| The main purposes of this study are: (1) to use a disequilibrium model to estimate the demand for, and supply of, rural credit in both the formal and informal sectors of the market and (2) to test the extent to which credit constraints affect purchased-input utilization.There are two types of lenders in rural Thailand. The formal sector consists of the government and commercial banks. The lenders in the informal sector consist of professional moneylenders, traders, and farmers. The interest rates charged by the informal lenders are much higher. While some farmers get credit from the formal sector, the majority of farmers are dependent on credit from the informal sector. This suggests that credit rationing prevails in the formal sector.The study develops and estimates a disequilibrium model, in which both the demand for, and supply of, credit are determined by the farmer's characteristics and endowments. The standard disequilibrium model is modified to deal with two salient features of this study, namely, the transaction cost of borrowing and the peer monitoring system that is employed by some formal lenders.Since credit rationing may induce farmers to use lower amounts of purchased inputs, particularly of fertilizer and insecticides, than the levels they would choose without such constraints, rationing could reduce their production efficiency significantly. The study, therefore, explores the relationship between credit constraints and the farmers' utilization of these inputs. It provides a method to measure credit constraints based on the estimated results from the disequilibrium model and incorporates them in the estimation of input demand functions using nonlinear methods. The estimated results could not confirm the hypothesis that credit constraints affect the uses of fertilizer and insecticide adversely. They suggest, however, that the government's rice price policy--which has consistently kept domestic price below the world price--might be responsible for the low use of these inputs. |
