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.