How agricultural credit and subsidies impact agricultural productivity in Ethiopia: Empirical evidence using ardl model

Abstract

Agricultural credit and subsidies are crucial policies for improving agricultural productivity. The main objective of this study is to examine the effects of agricultural credit and subsidies on agricultural productivity in Ethiopia from 1990 to 2021, taking into account both short- and long-term relationships. We obtain secondary data from the Food and Agriculture Organization and the World Bank databases. The autoregressive distributive lag model to co-integration is applied to estimate the long- and short-run effects of agricultural credit and subsidies on productivity. The bound test results indicate that the variables have a long-term relationship. The findings revealed that in the short-run, credit provision affected productivity negatively but subsidies to agricultural sector showed a positive significant effect. However, in the long run, the effect of credit turned out to be positive and significant, whereas subsidies affected productivity negatively. It is recommended that the government design and implement policy measures that create better access to agricultural financing to enjoy long-run improvements in productivity. Similarly, the government should offer subsidies to the agricultural sector only during short-run periods and need to lift them gradually in the long run as their provision retards productivity in the long run.