An estimate of the impact of credit constraints on groundwater use is obtained from a structural estimation of groundwater demand for Haryana, India. A switching regression model is estimated with separate equations for different groundwater technology types, which yields some interesting results. The farmers who use electric pumps are found to have a positive effect of credit constraints on groundwater use. This implies that with better access to credit, groundwater use would in fact decrease for farmers who are credit constrained. It is argued that this is a result of the electricity-pricing scheme under which farmers pay a flat price for electricity making the per unit price for groundwater very low relative to other inputs. Interestingly, the paper finds evidence that farmers who rely solely on purchased groundwater and therefore who pay full price for groundwater, have a negative impact of credit constraints: farmers who are more likely to be credit constrained demand less groundwater.


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