How agricultural credit and subsidies impact agricultural productivity in Ethiopia: Empirical evidence using ardl model

Abstract

Agricultural credit and subsidies are crucial policies for improving agricultural productivity. The main objective of this study is to examine the effects of agricultural credit and subsidies on agricultural productivity in Ethiopia from 1990 to 2021, taking into account both short- and long-term relationships. We obtain secondary data from the Food and Agriculture Organization and the World Bank databases. The autoregressive distributive lag model to co-integration is applied to estimate the long- and short-run effects of agricultural credit and subsidies on productivity. The bound test results indicate that the variables have a long-term relationship. The findings revealed that in the short-run, credit provision affected productivity negatively but subsidies to agricultural sector showed a positive significant effect. However, in the long run, the effect of credit turned out to be positive and significant, whereas subsidies affected productivity negatively. It is recommended that the government design and implement policy measures that create better access to agricultural financing to enjoy long-run improvements in productivity. Similarly, the government should offer subsidies to the agricultural sector only during short-run periods and need to lift them gradually in the long run as their provision retards productivity in the long run.

Keywords:

• agricultural credit
• agricultural subsidy
• agricultural productivity
• Ethiopia

Reviewing Editor:

• manuel tejada, universidad de sevilla, spain

Subjects:

• Economics
• Finance
• Environmental Economics

Acknowledgment

Not applicable.

Disclosure statement

There are no conflicts of interest between authors.

Author contribution

All authors in this paper have variously contributed to the writing and editing of the manuscript. The manuscript was produced, examined, evaluated and the final report was written by the first author -Lemane Gebeyehu. The second author - Amsalu Bedemo participated significantly in the analysis and oversaw, reviewed, and provided feedback on the draft manuscript.

Data availability

Data available on request from the authors.