Liquidity or Capital? The Impacts of Easing Credit Constraints in Rural Mexico

Gabriela Aparicio, Vida Bobic, Fernando De Olloqui, María Carmen, María Carmen Fernández Diez, Maria Paula Gerardino (), Oscar Mitnik and Sebastian Vargas Macedo
Additional contact information
Gabriela Aparicio: IDB Invest
Vida Bobic: George Washington University
Fernando De Olloqui: Inter-American Development Bank
María Carmen: Inter-American Development Bank
María Carmen Fernández Diez: Inter-American Development Bank
Maria Paula Gerardino: Inter-American Development Bank
Sebastian Vargas Macedo: Inter-American Development Bank

No 14477, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper evaluates the effectiveness of easing credit constraints for rural producers in Mexico through loans provided by a national public development finance institution (DFI). In contrast to most of the existing literature, the study focuses on the effect of medium-sized loans over a two- to four-year time horizon. This paper looks at the effects of such loans on production and investment decisions, input use, and yields. Using a multiple treatment methodology, it explores the differential impacts of providing liquidity for working capital versus providing credit for investments in fixed assets. It finds that loans increased the likelihood that producers grow and sell certain key annual crops, in particular among recipients of working capital loans. It also finds significant effects on production value and sales (per hectare), with similar impacts for recipients of both types of loans, with gains in yields driven by changes in labor quality and more intensive use of key inputs. There is no evidence of significant effects on the purchase of large machinery, but there are impacts on the acquisition of cattle. Overall, the results reported in this paper suggest that lack of liquidity is at least as important as lack of funding for new investment in capital for rural producers in Mexico. Producers benefit from easing their credit constraints, regardless of the type of loan used for that purpose.

Keywords: agricultural finance; credit constraints; development finance institutions; investment capital; working capital (search for similar items in EconPapers)
JEL-codes: G21 O13 O16 Q14 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2021-06
New Economics Papers: this item is included in nep-cfn, nep-dev and nep-fdg
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Working Paper: Liquidity or Capital?: The Impacts of Easing Credit Constraints in Rural Mexico (2021)
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