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Self-Selection into Credit Markets: Evidence from Agriculture in Mali

Lori Beaman, Dean Karlan, Bram Thuysbaert, Christopher Udry

NBER Working Paper No. 20387
Issued in August 2014, Revised in August 2015
NBER Program(s):The Development Economics Program, The Law and Economics Program, The Labor Studies Program

We examine whether returns to capital are higher for farmers who borrow than for those who do not, a direct implication of many credit market models. We measure the difference in returns through a two-stage loan and grant experiment. We find large positive investment responses and returns to grants for a random (representative) sample of farmers, showing that liquidity constraints bind. However, we find zero returns to grants for a sample of farmers who endogenously did not borrow. Thus we find important heterogeneity, even conditional on a wide range of observed characteristics, which has critical implications for theory and policy.

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Document Object Identifier (DOI): 10.3386/w20387

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