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© 1995 Oxford University Press and the Foundation for the European Review of Agricultural Economics

research-article

The impact of borrowing constraints on farm households: A life-cycle approach*

EUAN PHIMISTER

School of Economics Studies, University of Manchester Manchester M13 9PL UK

Received June 1, 1994;

Summary

This paper examines the potential impact of borrowing constraints on farm households. Using an adaptation of a life-cycle model of the farm household, two types of borrowing constraints are investigated. The first type of constraint, restrictions on the ratio of total debt to farm value added, reflects the possibility that financial institutions restrict lending on the basis of current farm profitability. The second type, restrictions on the debt to asset ratio, reflects the possibility that loans must be secured against assets. These two versions of the model are analysed and then simulated for a set of Dutch dairy farms. From the results it was found that, whilst the impact of such constraints does not appear to be affected by farm size, the proportion of land owned was a factor in determining which farms were likely to be borrowing-constrained

Keywords: farm households, borrowing, life cycle


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