The impact of credit on the technical efficiency of food crop producing smallholder farmers in Ethiopia

Purpose - This study examines the impact of access to credit on the technical efficiency (TE) of maize-producing smallholder farmers in Ethiopia and explores factors determining credit utilization. Design/methodology/approach - The study relies on nationally representative data collected in 2015/2016. The data are analyzed by combining the Propensity Score Matching technique with a stochastic frontier model that corrects selectivity bias arising from unobserved variables. Findings - The result shows that credit service improves TE and helps smallholder farmers to achieve the maximum possible output level from a given set of inputs used. Originality/value - To the best of author's knowledge, no study has yet measured the impact of access to credit on TE by controlling for both observed and unobserved heterogeneities. Existing research relied on a single production frontier model, assuming that credit users and non-users have similar production characteristics or ignored selection bias due to observable and unobservable characteristics.