Rural credit and agricultural productivity; does access to credit matter? evidence from smallholder maize farmers in Zambia

Abstract

Although there is widespread evidence that access to credit is critical for agricultural production, it is still unclear whether access to credit improves agricultural productivity. Productivity improvement are key to reducing wastages and sustainably increasing household incomes, and ultimately, their economic welfare. This paper assesses the impact of access to credit on agricultural productivity among smallholder maize farmers in Zambia using the Endogenous Switching Regression Model (ESRM) to account for endogeneity in the farmer’s decision to access agricultural credit and consistently predicts productivity of farmers with access to agricultural credit had they not accessed and those without access and had they accessed credit. Using data on 7,888 agricultural households across the 10 provinces of Zambia from the nationally representative 2015 Rural Agricultural Livelihood Survey, the study finds that access to credit has a significant positive impact on maize productivity. The estimated average treatment effect on the treated and untreated were 4.5 and 6.5 bags of 50 Kilograms respectively. Improving access to credit in order to address farmers liquidity constraints may boost productivity. Key Words: Access to Credit, Agricultural Productivity, Smallholder farmer