DP10103 Self-Selection into Credit Markets: Evidence from Agriculture in Mali

Author(s): Lori A Beaman, Dean S. Karlan, Bram Thuysbaert, Christopher Udry
Publication Date: August 2014
Keyword(s): agriculture, credit markets, returns to capital
JEL(s): D21, D92, O12, O16, Q12, Q14
Programme Areas: Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10103

We partnered with a micro-lender in Mali to randomize credit offers at the village level. Then, in no-loan control villages, we gave cash grants to randomly selected households. These grants led to higher agricultural investments and profits, thus showing that liquidity constraints bind with respect to agricultural investment. In loan-villages, we gave grants to a random subset of farmers who (endogenously) did not borrow. These farmers have lower ? in fact zero ? marginal returns to the grants. Thus we find important heterogeneity in returns to investment and strong evidence that farmers with higher marginal returns to investment self-select into lending programs.