, DC: World Bank, 2024-12-23)Until the beginning of this century, the GATT/WTO system worked. Economic research provided a compelling explanation. It showed that if governments maximize the well-being of their own countries broadly defined, GATT/WTO principles would facilitate mutually beneficial cooperation over their trade policy choices. Now heightened geopolitical rivalry seems to have undermined the WTO. A simple transposition of the previous rationalization suggests that geopolitics and trade cooperation are not compatible. The paper shows that this is only true if rivalry eclipses any consideration of own-country well-being. In all other circumstances, there are gains from trade cooperation even with geopolitics. Furthermore, the WTO’s relevance is in question only if it adheres too rigidly to its existing rules and norms. Through measured adaptation to the geopolitical imperative, the WTO can continue to thrive as a forum for multilateral trade cooperation in the age of geopolitics.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication Global Socio-economic Resilience to Natural Disasters(Washington, DC: World Bank, 2025-05-22)Most disaster risk assessments use damages to physical assets as their central metric, often neglecting distributional impacts and the coping and recovery capacity of affected people. To address this shortcoming, the concepts of well-being losses and socio-economic resilience—the ability to experience asset losses without a decline in well-being—have been proposed. This paper uses microsimulations to produce a global estimate of well-being losses from, and socio-economic resilience to, natural disasters, covering 132 countries. On average, each $1 in disaster-related asset losses results in well-being losses equivalent to a $2 uniform national drop in consumption, with significant variation within and across countries. The poorest income quintile within each country incurs only 9% of national asset losses but accounts for 33% of well-being losses. Compared to high-income countries, low-income countries experience 67% greater well-being losses per dollar of asset losses and require 56% more time to recover. Socio-economic resilience is uncorrelated with exposure or vulnerability to natural hazards. However, a 10 percent increase in GDP per capita is associated with a 0.9 percentage point gain in resilience, but this benefit arises indirectly—such as through higher rate of formal employment, better financial inclusion, and broader social protection coverage—rather than from higher income itself. This paper assess ten policy options and finds that socio-economic and financial interventions (such as insurance and social protection) can effectively complement asset-focused measures (e.g., construction standards) and that interventions targeting low-income populations usually have higher returns in terms of avoided well-being losses per dollar invested.Publication From Patriarchy to Policy(Washington, DC: World Bank, 2025-05-29)Legal institutions play an important role in shaping gender equality in economic domains, from inheritance to labor markets. But where do gender equal laws come from? Using cross-country data on social norms and legal equality, this paper investigates the socio-cultural roots of gender inequity in the legal system and its implications for female labor force participation. To identify the impact of social norms, the analysis uses an empirical strategy that exploits pre-modern differences in ancestral patriarchal culture as an instrument for present-day gender norms. The findings show that ancestral patriarchal culture is a strong predictor of contemporary norms, and conservative social norms are associated with more gender inequality in the de jure legal framework, the de facto implementation of laws, and the labor market. The paper presents evidence for a political selection mechanism linking norms to laws: countries with more conservative norms elect political leaders who are more hostile to gender equality, who then pass less progressive legislation. The results highlight the cultural roots and political drivers of legalized gender inequality.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Causes and Implications of Credit Rationing in Rural Ethiopia : The Importance of Spatial Variation(World Bank, Washington, DC, 2012-06)This paper uses Ethiopian data to explore credit rationing in semi-formal credit markets and its effects on farmers' resource allocation and crop productivity. Credit rationing -- both voluntarily and involuntarily -- is found to be widespread in the sampled rural villages, largely because of risk-related factors. Political and social networks emerge as key determinants of access to credit among smallholder, peasant farmers. Significant regional variation emerges as well. In high-potential, surplus producing areas where credit is largely used for agricultural production, eliminating credit constraints is estimated to increase productivity by roughly 11 percentage points. By contrast, in low-productivity, drought prone areas where loans were rarely used to acquire inputs for crop production, the authors find no relationship between credit rationing and agricultural productivity. To be effective, efforts to improve agricultural productivity not only need to increase credit supply, but also explore the reasons for credit rationing and the availability of productive opportunities.Publication Commercialization and Mission Drift(World Bank, Washington, DC, 2016-05)Front-line loan officers of microfinance institutions are important in acquiring information on potential borrowers and selecting them in accordance with the microfinance institution's mission. This study uses a unique data set on loan officers and their loan portfolios from China's largest nongovernmental organization microfinance institution to test whether officers' personal characteristics affect the size and quality of their loans. The analysis uses a period in which the institution shifted from reliance on government donations and subsidies to commercial sources of funding. Imposing more commercial incentives on loan officers could affect how they balance potentially competing objectives to serve the poor and pursue profitability. The paper finds that loan officers who were formerly farmers or worked in local government were better able to maintain lending to poorer borrowers, without incurring substantially lower repayment rates on their loans. In short, it appears that the career backgrounds of loan officers did play a role in preventing mission drift.Publication Does the Village Fund Matter in Thailand?