This paper critically examines a large strand of empirical literature with regard to (agricultural) finance and investment in economic transition. Our main contribution is to summarize empirical evidence for the co-existence of credit constraints and soft budget constraints (SBC) and to highlight a conceptual framework for their appropriate classification. This is of particular interest since credit constraints and SBC have really different economic effects, and the lack of discrimination between these forms of capital market imperfections may lead to wrong (agricultural) policy implications. Apparently, credit constraints in transitional economies became more important than soft budget constraints for firms’ growth and structural change.


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