Impact of formal credit on agricultural output: Evidence from Pakistan

Abstract

In the current study, we have analyzed the impact of formal credit on agricultural output : Evidence from Pakistan. by using secondary data from 1996 to 2015. Augmented Dickey Fuller (ADF) test was applied to check the stationarity of the data. Contrarily, the Johansen Co-integration test (Trace Statistic) was used to find out whether there exists a long run relationship between formal credit and agricultural output. The method of (OLS) was used to estimate the impact of formal credit on agricultural output. The empirical regression results indicate that the explanatory variable (formal credit) was statistically with coefficient of 0.860350. This means 1% increase in credit will increase the agricultural output by 0.86%. It is clear that impact of formal credit on agricultural output has positive and significant. Therefore, our study suggests that the procedure of credit should be made simple and flexible and financial institutions should launch crop insurance scheme in case of crop failure by flood, draught, pest attack, and heavy rains. Also Government of Pakistan should support small farmers through credit schemes on affordable interest rate. It will helpful in raising farm productivity and the standard of living of the small farmers. Key words: Formal credit, agricultural output (value added), Pakistan.

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