households’ credit constrained status. Based on the notion that wealth helps alleviate credit constraints, a first set of indicators includes non-agricultural wealth such as the value of livestock (excluding oxen) and household assets not directly used in crop production. The second set of instruments is based on the conjecture that political power and social connections in the village economy make it easier to access credit, e.g., by improving information or access to loans channeled through local structures, independently of the ability to use such credit productively. We use three indicator variables for these; namely, (i) whether a member holds a leadership position, including an executive position in the local administration or is a member of the village council, the land administration committee, or the ruling party; (ii) whether a member participated in farmers’ service cooperatives, unions or microfinance institutions; and (iii) the number of adult children with their own household in the same village.

In light of the marked structural differences between regions, we report results for separate estimates from Gojam and Wollo in tables 6 and 7, respectively, following the results from the pooled sample reported in table 5. In each case, model 2 has land owned in logarithms while model 1 has it in absolute area. Columns 3 and 6 of tables 5, 6 and 7 suggest that the exclusion variables are strong predictors of households’ credit constrained status but that their impact differs by location. In the aggregate, the most important predictors of being credit unconstrained are membership in micro-finance institutions, party membership or political position, and the value of other livestock, in addition to oxen and a dummy for Wollo. The relevance of these varies somewhat across regions; parameter estimates of all the variables, except membership in service cooperatives for Gojjam, are positive and jointly significantly different from zero implying that strong socio-political position and wealth of households significantly reduce the probability of being credit constrained in the semi-formal sector.<sup>9</sup>

# **4.2 Credit access and productivity of resource use**

In the model for the full sample (table 5), the number of oxen has a positive coefficient and is significant in explaining the variation in the value of crop output per hectare for constrained but not for unconstrained households. It suggests that credit constrained farmers have a positive shadow price for oxen as expected under imperfectly operating oxen rental market and imperfect capital markets that make it impossible to afford the high up-front investment needed to acquire a full pair of oxen in the subsistence environment at hand. Lack of oxen seems to prevent credit constrained households from realizing their full potential in terms of agricultural productivity. On the other hand, neither constrained nor unconstrained households seem to gain from better access to family labor as would be expected in a

> 9 Similar to previous results for smallholder dairy farmers in Ethiopia (Freeman _et al._ 1998), resource endowments are found to be important in explaining the likelihood of credit constraints status of households in our survey villages that are mainly involved in crop production. We would like to underline that this study introduces additional variables that measure the social and political position of households in the local community that are also found to have significant effects in the selection equation.

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