The Determinants Of Bank Credit On Agricultural Output In Ethiopia, ‘Time Series Analysis

Abstract

Increasing an agriculture credit has a crucial role in promoting agriculture activities and food security. In Ethiopia, agricultural credit constraints are the main problem that affects agricultural productivity and commercial banks in Ethiopia has dreaded to provide credit access to agricultural sectorial by the prospected financing agriculture has high potential risks. The analysis of macroeconomic and bank-specific variables that influence agricultural productivity and the performance of agricultural finance, as well as how agricultural finance influence agricultural productivity in Ethiopia's and the impacts of credit constraints on agricultural output, were the objectives of the study. To determine the effects of banks credit on agricultural output in Ethiopia over 25 years and used to determine the factors that influence agricultural credit provisions, performance of agricultural credits and the relationship between agriculture credit and agricultural output of Ethiopia. The result of regression showed that as one unit of total credit disbursed increased, the total contribution of agricultural gross domestic product can increase 3.87% and agriculture credit increased by one unit in a year, Agriculture gross domestic product can be increased by 3.34%. Also, an explanatory variable taken in the regression analysis has been stated that about 99.3% of the contribution of agricultural output to gross domestic product. The result of the study reflected that the bank credits positively influence agricultural productivity. Therefore, to promote the production capacity of agriculture, the financial inclusion or access to agricultural sectors might be reducing the constraints and burden of agriculture production. The study recommends both state owned and private commercial banks has to provide more credit accesses to improve the agricultural products and services by providing timely and easily accessed medium to long term credit with lower interest rate.