The demand and supply of funds among agricultural households

by Farrukh Iqbal

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Investigates borrowing behavior of agricultural households in less-developed countries. The theoretical analysis employs a life-cycle utility-maximizing approach emphasizing (1) regular participation of farm households in labor markets; (2) differential exposure to investment opportunities; and (3) differential access to formal and informal sources of finance. The empirical analysis is guided by both theory and special characteristics of the data, which were obtained from a 1968-71 survey of approximately 3,000 cultivating households in India. The definition of demand for funds is broadened to include the household's lending and savings activities. The results generally confirm the implications of the theory and appropriateness of the modeling strategy. Initial endowments, investment opportunities, opportunity cost of leisure, and transitory income are found to be important determinants of borrowing behavior. The definition of the dependent variables strongly affects results, casting doubt on the validity of previous estimates.

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