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Do Small Farmers Borrow Less When the Lending Rate Increases? Interest Rate Elasticity of Rice Farmers in the Philippines *
Author(s) -
Briones Roehlano M.
Publication year - 2009
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/j.1467-8381.2009.02019.x
Subject(s) - economics , interest rate , conjecture , unitary state , econometrics , monetary economics , mathematics , political science , law , pure mathematics
The new generation of credit programs directed at small borrowers emphasizes financial sustainability. Based on anecdotal information, proponents of cost recovery claim that raising formal lending rates would have a minimal impact on borrowing. However, rigorous evidence for this conjecture is sparse. The present study conducts an econometric test of this conjecture using data from a survey of small rice farmers from the Philippines. Alternative regression techniques tend to reject the conjecture; in particular, a regression that controls for selection effects shows a unitary elastic response of formal borrowing to the lending rate.