CREDIT CONSTRAINTS IN AGRICULTURAL PRODUCTION: AN ECONOMETRIC ANALYSIS OF BRAZILIAN SUBSIDIZED RURAL CREDIT POLICY

Brazilian subsidized Rural Credit policy involves interest rate ceilings on agricultural loans, portfolio constraints stipulating commercial banks' total Rural Credit volume as well as the distribution of that volume across farmer groups, and "advance limit" policy attempts to tie individual loan sizes to farmers' crop-specific land allocation plans. This dissertation evaluates the policy's effectiveness in attaining income distribution, crop mix and production objectives, by examining farm-level data from the state of Sao Paulo, 1980/81 through 1982/83. Analyses of bankers' policy-constrained Rural Credit distribution decisions and farmers' liquidity-constrained production decisions suggest how to draw inferences about lender and farmer behavior, and about policy attempts to constrain their behavior, from farm-level data. The first empirical section examines the rule by which bankers distribute "access" to credit. Standard probit estimates are supplemented by estimates of models allowing for time-invariant individual effects with random components and components correlated with some explanatory variables. Despite policy efforts to fine-tune access distribution from year to year, and despite a dramatic drop in the number of loans made available, farmer's ranking by bankers appears stable. An attempt to target credit toward small farmers was ineffective in 1980 and 1981, though results indicate increased effectiveness in 1982. The remaining empirical section analyzes the farm-level land allocation and output supply impact of the credit access and loan size determination process. A two-stage treatment of simultaneous loan size and land allocation (output supply) equations with endogenous selection into with- and without-access groups provides estimates of both the discrete effect of obtaining access and the continuous effect of increases in liquidity. Farmers with access shift land allocation toward crops for which bankers prefer to extend more credit, though production effects do not always follow. Evidence suggests larger farmers divert more credit to off-farm uses. Tests of advance limit policy impact on farmers' production incentives did not support the policy's effectiveness.