Conference name, dates, place

2007 International Conference on Ethiopian Development Studies (4th ICEDS) A Multidisciplinary Conference on the Challenges of Peace and Development in Ethiopia & the Horn of Africa, held in Kalamazoo, Michigan (WMU), August 2-4, 2007

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Credit constraint not only affects the purchasing power of farmers to procure farm inputs and cover operating costs in the short run, but also their capacity to make farm-related investments as well as risk behaviour in technology choice and adoption. These, in turn, have influence on technical efficiency of the farmers. Although credit constraint problem has been recognized in economics literature, especially in those dealing with developing countries, little emphasis has been given to its effect on productive efficiency of farmers. In light of this, explicitly considering credit constraint, this paper estimated technical efficiency of credit-constrained (CCFH) and unconstrained farm households (CUFH) by employing a stochastic frontier technique on farm household survey data from Southeastern Ethiopia. The CCFH had mean technical efficiency score of 12% less than that of the CUFH. Given the largest proportion of CCFH in Ethiopian farming population, this gap implies considerable potential loss in output due to inefficient production. Improving technical efficiency of all farm households in general but more of particularly the CCFH is desirable. Additional sources of inefficiency differential between the two groups were also identified, and education level of household heads, land fragmentation and loan size significantly affected technical efficiencies of both groups. Besides, wealth and experience affected the CCFH, and household size affected the CUFH. In general, the results have important implications for credit, education and land policies in developing countries.