Impact of Credit Rationing on the Amount of Trade Credit Used by Rice Farmers in the Mekong River Delta

Abstract

This paper aims to estimate the impact of credit rationing on the amount of trade credit used by rice farmers in the Mekong River Delta (MRD) of Vietnam. Based on the literature review, the paper proposes nine hypotheses concerning the determinants of rice farmers’ access to credit and two hypotheses concerning the impact of credit rationing on the amount of trade credit used by rice farmers in the MRD. Data were collected from 1,065 rice farmers randomly selected out of ten provinces and cities in the MRD. Step 1 of PSM with Probit regression shows that land value, income, education, gender of household head, and geographical distance to the nearest bank affect the degree of credit rationing facing rice farmers. Step 2 of the PSM estimator identifies that non-credit rationed farmers use less trade credit to finance production than their credit rationed counterparts. Moreover, rice farmers’amount of trade credit used increases as the degree of credit rationing goes up. This result divulges that trade credit is a substitute for formal credit.