Access to formal credit remains limited in many rural areas, where incomes are highly seasonal and follow agricultural cropping cycles. We develop a model to show that frictions in capital market access distort labor markets, driving up income and consumption inequality and lowering aggregate output. To identify the causal impact of intra-season credit availability on rural markets, we conducted a two-year randomized controlled trial with small scale farmers in rural Zambia. We show that lowering the cost of borrowing at the time of the year when farmers are most constrained (the lean season) results in a reallocation of labor from better-off to worse-off farms. This reallocation of labor reduces differences in the marginal product of labor across farms, increases local wages, and leads to modest increases in agricultural output.

Adrienne Lucas is an associate professor of economics at the Lerner College of Business and Economics at the University of Delaware and a Faculty Research Fellow at the National Bureau of Economic Research (NBER). She is a development economist specializing in the economics of education and disease. Her current research focuses on the intergenerational effects of adult HIV/AIDS treatment, the importance of information in school choice decisions and the effect of teacher incentives on student achievement. She has published research on malaria, free primary education, secondary school choice, the return to school quality and early primary school literacy. Prior to joining the University of Delaware, she was an assistant professor of economics at Wellesley College. She received her Ph.D. and A.M. in economics from Brown University and her B.A. in economics from Wesleyan University.