Does credit boost agricultural performance? Evidence from Vietnam

Abstract

PurposeThis study investigates the short-run and long-run impacts of agricultural credit on Vietnam's agricultural GDP over the period 2004:Q4–2016:Q4, with the incorporation of agricultural labor, public investment and rainfall as important determinants of agricultural GDP.Design/methodology/approachThis study applies the indicator saturation (IS) break tests and the autoregressive distributed lag (ARDL) bounds test with structural breaks to examine the credit–agricultural performance nexus. The causal relationships among variables are explored through the Toda–Yamamoto Granger causality test.FindingsThe results indicate that agricultural credit positively influences agricultural GDP in both the short-run and long-run. A unidirectional causal relationship running from credit to agricultural GDP is confirmed. The results also discover the positive and significant effects of labor and rainfall on agricultural GDP in the long-run.Practical implicationsThe results imply that the government should focus on expanding agricultural credit as well as enhancing the efficiency of agricultural credit. Furthermore, formal credit institutions should be encouraged to work closely with farmers and agricultural enterprises to offer flexible lending periods and amounts to meet the real situation of agricultural production.Originality/valueThis study is the first to examine the credit–agricultural performance relationship at the macro-level in Vietnam. Based on the empirical results, the study provides crucial implications for policymakers to optimize the effectiveness of agricultural credit and enhance nationwide agricultural performance.