article · Cogent Food & Agriculture
This study investigates the short-term and long-term impacts of agricultural credit and government subsidies on agricultural productivity in Ethiopia between 1990 and 2021. Using secondary data from the Food and Agriculture Organization and the World Bank, the analysis applies an autoregressive distributed lag model to capture dynamic relationships over time. The results demonstrate that in the short run, subsidies significantly enhance productivity, while credit provision shows a negative effect. Over the long run, however, this pattern reverses. Access to credit produces a positive, significant impact on productivity, whereas ongoing subsidies lead to negative productivity outcomes. The findings suggest that financial policies should prioritise expanding agricultural credit systems for lasting gains, whilst input or sector subsidies should serve purely as transitional, short-term measures to avoid hindering sustained agricultural growth.
Governments invest heavily in agricultural subsidies and loan schemes to stimulate food production. These findings reveal that relying on permanent subsidies can eventually harm productivity, whereas building reliable credit markets takes longer to yield results but generates lasting gains. This distinction helps policymakers structure public spending to ensure sustained agricultural output and food security.
The research serves primarily as policy guidance for public finance authorities and agricultural development banks rather than direct commercial development. Financial institutions and agritech credit platforms could use these insights to structure long-term lending products for farmers. The evidence is applied macroeconomic research, offering strategic frameworks for policy design rather than a market-ready tool.
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Agricultural credit and subsidies are crucial policies for improving agricultural productivity. The main objective of this study is to examine the effects of agricultural credit and subsidies on agricultural productivity in Ethiopia from 1990 to 2021, taking into account both short- and long-term relationships. We obtain secondary data from the Food and Agriculture Organization and the World Bank databases. The autoregressive distributive lag model to co-integration is applied to estimate the long- and short-run effects of agricultural credit and subsidies on productivity. The bound test results indicate that the variables have a long-term relationship. The findings revealed that in the short-run, credit provision affected productivity negatively but subsidies to agricultural sector showed a positive significant effect. However, in the long run, the effect of credit turned out to be positive and significant, whereas subsidies affected productivity negatively. It is recommended that the government design and implement policy measures that create better access to agricultural financing to enjoy long-run improvements in productivity. Similarly, the government should offer subsidies to the agricultural sector only during short-run periods and need to lift them gradually in the long run as their provision retards productivity in the long run.
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DOI: 10.1080/23311932.2024.2329118
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