Working Paper: NBER ID: w20387
Authors: Lori Beaman; Dean Karlan; Bram Thuysbaert; Christopher Udry
Abstract: We examine whether returns to capital are higher for farmers who borrow than for those who do not, a direct implication of many credit market models. We measure the difference in returns through a two-stage loan and grant experiment. We find large positive investment responses and returns to grants for a random (representative) sample of farmers, showing that liquidity constraints bind. However, we find zero returns to grants for a sample of farmers who endogenously did not borrow. Thus we find important heterogeneity, even conditional on a wide range of observed characteristics, which has critical implications for theory and policy.
Keywords: credit markets; agriculture; Mali; randomized controlled trial; microfinance
JEL Codes: D21; D92; O12; O16; Q12; Q14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher marginal returns to capital (D29) | Selection into borrowing (G51) |
| High-return farmers (Q12) | More likely to select into borrowing (G51) |
| High-return households among extremely poor (G59) | Inefficient allocation of credit (E51) |
| Loans (H81) | Higher returns to investment (G11) |
| Grants (H81) | Higher agricultural profits in no-loan villages (Q14) |
| Non-borrowers (G51) | Lower average returns to grants (I26) |
| Borrowing households (G51) | Increased farm output with grants (Q16) |
| Non-borrowers (G51) | Limited increase in output with grants (H81) |