Threshold Effect of Inflation on Agricultural Growth: Evidence from Developing Countries

Abstract

Thepaperexamined the inflation-agricultural growth nexus in developing countries with the aim of identifying the inflation threshold that could benefit or harm the sector. We usedpanel 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 ascontrol variables. The results show that credit has an enhancing effect on agriculture while urbanization has a diminishing effect. More importantly, weestablished that the inflation threshold is 5.997 %. Below this threshold, the effect of inflation onagricultural growth is positive,while the effect above the threshold is negative and stronger.