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Innovation Adoption and Liquidity Constraints in the Presence of Grassroots Extension Agents: Evidence from the Peruvian Highlands

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Under a program aimed at activating a market for technical innovations, cattle herders from a remote and poor area in the Peruvian Highlands were offered a range of new techniques. Diffusion has been helped by extension agents recruited from the user communities and acting as private business operators. One key remaining constraint on innovation adoption is lack of liquidity. We show that it is at work for one innovation only. Limited operation of the liquidity constraint is explained thus: (i) innovations may be cheap; (ii) they may be divisible; and (iii) the extension agents may provide seller credit to help users finance the purchase of modern inputs. Overall, our conclusion goes against the pessimistic assessment of the impact of extension work in poor areas that emerges from the current literature. It also points to the relatively egalitarian process underlying the Green Revolution as it has taken place in Asian agriculture.

Image: © IRD - Emilie Stoll