The Effect of Credit Constraints on Crop Yield: Evidence from Soybean Farmers in Northern Region of Ghana
Many farmers request for production credit to improve farm productivity, but are often denied by financial institutions. The rational questions to ask are: What factors characterize farmers who get denied of production credits? Does credit constraint lead to lower yield? This study aims to answer these important but often overlooked questions. A multistage sampling technique was used to select a cross-section of soybean farmers who applied for production credit in the Yendi Municipality and Saboba district of the Northern region of Ghana. A binary probit model is used to examine farmers who get denied of production credit. Correcting for sample selection bias, a propensity score matching is used to examine the effect of credit denial on crop yield. Results are very conclusive, and we find that farmers who are often denied access to production credit significantly lack prior training on their enterprises. In addition to that, farmers who are not members of FBOs, have their own buyers for their produce, have low experience, have no formal education, make no savings from their farm activities and are without access to credit information are more likely to be refused credit when applied. Refusing credit to farmers constrains their farm operations and makes them less productive. Policy implications are enormous; farmers would need to participate in training programmes on crop enterprises to increase chances of receiving credit from lending institutions; governments would need to intensify extension programmes where extension agents can facilitate farmer training.
Keywords: Credit Constraints, Propensity Score Matching, Soybean Production, Northern Ghana
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