The Impact of Access to Credit on the Adoption of Hybrid Maize in Malawi: An Empirical Test of an Agricultural Household Model Under Credit Market Failure

This study uses a household model under credit market failure to investigate the impact of access to credit on the adoption of hybrid maize among households that vary in their credit constraints. The paper argues that most studies have:

• Analyzed the impact of credit on technolog; adoption;
• Not analyzed the amount of credit that farm households are able to borrow and whether they are credit-constrained or not;
• Overlooked the fact that credit access can be a panacea for non-adoption only if is targeted at households that face binding liquidity constraints.

The study:

• Uses data from Malawi that the International Food Policy Research Institute (IFPRI) collected;
• Uses the direct elicitation approach to classify households into constrained and unconstrained regimes;
• Estimates:
  • The probability of being credit constrained;
  • The impact of access to credit for the two categories of households, while accounting for selection bias.
• Uses a switching regression in a "Double-Hurdle" model to assess the impact of access to credit.

The study finds that:

• While access to credit increases adoption among credit-constrained households, it has no effect on unconstrained households;
• Factors that affect adoption are different for constrained and unconstrained households.

The study concludes with the policy implication that microfinance institutions should consider scaling up their credit services to ensure that more households benefit from it.