Asset Wealth and Cash Liquidity Decoupling

In Simple Words

Imagine a rancher who owns ten valuable oxen but has no paper cash in their wallet. Even though they are wealthy on paper, they purchase smaller quantities of commercial seed because selling a working ox to buy a bag of seed is impractical.

Research question

Holding wealth in the form of livestock or draft animals does not guarantee liquidity for seasonal cash crop inputs, as smallholders treat livestock as illiquid buffer stock rather than working capital.

Participants

N = 2,217 rural smallholder households in Amhara, Ethiopia.

Study Design

Heckman two-step consistent selection model of fertilizer demand controlling for livestock holdings (oxen and cows), land, and capital.

Results

Owning big animals increases the likelihood of entering the fertilizer market (first stage coefficient = +0.064, p < 0.01) but negatively predicts the total expenditure on inorganic fertilizer among active buyers (second stage coefficient = -0.036, p < 0.05).

Takeaway

Provide dedicated seasonal input credit solutions rather than relying on livestock asset holdings as an indicator of smallholder cash purchasing power.

Related findings

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• Asset Accumulation and Savings Persistence →Development

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• Baseline Investment Intention Realization in Microenterprises →Development

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• Basis Risk Demand Inelasticity →Development

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