Theme 1: Credit Constraints and Productivity in Peruvian Agriculture
In this paper we theoretically and empirically evaluate the impact of credit constraints on agricultural productivity in a developing country context. We develop a simple model that illustrates how different types of credit constraints have a similar negative impact on farm productivity. We then empirically explore the relationships between productivity and endowments of land and liquidity for constrained and unconstrained households using panel data from Peru. We estimate a switching regression model using a first difference and a semi-parametric approach to control for selection and unobserved heterogeneity. Consistent with the model, we find that productivity depends on endowments for constrained households but not for unconstrained households. We estimate that alleviating all types of credit constraints would raise the value of output in the study region by 26%.