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The Demand for Medium and Long term Agricultural Credit in the Philippines
Thesis Abstract:
The Study sought to estimate the structural parameters of the demand for medium and long-term credit in the Philippines, based on 1954-1971 data.
A conceptual demand model was developed from the knowledge of the capital and investment theory. Supply was assumed to be perfectly elastic; hence interest rate was postulated to be exogenous.
Statistical results showed that the for medium and long-term credit was negatively inelastic with respect to interest rate reduction as a policy instrument would be ineffective in encouraging agricultural investment.
Demand was found positively inelastic with respect to farm wage rate, indicating substitution of capital for labor and hence increased demand for credit as wage rates increased
However, the coefficient of interest rate and wage variables lacked statistical significance. The implication of derived elasticity’s should therefore be treated with caution.
Result also indicated high elasticity of credit demand with respect to the stock of debt, the relationship being positively significant. This finding supports the validity of the stock flow related assumption which was premised analogously on the capital investment depreciation phenomenom. The gross demand for credit was found to be partly for “replacement” or refinancing of theory , part of the gross demand for investment is a replacement demand caused by depreciation or reduction in the stock of capital.
Knowledge of the structural parameters of the demand for credit has important policy implications. However, because of the statistical problems encountered, the present study failed to come up with something final, but hopefully insights gained would somehow serve as a guide for future studies