Access to Credit, Farm Productivity and Market Participation in Ghana: A Conditional Mixed Process Approach

Abstract

This study tests the hypothesis of whether credit impacts productivity, and whether productivity in turn impacts market participation under a simultaneous modelling framework of credit, productivity and market participation, which has not been pursued in the literature. Using data from the Ghana Living Standards Survey Round 6, we applied a conditional mixed process estimation technique to correct for selectivity bias and unobserved endogeneity. We find that credit positively impacts productivity, which in turn positively impacts market participation. Furthermore, other determinants such as roads, public transport, radio and phone, and compliance with extension advice positively influence productivity while availability of markets and multiple cropping in a season increase the decision to sell maize. These findings imply that the transmission mechanism to transform the subsistence nature of Ghanaian agriculture into a sector characterized by commercial agriculture is to enhance access to credit, which in turn would stimulate productivity, which in turn would enhance market engagement. JEL Classification: Q12, Q13, Q14