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


  • Conor M. O'Toole,

  • Carol Newman,

  • Thia Hennessy

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    • Conor O'Toole, Economic Analysis Division, Economic and Social Research Institute. E-mail: for correspondence. Carol Newman, Department of Economics, Trinity College Dublin; Thia Hennessy, Rural Economy and Development Programme, Teagasc. Many thanks to Cathal O'Donoghue, the NFS Working group and Anne Kinsella in Teagasc for providing help in relation to data issues. Thanks also to respondents at the AESI Conference 2010, the EAAE PhD Seminar 2011, Nitra, Slovakia and the EAAE Congress 2011, Zurich, Switzerland. Particular thanks go to Christoph Weiss and Chantal Le Mouel for comments. Conor O'Toole would like to thank Teagasc for PhD funding under the Walsh Fellowship Scheme.


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.

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