The Cost Effects of Government‐Subsidised Credit: Evidence from Farmers’ Credit Unions in Taiwan |
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| Authors: | Hung‐Jen Wang Ching‐Cheng Chang Po‐Chi Chen |
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| Affiliation: | Hung‐Jen Wang is based at the Department of Economics, National Taiwan University, Taipei 10055, Taiwan, and the Institute of Economics, Academia Sinica, Taipei 11529, Taiwan. E‐mail: for correspondence. Ching‐Cheng Chang, Institute of Economics, Academia Sinica, Taipei 11529, Taiwan. E‐mail: . Po‐Chi Chen, Department of International Business, Chung‐Hua University, Hsinchu 300, Taiwan. E‐mail: . We would like to thank the editor, two anonymous referees, Subal Kumbhakar, and T.H. Huang for very helpful comments and suggestions. H.J. Wang is grateful for financial support from the Center for Humanities and Social Sciences, National Sun Yat‐Sen University, and C.C. Chang is grateful for financial support from the National Science Council of Taiwan (NSC 89‐2415‐H‐001‐034‐JC). |
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| Abstract: | We investigate government‐subsidised credit effects on participating financial institutions’ performance in terms of cost efficiency. Using farmers’ credit unions in Taiwan as an example, we find that credit unions’ cost inefficiency is positively correlated with the extent of involvement in subsidy programmes. The results are robust to the control of local competition and labour quality. In addition to the stochastic frontier models from which we obtain the main results, we also propose a new distribution‐free estimation method based on quantile regressions. Results of this study point out that, when evaluating the social costs of the credit programmes, it is important to take into account the efficiency loss generated among financial intermediaries by credit subsidy programmes. |
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| Keywords: | Cost efficiency financial intermediaries government subsidy stochastic frontier models |
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