Conference on Mainstreaming Livestock Value Chains

Accra, Ghana. 5-6 November 2013

On the impact of the lack of credit access on rural poverty in Morocco: Analysis using an agricultural

household model with credit constraints

Touhami ABDELKHALEK , INSEA, Rabat, MoroccoFouzia EJJANOUI, Mohamed V University, Rabat-Agdal, Morocco

November 2013

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CONTENT

1. Introduction and motivation

2. On the household models

3. The formulation of a rural Moroccan household model

4. Data and simulations

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In Morocco poor households in rural areas are confronted with imperfect and missing markets, high transaction costs, quantitative constraints, etc.

One of the markets most affected is the credit market.

This market failure creates credit and liquidity constraints on household decisions.

This limits their capacity to improve their wellbeing and contributes to chronic poverty in rural Morocco.

1. Introduction and motivation

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Ellis (1993) defines a rural farmer as an economic agent who is “partially integrated into incomplete markets”.

Efforts to model the behaviour of these agents must account for ways in which this situation influences decisions.

For the households decisions relating to consumption, production (crops and livestock) and participation in various markets are made jointly in response to these imperfections.

1. Introduction and motivation

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Modelling the behavior of rural households involves many steps. It involves formulating, estimating and/or calibrating, and then solving separable or non-separable household models.

1. Introduction and motivation

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2. On the household models There is a rich literature on the household models.

Singh, Squire and Strauss (1986), Sadoulet and de Janvry (1995), Bardhan and Udry (1999), Sadoulet (2000), Fafchamps, Raki and Sadoulet (1992), etc.

The greatest specificity of the household models, is that, they integrate several behaviours in a same structure.

These behaviours are always treated separately : decisions of production, consumption and labour supply.

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2. On the household models In these models the rural household is supposed to maximise a utility function, given its own characteristics as a consumer and producer.

A separable household model does not take into account the possible imperfections of the markets.

Based on exogenous market prices, the decisions of the rural household are made in a sequential way.

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2. On the household models A non-separable household model takes into account the imperfections of the markets. This is the case, for example, if there are a missing or incomplete markets.

In these models it is no longer possible to separate different decisions of the household.

Particularly, production decisions depend on consumption decisions.

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2. On the household models The decisions of the rural households are made simultaneously and not sequentially.

In this paper, we construct a non-separable household model.

It takes into account the key aspects of the rural Moroccan economy.

We simultaneously model joint decisions of rural households.

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3. The formulation of a rural Moroccan household model

Production processes (crops and livestock), factor and input demand, demand for final goods and services, labour supply and demand for leisure, etc. are involved.

We explicitly integrate credit constraints in the model.

The model is an extension of those constructed by De Janvry et al. (1992) and Abdelkhalek (2002).

Marginally transformed, the model can be run on a micro simulation version.

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3. The formulation of a rural Moroccan household model

This approach is useful in the poverty and inequality analysis.

We also illustrate how the model can be linked with the results of a CGE model.

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3. The formulation of a rural Moroccan household model

The equations of the model h = 1, …, H :

  (utility function)

(budget constraint)

(production function)

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3. The formulation of a rural Moroccan household model

(time constraint)

(credit constraint)

We can define the profit and the income :

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3. The formulation of a rural Moroccan household model

When we specify the functional forms for and we can deduce the F.O.C., calibrate and solve the model analytically or numerically.

This is what we do in this paper.

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The data used are drawn from a Moroccan LSMS type.

It covers a sample of 5129 households of which 42% are in rural areas.

Like CGE models, this household model is calibrated.

Calibration and simulation are done by GAMS software.

4. Data and simulations

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Next steps (ongoing):

complete the treatment of the data base ; numerically calibrate the model ; conduct the simulation in the representative household version and in the micro simulation version ; several scenarios could be analysed ; first of all the changes in credit bounds ; changes on prices (from a CGE) for example. etc.

4. Data and simulations