Uneven Influence of Credit and Savings Deposits on the Dynamics of Technology Decisions and Poverty Traps

31 Pages Posted: 22 May 2015

See all articles by Isai Guizar

Isai Guizar

Tecnológico de Monterrey

Claudio Gonzalez-Vega

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Mario Miranda

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Date Written: May 20, 2015

Abstract

Using numerical approximations of infinite-horizon, dynamic, stochastic models of farm-household behavior, we investigate the influence of several dimensions of financial development in overcoming poverty traps, through the sustained adoption of advanced production technologies. We explore decisions for both adopting and abandoning higher-productivity technologies, under different scenarios of inclusion into the credit and the savings deposits markets, for different levels of credit rationing (limits on loan size), and different degrees of financial deepening.

The results show that the influence on technology choices of the inclusion into markets for just loans or just deposits is not uniform. Unless loan-size limits are sufficiently nonrestrictive, deposit facilities are a superior intervention to boost rates of technology adoption and prevent its abandonment. While sustained rates of adoption increase with less non-interest credit rationing (larger loan-size limits), they are insensitive to declining loan interest rates. Thus, in cases of non-interest credit rationing, most likely among the poor, subsidized credit would not encourage adoption. In contrast, adoption rates increase and abandonment rates decline with higher interest rates on deposits. The paper also shows that transitioning from an economy with scant financial development to another with full financial development (namely, reducing the gap between loan and deposit interest rates) increases the sustained adoption of advanced production technologies, from 14 to 62 percent of household-farms, under the parameters of the simulation.

Keywords: Credit, Savings Deposits, Poverty, Technology Adoption, Financial Inclusion, Non-interest Credit Rationing, Financial Deepening

JEL Classification: G21, O13, O16

Suggested Citation

Guizar, Isai and Gonzalez-Vega, Claudio and Miranda, Mario, Uneven Influence of Credit and Savings Deposits on the Dynamics of Technology Decisions and Poverty Traps (May 20, 2015). Available at SSRN: https://ssrn.com/abstract=2608588 or http://dx.doi.org/10.2139/ssrn.2608588

Isai Guizar (Contact Author)

Tecnológico de Monterrey ( email )

Av. Gral Ramon Corona 2514
Col Nuevo Mexico
Guadalajara
Mexico

Claudio Gonzalez-Vega

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

Rural Finance Program
Columbus, OH 43210-1067
United States
614-825-0622 (Phone)

Mario Miranda

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
United States

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