Abstract
The paper examined the inflation-agricultural growth nexus in developing countries with the aim of identifying the inflation threshold that could benefit or harm the sector. We used panel data from 1970 to 2019 and the dynamic panel threshold model which accounts for endogeneity. Aside from inflation and agriculture GDP growth, we included the foreign direct investment (FDI), domestic credit to the private sector, and urbanization as control variables. The results show that credit has an enhancing effect on agriculture while urbanization has a diminishing effect. More importantly, we established that the inflation threshold is 5.997 %. Below this threshold, the effect of inflation on agricultural growth is positive, while the effect above the threshold is negative and stronger.
Highlights
Agriculture is one of the key sectors in the economy of developing countries
The mid-section of the table demonstrates the influence of inflation on agricultural growth for both regime types. β1 indicates the marginal effect of inflation on agricultural growth in low inflation regime, while β2 indicates the marginal effect of inflation on agricultural growth in high inflation regime
There is a low inflation regime when the inflation rate is below the predicted threshold, and there is a high inflation regime when the inflation rate is above the predicted threshold
Summary
Agriculture is one of the key sectors in the economy of developing countries. Agriculture plays the biggest role by supplying raw materials such as cassava, fish, sugarcane, cotton lint and citrus for further processing. Agriculture growth has been identified as a necessary tool for alleviation and eradication of rural poverty and hunger (Kakwani, 1993; Ravallion and Datt, 1996; Thorbecke and Jung, 1996; Soloaga, 2006). Broad-based economic growth and development have been identified to be the off-shoot of agricultural growth throughout global history with linkages between farm and nonfarm economies generating widely based employment, income and growth
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