The impact of credit on productivity of smallholder farmers in Ghana

Abstract

Purpose The purpose of this paper is to evaluate the impact of access to production credit on the productivity of smallholder farmers. Design/methodology/approach Data for the study were drawn from the Agricultural Value Chain Facility (AVCF), which was implemented in the Northern Region of Ghana. This paper uses the Propensity Score Matching (PSM) to estimate the average treatment effect of access to production credit on the productivity of smallholder farmers. The rationale for the choice of this estimation technique is to control for selection bias since the treatment variable (access to production credit) was not randomised. The authors also test for the effect of hidden bias using “Rosenbaum bounds” sensitivity analysis. The study uses two control groups to examine the net effect of credit on productivity. Findings The results reveal that smallholder farmers with access to production credit increased productivity through investment in farm inputs. For the impact of credit on productivity using control Group 1, the result shows that farmers with access to credit increased their productivity by 0.170 metric tonnes per hectare and for control Group 2, the result shows an increase of 0.252 metric tonnes per hectare more than farmers who are without access to production credit. Practical implications The evidence as provided by this paper is that access to production credit is significant to meet the credit needs of smallholder farmers and therefore contributes to the policy debate on whether access to credit has impact on the productivity of smallholder farmers. Originality/value The paper shows the importance of production credit in augmenting the production function of smallholder farmers.