The Impact of Agricultural Credit on Rice Productivity

Abstract

This study investigates the impact of credit access on agriculture productivity in Indonesia using provincial level data. Credit access is deemed to have positive impact on productivity since it provides farmers with resources needed to start the production process. Thus, greater access to credit can induce agriculture production and support government program for food security which is very important for Indonesia, the fourth-largest country in the world in term of population. Indonesian government has given several incentives to broaden the access for agriculture credit. One of the incentives is through the implementation of credit programs either in term of interest rate subsidy or in term of guarantee scheme. Using panel data from 27 provinces between 2001 and 2009, this study finds that credit for agriculture has positive impact on rice productivity. Therefore, this finding suggests that government policy to broaden the access to credit market for farmers is of the keys to implement food security program. Moreover, this study also finds that educating farmers as well as increasing state budget for agricultural sector can be substantial in boosting rice productivity.