Impact of agricultural credit finance on food production in Nepal

Abstract

The institutional credit has always been perceived as a critical factor for agricultural development in Nepal through complementing working capital, easing liquidity and investment constraints. The present study has examined the trends and variations in institutional credit flow to agriculture in Nepal for the period 2005 to 2020 using compound annual growth rate. Further, impact of agricultural credit on food production was also assessed using time series data. The study is based on the secondary data collected from various published sources. Results indicated that institutional credit to agriculture in real terms has registered a significant positive growth during the past one and half decade and the highest annual growth was observed during 2007 and the overall compounding annual growth rate of sixteen year is 29.99 percent. The study further analyses the short run and long run impact of agricultural credit on food production in Nepal. This study used annual data covering the period 2005–2020. The autoregressive distributed lag (ARDL) approach is applied to explore the cointegration between underlying variables. The findings of the ARDL Long-Run Bounds Test suggest that there is long term relationship among food production, agricultural credit and cultivation land area. The empirical results reveal that food production, agricultural credit, and cultivating land area have a positive and significant impact on agricultural production in both the short-run and long-run. Therefore, the study has suggested for better access to agricultural credit to farmers for enhancing food production.It is desirable for both the government and the NRB to consider amendment current policies, investing more in actual farmers and enhance credit flow to the agriculture sector to ensure that they have access to the agricultural needs and facilities to drive agricultural transformation.

Keywords: food production; agricultural credit; CAGR; ARDL approach; Nepal