Agricultural Credits and Agricultural Productivity: Cross-Country Evidence

34 Pages Posted: 10 Feb 2020

See all articles by Unal Seven

Unal Seven

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Semih Tumen

TED University; IZA Institute of Labor Economics

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.

Keywords: agricultural credits, productivity, labor markets, financial development

JEL Classification: J43, Q14, Q18, O47

Suggested Citation

Seven, Unal and Tumen, Semih, Agricultural Credits and Agricultural Productivity: Cross-Country Evidence. IZA Discussion Paper No. 12930, Available at SSRN: https://ssrn.com/abstract=3534478 or http://dx.doi.org/10.2139/ssrn.3534478

Unal Seven (Contact Author)

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Istiklal Cad. 10 Ulus
06100 Ankara, 06050
Turkey

Semih Tumen

TED University ( email )

Ziya Gokalp Bulvari No: 48
Kolej Çankaya, Ankara 06420
Turkey

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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