Credit Constraints and Investment Behavior in Mexico’s Rural Economy

This paper uses two recently completed surveys of individual entrepreneurs (farmers and microentrepreneurs) and registered enterprises (agricultural and nonagricultural) operating in Mexico s rural sector to provide new evidence about the factors i...

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Bibliographic Details
Main Authors:	Love, Inessa, Sanchez, Susana M.
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO CAPITAL ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCESS TO INFORMATION ACCESS TO LOAN ACCESS TO LOANS ADDITIONAL INCOME ADVISORY SERVICES AGRICULTURAL SECTOR AMOUNT OF CREDIT APPLICATION DECISION ASYMMETRIC INFORMATION BALANCE SHEET BANK DEPOSITS BANK LENDING BANK LOANS BANK OFFICIALS BANKING CRISIS BOND BORROWER BORROWING BUSINESS OPERATIONS BUSINESS PLANS CAPITAL EXPENDITURES CAPITAL GOODS CAPITAL MARKETS CAPITAL STOCK CASH FLOW CASH FLOWS COLLATERAL COLLATERAL LAWS COLLATERAL REQUIREMENTS COLLEGE EDUCATION CONSTRAINTS ON INVESTMENT CORRUPTION CREDIT CONSTRAINT CREDIT CONSTRAINTS CREDIT HISTORY CREDIT INFORMATION CREDIT INFORMATION REGISTRIES CREDIT MARKETS CREDIT NEEDS CREDIT RATIONING CREDIT RISK CREDIT TRANSACTIONS CREDIT UNIONS CREDITORS CREDITWORTHINESS CURRENT INTEREST RATE DEBT DEBT ISSUES DEBTORS DECISION TREE DEVELOPMENT BANKS DIRECT FINANCING DISCOUNT RATES DISCRIMINATION EARNINGS ECONOMIC ACTIVITY ECONOMIC AGENT ECONOMIC AGENTS ECONOMIC GROWTH EDUCATIONAL ATTAINMENT EMPLOYERS ENTREPRENEUR ENTREPRENEURIAL ABILITIES ENTREPRENEURIAL ABILITY ENTREPRENEURIAL ACTIVITIES EXPENDITURES EXTERNAL FINANCING EXTERNAL FUNDS FARMER FARMERS FINANCIAL CONSTRAINTS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL ECONOMIST FINANCIAL INSTRUMENTS FINANCIAL INTERMEDIATION FINANCIAL LIBERALIZATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL TRANSACTIONS FINANCING COSTS FIXED ASSETS FOREIGN FINANCING FORMAL EDUCATION FORMAL SOURCES OF CREDIT GENDER GOOD CREDIT GOOD CREDIT HISTORY GROWTH OPPORTUNITIES HIGH INTEREST RATES HOUSEHOLD INCOME HOUSEHOLDS INDIVIDUAL ENTREPRENEURS INFLATION INFORMAL BORROWING INFORMAL CREDIT INFORMAL FINANCIAL MARKETS INFORMAL LENDERS INFORMAL LOAN INFORMAL LOANS INFORMAL SAVINGS INFORMATION ASYMMETRIES INFORMATION TECHNOLOGY INHERITANCE INTEREST RATE INTEREST RATES INTERNAL FUNDS INTERNATIONAL BANK INVESTING INVESTMENT BEHAVIOR INVESTMENT CHOICE INVESTMENT COMPANIES INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES INVESTMENT PATTERNS ISSUE OF ACCESS LABOR MARKET LACK OF CREDIT LACK OF KNOWLEDGE LAND HOLDINGS LAND MARKETS LANGUAGE BARRIER LARGE ENTERPRISES LARGE FIRMS LEGAL CONSTRAINTS LEGAL SYSTEM LENDER LENDERS LENDING DECISIONS LEVEL OF EDUCATION LEVELS OF CREDIT LOAN APPLICANTS LOAN APPLICATION LOAN APPLICATION PROCEDURES LOAN APPLICATIONS LOAN CONTRACT LOAN CONTRACTS LOAN DEMAND LOAN MARKET LOAN MARKETS LOAN PROCESS LOAN PRODUCTS LOAN REQUESTS LOANS FOR FARMERS LOANS FROM FRIENDS LOANS TO FARMERS LONG-TERM LOANS LOW EARNINGS MARKET INTEREST RATES MARKETING MARKETING STRATEGIES MONEYLENDERS MORAL HAZARD NEW MARKETS OLDER INDIVIDUAL OUTREACH PARENT COMPANY PERSONAL SAVINGS POOR COLLATERAL POOR CREDIT PRIMARY EDUCATION PRIVATE BANK PROBABILITY PROBABILITY OF DEFAULT PRODUCTIVITY PROVIDERS OF CREDIT PURCHASES QUESTIONNAIRE QUESTIONNAIRES REAL ESTATE REGRESSION ANALYSIS REMITTANCES REPAYMENT REPAYMENT INCENTIVES RESEARCH ASSISTANCE RETAIL BUSINESSES RURAL LOAN SALE SALES SALES GROWTH SAVINGS SAVINGS BEHAVIOR SAVINGS MECHANISMS SAVINGS PRODUCTS SECONDARY EDUCATION SENIOR SMALL BORROWERS SMALL BUSINESSES SMALL LOANS SMALLER FIRMS SOCIAL CAPITAL SOCIAL NETWORK SOURCE OF CREDIT SOURCE OF FUNDS SOURCE OF INCOME SOURCES OF FUNDS SOURCES OF INCOME STOCK EXCHANGE SUPPLY OF CREDIT TECHNICAL ASSISTANCE TRADE CREDIT TRAINING PROGRAM TRAINING PROGRAMS TRANSACTION TRANSACTION COSTS TRANSACTIONS COSTS TRUSTEE TYPE OF LENDER TYPE OF LENDERS TYPES OF LENDERS URBAN AREAS VALUE OF ASSETS WORK EXPERIENCE WORLD INTEREST RATE
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090806094617 http://hdl.handle.net/10986/4207

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Summary:	This paper uses two recently completed surveys of individual entrepreneurs (farmers and microentrepreneurs) and registered enterprises (agricultural and nonagricultural) operating in Mexico s rural sector to provide new evidence about the factors influencing the incidence of credit constraints and investment behavior. To measure the incidence of credit constraints, the authors use self-reported information on whether economic agents have a demand for loans, separating formal and informal markets. They define credit constraints as a situation where rural agents report an unsatisfied demand for loans (formal or informal), which originates from rural agents having projects that are too risky or from impediments hindering the ability of rural agents and lenders to reduce information asymmetries. The authors find that the self-reported demand for loans is low. Nevertheless, the incidence of credit constraints is pervasive, especially among individual entrepreneurs. The low use of loans has consequences for the amount of investments that occur in the rural economy, posing a major obstacle to Mexico s convergence towards its NAFTA partners. The empirical analysis, which includes proxies of business prospects and creditworthiness, shows that improving the availability of loans to credit constrained agents would increase the number of agents making investments and their investment to capital ratios.

Credit Constraints and Investment Behavior in Mexico’s Rural Economy

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