Reconsidering agricultural credits and agricultural production nexus from a global perspective

Abstract

Access to credit has been a key component in protecting a country's agriculture sector against uncertainties and climate-related shocks. Agricultural credits may also increase both agribusiness sectors' and farming-related commercial activities' exposure to world markets. This study aims to investigate agricultural credits' short-run and long-run effects on agricultural production using control variables such as foreign direct investments, inflation rate, and government expenditures. We found that credits to agriculture affect value-added agriculture positively in the long-run; specifically, when agricultural credits increase by 1%, value-added agriculture will increase by 0.19%; that is, an increase in credits to the agricultural sector leads to a significant increase in value-added agriculture, while FDI and government size both reduce agricultural value-added across countries. The findings of the pairwise causation test show that bidirectional causal links exist among almost all variables, validating feedback among agricultural value-added, credit to agriculture, FDI, government expenditures, and inflation.