Financing Constraints and Agricultural Investment: Effects of the Irish Financial Crisis

Abstract

Abstract This paper considers the role of financing constraints in agricultural investment since the recent financial crisis. Using Irish micro data over the period 1997–2010, we estimate the Q model of investment and test for financing constraints using a measure of internal finance dependence. Our econometric method controls for censoring, heterogeneity and endogeneity. We find that financing constraints are binding and the impact of constraints becomes much more acute following the financial crisis. Constraints are found to be well above pre‐crisis levels and especially elevated in 2007, 2008 and 2009. The effects are greatest for medium‐sized farms and farms in the dairy sector.