Safety Net Perception and its Effects on Household Investment in Developing Countries: Chemical Fertilizer Input by Cambodian Farmers

Kenjiro Yagura

Oxford Development Studies, 2009, vol. 37, issue 4, 363-395

Abstract: Farmers in developing countries are reluctant to make investments for fear of failure and the economic distress resulting from this, but the perception of protection by a safety net may induce farmers to invest by reducing that fear. Using Cambodian farm household data, this paper examines factors affecting the perception of protection by a safety net and then assesses the effect of this perception on farmers' investment. For empirical analyses, perceived credit availability from relatives represents this perceived safety net; and chemical fertilizer input signifies the investment size. The results of the econometric analysis demonstrate that farm households with higher economic status, who are able to repay a loan or favour, are more likely to perceive such a safety net. It is also shown that the safety net perception positively affects chemical fertilizer input, implying that farmers accept risk when they perceive a safety net. These findings suggest that it is not only a lack of capital that deters poor households from investment, but also the perceived lack of a safety net.

Date: 2009
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DOI: 10.1080/13600810903305216

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