Credit constraints and impact on farm household welfare: Evidence from Vietnam's North Central Coast region

Abstract

This study aims at identifying factors affecting formal credit constraint status of rural farm households in Vietnam’s North Central Coast region (NCC). Using the Direct Elicitation method (DEM), we consider both internal and external credit rationing. Empirical evidences confirm the importance of household head’s age, gender and education to household’s likelihood of being credit constrained. In addition, households who have advantages of farm land size, labour resources and non‐farm income are less likely to be credit constrained. Poor households are observed to remain restricted by formal credit institutions. Results from the endogenous switching regression model suggest that credit constraints have negative impact on household’s consumption per capita and informal credit can act as a substitute to mitigate the influence of formal credit constraints.