NEXUS BETWEEN BANK AGRICULTURE CREDIT AND ECONOMIC DEVELOPMENT IN ETHIOPIA: ARDL MODEL APPROACH

Abstract

Agriculture financing is believed to play a catalytic role in consolidating farm businesses and increasing the productivity of scarce resources, particularly in developing nations. Agriculture has a critical part in economic growth because agriculture employs the bulk of the population in developing countries. This study examines the relationship between agricultural loans and economic development by using time series data from 1998 to 2020 and estimating an autoregressive regressive distributive lag model (ARDL). The study’s findings indicate that agricultural credit, human capital, life expectancy, and foreign direct investment have a long-term favourable effect on economic development (HDI). However, foreign direct investment has a significant detrimental effect in the near run. However, life expectancy and currency devaluation benefit economic progress. Joint adjustment to balance occurs rapidly. Thus, a long-run equilibrium relationship among the variables contained in the mode is confirmed by the considerable error correction time (ECT). Additionally, there is a bidirectional causal relationship between bank agriculture credits and economic development (HDI).