Impact of Formal Credit on Agricultural Output: Empirical Evidence from Pakistan
Impact of Formal Credit on Agricultural Output: Empirical Evidence from Pakistan
Dilshad Ahmad1*, Muhammad Irfan Chani1 and Muhammad Afzal2
ABSTRACT
The purpose of this study is to analyze the impact of formal Agricultural Credit on Agricultural Output (AGGDP). The relationship among agricultural output and agricultural formal credit, cropped area, labor force participating in the agriculture sector, trade openness has been quantified through various econometric approaches in the study. Autoregressive Distributed Lag (ARDL) Bound testing approach has been applied to analyze the long run cointegration among variables, obtaining annual time series data from 1973 to 2014. An empirical estimation of ARDL approach has indicated the evidence of long-run cointegration of model. Empirical findings of the study indicate positive (5.178151) and significant relationship between agriculture credit and agricultural output. Labor participating in agriculture has positive (14.98381) yet insignificant relation to agricultural output while trade openness has negative (-39.64926) and significant impact on agricultural output. Similarly, the relationship between cropped area and agriculture output is positive (114.1869) and significant. Vector Error Correction Model (VECM) has employed to explore short-run dynamics of agriculture production. Long run equilibrium stability has reaffirmed the short run empirical estimates. Lengthy formal credit procedure, political and bureaucratic influence and misallocation of credit utilization are major constraints in lowering overall agriculture output. Adequate farmer’s friendly policies and proper legislative measures are necessary for the smooth flow of increasing agriculture output and overcoming financial constraints.
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