Impact of credit market conditions on agriculture productivity in Sub-Saharan Africa

Abstract

PurposeThis study conducts an empirical analysis of the relationship between credit market conditions and agriculture output in Sub-Saharan Africa.Design/methodology/approachThis paper uses a two-stage least square instrumental variable and difference generalised method of moments dynamic panel model because potential reverse causation and endogeneity are addressed.FindingsThe findings show that better credit market conditions contribute to agriculture productivity. The results also show that better infrastructure and availability of agriculture inputs are associated with productivity improvements. The empirical results are robust when an alternative measure of agriculture productivity is used.Research limitations/implicationsAn important research agenda for future studies will be to consider alternative measures of credit market conditions and other intervening variables that influence the nexus. Besides, other methods that account for cross-sectional dependence could also be considered as the impact of credit on agriculture varies across the sub-regions.Practical implicationsThe findings make a case for enhancing credit market access to boost agriculture productivity. There is also a need to implement financial education programs for farmers and ensuring continuous engagement with farmers.Originality/valueAlthough the issue of agriculture finance has been well documented in the literature, few studies have estimated the elasticity of agriculture productivity to changes in credit conditions. Also, our consideration of the intervening role of infrastructure amongst others is an area that has remained relatively unexplored.