(2009-07-01)This paper evaluates the impact of the Thailand Village and Urban Revolving Fund on household expenditure, income, and assets. The revolving fund was launched in 2001 when the Government of Thailand promised to provide a million baht (about $22,500) to every village and urban community in Thailand as working capital for locally-run rotating credit associations. The money about $2 billion in total was quickly disbursed to locally-run committees in almost all of Thailand s 74,000 villages and more than 4,500 urban (including military) communities. By May 2005, the committees had lent a total of about $8 billion, with an average loan of $466. Using data from the Thailand Socioeconomic Surveys of 2002 and 2004, each of which surveys almost 35,000 households, the authors find that the borrowers were disproportionately poor and agricultural. A propensity score matching model finds that Fund borrowing in 2004 was associated with, on average, 1.9 percent more income, 3.3 percent more expenditure, and about 5 percent more ownership of durable goods. These results are broadly consistent with the results from instrumental variables models (where the identifying instrument was the inverse of village size), which however show a smaller (marginal) effect. Households that borrowed both from the revolving fund and from the Bank of Agriculture and Agricultural Cooperatives gained substantially more in terms of higher income than those who borrowed from either one or the other or from neither.Publication Funding vs. Real Economy Shock : The Impact of the 2007-2009 Crisis on Small Firms' Credit Availability(World Bank, Washington, DC, 2012-04)This paper analyzes the impact of two distinct shocks stemming from the cross-border transmission of the 2007-2009 crisis on credit availability for small firms. The paper uses data from AccessBank Azerbaijan which was affected in its liquidity position during the second and third quarters of 2008 by delays in its refinancing. The Azeri real economy was hit by the global crisis from the fourth quarter of 2008 onwards with a combined decline in oil prices, exports, remittances, and domestic demand. Therefore, a pure supply side shock con be contrasted with a real economy shock that hit exactly when the bank's funding position strengthened again. The paper finds that during the funding shock (potential) borrowers are discouraged from applying for loans. However, for those applications made, the likelihood of loan approval is not affected. The real economy shock, in contrast, reduces the approval likelihood for SME loans in particular, while agro and micro loans are considerably less affected. Finally, bank relationships increase credit availability in good as well as in bad times.Publication Aceh Growth Diagnostic : Identifying the Binding Constraints to Growth in a Post-Conflict and Post-Disaster Environment(Washington, DC, 2009-07)This report shows that some investors still perceive Aceh as a risky place to do business, despite being relatively peaceful for almost four years. Security incidents, relatively common in post-conflict environments, deter businesses and individuals from investing in Aceh, robbing the economy of necessary capital and innovation. Other consequences of the conflict, including forms of illegal taxation, also hurt investment. The Government of Aceh is aware that until businesses and people change their perceptions of security in Aceh and feel confident that they can reap the full benefits of their investments, little investment will be forthcoming. As a result, growth in the province will be limited and efforts to reduce poverty less effective. There are other problems affecting Aceh's economy. These include the business environment, access to capital and the quality of infrastructure. This report seeks to show how these different factors affect investment and growth, and provides recommendations on how the Government might prioritize and sequence policy changes to improve the investment climate.
Users also downloaded
Showing related downloaded files
Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication World Development Report 1987(New York: Oxford University Press, 1987)This report, consisting of two parts, is the tenth in the annual series assessing development issues. Part I reviews recent trends in the world economy and their implications for the future prospects of developing countries. It stresses that better economic performance is possible in both industrial and developing countries, provided the commitment to economic policy reforms is maintained and reinforced. In regard to the external debt issues, the report argues for strengthened cooperation among industrial countries in the sphere of macroeconomic policy to promote smooth adjustment to the imbalances caused by external payments (in developing countries). Part II reviews and evaluates the varied experience with government policies in support of industrialization. Emphasis is placed on policies which affect both the efficiency and sustainability of industrial transformation, especially in the sphere of foreign trade. The report finds that developing countries which followed policies that promoted the integration of their industrial sector into the international economy through trade have fared better than those which insulated themselves from international competition.Publication World Development Report 2011(World Bank, 2011)The 2011 World development report looks across disciplines and experiences drawn from around the world to offer some ideas and practical recommendations on how to move beyond conflict and fragility and secure development. The key messages are important for all countries-low, middle, and high income-as well as for regional and global institutions: first, institutional legitimacy is the key to stability. When state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases. Second, investing in citizen security, justice, and jobs is essential to reducing violence. But there are major structural gaps in our collective capabilities to support these areas. Third, confronting this challenge effectively means that institutions need to change. International agencies and partners from other countries must adapt procedures so they can respond with agility and speed, a longer-term perspective, and greater staying power. Fourth, need to adopt a layered approach. Some problems can be addressed at the country level, but others need to be addressed at a regional level, such as developing markets that integrate insecure areas and pooling resources for building capacity Fifth, in adopting these approaches, need to be aware that the global landscape is changing. Regional institutions and middle income countries are playing a larger role. This means should pay more attention to south-south and south-north exchanges, and to the recent transition experiences of middle income countries.Publication The World Bank Group Beyond the Crisis(World Bank, Washington, DC, 2009-10-09)Robert B. Zoellick, President of the World Bank, addressed the following issues: seeds of crisis; the changing context; responsible globalization; the current role of the World Bank Group; the role of the World Bank Group in a new post-crisis World; and the reform agenda. He pointed to four aspects of Group’s future role: development finance; delivering knowledge products; the global public goods agenda (such as climate change and communicable diseases); and unforeseen future crises. Reform efforts include: 1) improving development effectiveness with a focus on results, decentralization, gender, investment lending reform, and human resources; 2) promoting accountability and good governance, and 3) increasing cost efficiency. He noted the completion of recent enhancements to the voice and representation of developing and transition countries in the Bank Group. Bretton Woods is being overhauled before our eyes.