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

38 Pages Posted: 26 Jun 2021

See all articles by Gabriela Aparicio

Gabriela Aparicio

affiliation not provided to SSRN

Vida Bobic

George Washington University

Fernando De Olloqui

Inter-American Development Bank

María Carmen

Inter-American Development Bank

Fernández Diez

Inter-American Development Bank

Maria Paula Gerardino

Universitat Pompeu Fabra

Oscar A. Mitnik

Inter-American Development Bank; IZA Institute of Labor Economics

Sebastian Macedo

Inter-American Development Bank

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.

JEL Classification: G21, O13, O16, Q14

Suggested Citation

Aparicio, Gabriela and Bobic, Vida and De Olloqui, Fernando and Carmen, María and Diez, Fernández and Gerardino, Maria Paula and Mitnik, Oscar A. and Macedo, Sebastian, Liquidity or Capital? The Impacts of Easing Credit Constraints in Rural Mexico. IZA Discussion Paper No. 14477, Available at SSRN: https://ssrn.com/abstract=3874349

Gabriela Aparicio (Contact Author)

affiliation not provided to SSRN

No Address Available

Vida Bobic

George Washington University

2121 I Street NW
Washington, DC 20052
United States

Fernando De Olloqui

Inter-American Development Bank

1300 New York Ave NW
Washington, DC 20577
United States

María Carmen

Inter-American Development Bank

1300 New York Ave NW
Washington, DC 20577
United States

Fernández Diez

Inter-American Development Bank

1300 New York Ave NW
Washington, DC 20577
United States

Maria Paula Gerardino

Universitat Pompeu Fabra

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Oscar A. Mitnik

Inter-American Development Bank ( email )

1300 New York Ave, NW
Washington, DC 20577
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Sebastian Macedo

Inter-American Development Bank

1300 New York Ave NW
Washington, DC 20577
United States

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