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Agricultural credits and agricultural productivity: Cross-country evidence

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  • Seven, Unal
  • Tumen, Semih

Abstract

We present cross-country evidence suggesting that agricultural credits have a positive impact on agricultural productivity. In particular, we find that doubling agricultural credits generates around 4-5 percent increase in agricultural productivity. We use two different agricultural production measures: (i) the agricultural component of GDP and (ii) agricultural labor productivity. Employing a combination of panel-data and instrumental- variable methods, we show that agricultural credits operate mostly on the agricultural component of GDP in developing countries and agricultural labor productivity in developed countries. This suggests that the nature of the relationship between agricultural finance and agricultural output changes along the development path. We conjecture that development of the agricultural finance system generates entry into the agricultural labor market, which pushes up the agricultural component of GDP and keeps down agricultural labor productivity in developing countries; while, in developed countries, it leads to labor-augmenting increase in agricultural production. We argue that replacement of the informal credit channel with formal and advanced agricultural credit markets along the development path is the main force driving the labor market response.

Suggested Citation

  • Seven, Unal & Tumen, Semih, 2020. "Agricultural credits and agricultural productivity: Cross-country evidence," GLO Discussion Paper Series 439, Global Labor Organization (GLO).
  • Handle: RePEc:zbw:glodps:439
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    1. Michael R. Carter & Keith D. Wiebe, 1990. "Access to Capital and Its Impact on Agrarian Structure and Productivity in Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(5), pages 1146-1150.
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    Keywords

    Agricultural credits; productivity; labor markets; financial development;

    JEL classification:

    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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