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Agricultural credit and economic growth in rural areas

Author

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  • Valentina Hartarska
  • Denis Nadolnyak
  • Xuan Shen

Abstract

Purpose - – In this paper, the authors set out to establish if there is a link between finance and economic growth in rural areas. The purpose of this paper is to evaluate the relation between credit by major lenders in rural areas – commercial banks and Farm Credit System (FCS) institutions – and economic growth for the period 1991-2010. Design/methodology/approach - – The motivation for this work comes from empirical studies showing a link between economic development and financial system development as well as from work which highlights the positive role of long-term finance provided by banks. The authors use two alternative panel data sets and fixed effects models to estimate the causal effect of credit supply (with lagged explanatory variables) on agricultural GDP growth per rural resident. Findings - – The authors find a positive association between agricultural lending and agricultural GDP growth per rural resident with additional billion in loans (about a third of the actual average) associated with 7-10 percent higher state growth rate with this association stronger during the 1990s. Regional data confirm these results. The results point to a positive link between credit and economic growth in rural areas during that period, attributable to the lending by FCS institutions and by commercial banks. Research limitations/implications - – Data availability limits the scope of this paper. The authors use state level balance sheet data available for the 1991-2003 period and annual data for 2003-2010 period. An additional regional data set is constructed for 1991-2010 with more aggregated data for the ten USDA agricultural production regions. The small number of panels limits the ability to use more sophisticated econometric models and the choice of dependent variables that captures economic growth. Practical implications - – By provides evidence that agricultural finance and in particular lending contribute significantly to the growth of US agriculture, this paper contributes to the policy debate on weather support for agricultural finance initiatives is justified. Originality/value - – The authors are not aware of another study that has linked agricultural lending by commercial banks and FCS institutions to growth in rural areas in the USA.

Suggested Citation

  • Valentina Hartarska & Denis Nadolnyak & Xuan Shen, 2015. "Agricultural credit and economic growth in rural areas," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 75(3), pages 302-312, September.
    • Handle: RePEc:eme:afrpps:v:75:y:2015:i:3:p:302-312
    DOI: 10.1108/AFR-04-2015-0018
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    Citations

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    Cited by:

    1. Cosimo Magazzino & Marco Mele & Fabio Gaetano Santeramo, 2021. "Using an Artificial Neural Networks Experiment to Assess the Links among Financial Development and Growth in Agriculture," Sustainability, MDPI, vol. 13(5), pages 1-15, March.
    2. Tanni Roy & Md. Emran Hossain & Md. Jahid Ebn Jalal & Jiban Krishna Saha & Eshrat Sharmin & Md. Akhtaruzzaman Khan, 2021. "Effects of credit on national and agricultural GDP, and poverty: a developing country perspective," SN Business & Economics, Springer, vol. 1(10), pages 1-20, October.
    3. Amr Khafagy & Mauro Vigani, 2023. "External finance and agricultural productivity growth," Agribusiness, John Wiley & Sons, Ltd., vol. 39(2), pages 448-472, March.
    4. Omobolaji Omobitan & Aditya R. Khanal, 2022. "Examining Farm Financial Management: How Do Small US Farms Meet Their Agricultural Expenses?," JRFM, MDPI, vol. 15(3), pages 1-15, March.
    5. Peterson K. Ozili & Jide Oladipo & Paul Terhemba Iorember, 2022. "Effect of abnormal credit expansion and contraction on GDP per capita in ECOWAS countries," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(3), November.
    6. Mohammed AL Mahish, 2016. "The Impact of Financing on Economic Growth in Saudi Arabia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(8), pages 1-1, August.
    7. Abiola Ayopo BABAJIDE & Funso Abiodun OKUNLOLA & Adedoyin Isola LAWAL & Victoria Bosede AKINJARE & Bukola Bose LAWAL-ADEDOYIN, 2021. "Financial Inclusion: Implication on Per Capita Income in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(8), pages 603-617, August.
    8. Natalia Vasylieva, 2019. "Improvement of Agricultural Management: Functional Comparative Approach," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 15(1), pages 227-238.
    9. Gulnar Koishybaevna Lukhmanova* & Kuralay Sarsembayevna Sakibaeva & Meirambala Beisembekovna Seisekenova & Roza Esengalievna Kuralbayeva & Moldir Seitkyzy Orysbayeva, 2018. "Improving the Competitiveness of Crop Production in the Republic of Kazakhstan," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 178-181:3.
    10. Popogbe Oluwaseyi & Dauda Risikat, 2020. "Agriculture Financing and Growth Performance in Nigeria: Pre-2000 and Post-2000 Analyses," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 23(75), pages 16-37, March.
    11. Tiken Das & Pradyut Guha & Diganta Das, 2021. "Do the Heterogeneous Determinants of Repayment Affect Differently across Borrowers of Diverse Credit Sources in Rural Assam? A Double Hurdle Approach," Journal of Development Policy and Practice, , vol. 6(2), pages 188-209, July.
    12. Bretford Griffin & Valentina Hartarska & Denis Nadolnyak, 2020. "Credit Constraints and Beginning Farmers’ Production in the U.S.: Evidence from Propensity Score Matching with Principal Component Clustering," Sustainability, MDPI, vol. 12(14), pages 1-12, July.
    13. Laura Brad & Gabriel Popescu & Alina Zaharia & Maria Claudia Diaconeasa & Daniela Mihai, 2018. "Exploring the Road to Agricultural Sustainability by Assessing the EU Debt Influencing Factors," Sustainability, MDPI, vol. 10(7), pages 1-46, July.

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    Keywords

    Economic growth; Agricultural finance;

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