Selectivity Bias in Estimating the Effect of Credit on Output: The Case of Rural Nonfarm Enterprises in the Philippines
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Date
1995-05
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Publisher
Ohio State University. Department of Agricultural, Environmental, and Development Economics
Abstract
This study uses an endogenous switching regression model to measure the effect of credit on output under assumptions of selectivity bias. The model allows for the separation of the true credit effect from the effect of observable and unobservable characteristics of borrowers and nonborrowers. Thus, it becomes possible to clearly identify the different components that underlie the observed performance gap between borrowers and nonborrowers. Using data from a survey of rural nonfarm enterprises in the Visayas Region in the Philippines, the econometric estimates provide strong empirical support for the positive relationship between credit and output.