Access to credit plays a profound role in short- and medium-run adjustment to adverse environmental shocks in subsistence or near-subsistence economies. That is the conclusion of a study by Dr Tyler Beck Goodspeed of the Great Famine of Ireland from 1845 to 1852, which ranks as one of the most lethal of all time, claiming approximately one eighth of the country”s population.

His research, to be presented at the Royal Economic Society”s 2015 annual conference analyses original Parliamentary Relief Commission reports to develop a micro-level dataset of blight severity. He finds that in the short run, districts more severely infected by blight experienced larger population declines and accumulations of buffer livestock – particularly chickens and pigs – by small- and medium-sized farms.

Over the medium and long runs, however, worse affected districts experienced greater substitutions toward other tillage crops and grazing livestock, namely, cattle and sheep, particularly by medium-sized farms.

Using annual reports of the Irish Loan Funds, which were privately run microfinance lenders operating throughout Ireland in the nineteenth century, the study further finds that access to microfinance credit was an important factor in short- and long-run adjustment to blight, and mitigated the demographic effects of the environmental shock.

Worse affected districts with at least one microfinance fund during the famine experienced substantially smaller relative population declines and larger increases in buffer livestock holdings of chickens and pigs during and immediately after the famine, and greater medium- and long-run substitutions toward other crops and grazing livestock, than worse affected districts without a fund.

The results of this study suggest that access to credit plays a profound role in short- and medium-run adjustment to adverse environmental shocks in subsistence or near-subsistence economies. The long-run non-demographic adaptations to the arrival of blight in Ireland, specifically crop portfolio diversification and substitutions away from tillage toward pasture, were effected earlier and to a greater extent in worse affected districts with a microcredit lender versus those without.

Moreover, in the presence of incomplete capital markets, access to microcredit appears to have allowed farmers to acquire temporary stocks of buffer livestock assets that could be easily liquidated in the event of crop failure and thereby smooth consumption.

Microfinance appears, however, to have had a limited effect on economic adjustment by the smallest farmers, which suggests that other forms of relief may be necessary to mitigate the effects of adverse environmental change on the most vulnerable populations.

”Microcredit and Adjustment to Environmental Shock: Evidence from the Great Famine in Ireland”  – Dr Tyler Beck Goodspeed

Dr Tyler Beck Goodspeed