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Abstract

This study examines industry-level impacts of possible credit constraints on farm profitability and productivity. We theoretically show that binding credit-constraints negatively affects profits as they inhibit acquisition of the optimal scale and mix of inputs for profit maximization. However, the impact of credit constraints on productivity is ambiguous and depends on the farm’s production region (IRS or DRS). Empirically, current debt-to-asset ratio has a positive effect on TFP and a negative effect on profit.

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