Do credit constraints affect non-farm entrepreneurship entry decisions of rural agricultural households in Benin?

Abstract

This paper analyses the credit constraints' effect on non-farm entrepreneurship entry decisions in Benin. Using data from a sample of 512 farmers, we determine the factors that influence credit constraints and then assess the effect of credit constraints on non-farm entrepreneurship decisions based on an endogenous switching probit model and propensity score matching (PSM). The results of endogenous switching regression reveal that age and access to extension services are the main determinants of credit constraints while age, sex, household size, marital status, education level and farmer-based organisation (FBO) membership significantly increase farmers' decisions to engage in non-farm entrepreneurship. The PSM's results show that credit constraints have a negative effect on non-farm entrepreneurship entry decisions. The findings suggest that diversification through engagement in non-farm entrepreneurship requires the removal of credit constraints.

Keywords

• O16
• D13
• Q12