The impact of bank credit on agricultural growth (AgDP) in Tanzania

Abstract

This study analyzes the impact of agricultural credit on Tanzania's agricultural growth from 2005 to 2018, using ARDL and Markov switching regression models to capture both short-term and long-term effects, and fluctuations across different economic periods. Findings indicate a significant long-term positive impact of agricultural credit on agricultural GDP, whereby short -term effects are negative, highlighting the need for efficient credit use to optimize benefits. Additionally, the study identifies other significant determinants of agricultural GDP: the exchange rate positively influences long-term agricultural GDP; government spending positively affects it in the short-term; FDI boosts long-term agricultural growth but has a negative short-term impact; and previous season's agricultural production positively impacts agricultural GDP in both terms. The study suggests increasing agricultural credit supply, addressing exchange rate fluctuations, encouraging FDI, and promoting high- value crop specialization to enhance agricultural GDP in all terms. Recommendations include improving credit market efficiency and reducing bureaucratic inefficiencies to expedite credit disbursement.