The study examined maize farmers’ participation in the formal financial market and its impact on farm size and expenditure on variable farm inputs. A multistage sampling method was used in selecting 595 maize farmers from the seven districts in Ashanti and Brong Ahafo Regions of Ghana. A structured questionnaire and interview schedule were used to elicit information from the respondents. The impact of formal financial market participation on farm size and expenditure on variable inputs was estimated using Propensity Score Matching (PSM) method. The results of the study showed that formal financial market participation has the potential to significantly increase expenditure on variable inputs by farmers and consequently use of improved technology. Therefore, formal financial market participation should be encouraged through education and promotional activities. 1. Introduction The formal financial sector has been identified as important in improving productivity by making financial services available to producers in the agricultural sector. This is because informal financial services are often considered to be unsatisfactory because of extraordinarily high interest rates on credit, and savings are not sufficiently secure [1]. It is therefore assumed that participation in the formal financial market would lead to larger farm sizes and adoption of improved technology through increased expenditure on variable inputs. In view of this, several policies have been adopted by successive governments of Ghana to improve access to financial services. These policies include liberalisation of the financial sector to increase private sector participation in the provision of financial services. The sector has now expanded from the prereform period of two foreign banks and two state owned banks with virtually no nonbank financial institutions, to include many private financial institutions. The question then is: has the expansion in the formal financial sector increased participation of farmers in the market, and if so what impact does a farmer’s participation in formal financial market have on their input usage and farm size? This paper empirically examines the impact of formal financial market participation on farm size and expenditure on farm inputs by maize farmers in two regions of Ghana (Ashanti and Brong Ahafo). The literature on impact evaluation methods is extensive. Some authors [2–4] present very useful overviews. Khandker et al. [5] have also discussed in detail different methods that are applicable for impact evaluation and the data needed for each type. In
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