AGRICULTURAL CREDIT PROBLEMS AND POLICIES DURING THE TRANSITION TO A MARKET ECONOMY IN CENTRAL AND EASTERN EUROPE

Johan Swinnen and Hamish R. Gow

No 31887, PRG Working Papers from Katholieke Universiteit Leuven, LICOS - Centre for Institutions and Economic Performance

Abstract: This paper assesses the problems of financing Central and Eastern European agriculture during the present transitionary period and what the role of government is in this process. Initially the paper looks at why credit markets work imperfectly, even in well developed market economies, focusing on the problems related to asymmetric information, adverse selection, moral hazard, credit rationing, the choice of optimal debt instrument and why initial wealth matters. It shows why these and related problems may cause transaction costs to high enough so that credit rationing and high interest rates are rational and efficient responses by lenders to the imperfect information problems of the agricultural sector. Then a series of specific, transition-related issues are discussed which have worsened these problems within the Central and Eastern European agricultural sector. This leads to a discussion of the potential roles for governments in solving these issues, specifically the use of credit subsidies, loan guarantees and specialised agricultural lending institutions. Finally, the paper reviews the actual government intervention which have occurred within the Central and Eastern European countries.

Keywords: Agricultural and Food Policy; Agricultural Finance (search for similar items in EconPapers)
Pages: 31
Date: 1997
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Agricultural credit problems and policies during the transition to a market economy in Central and Eastern Europe (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:kuliwp:31887

DOI: 10.22004/ag.econ.31887

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