Counting in Social Capital When Easing Agricultural Credit Restraints

This paper points out the importance to adopt policies that support trade liberalization and therefore the abolition of agricultural trade barriers in developing countries.In addition, the agricultural credit constraints, tp which farmers in East Africa and Central Europe are subject, should be removed so that their agricultural production and, more generally, their economies can be expanded. This paper:

• Explains the gains from an improved access to credit through three different effects, namely, the price effect, the investment effect, and a social capital externality;
• Finds out that improvements of agricultural credit can be achieved by relying on existing social structures, such as joint liability and farmers' social capital.

Finally, the paper concludes that improved financial institutions can offer direct advantages for rural areas by increasing farmers' income level, hence their welfare. Furthermore, this aspect can both prevent the massive migration from rural areas to urban areas and foster a more sustainable rural and social development.