The Impact of Institutional Credit on Agricultural Production in Pakistan

Abstract

Agricultural credit plays an important role in enhancing the agricultural productivity in developing countries like Pakistan. The study discusses various indicators of agricultural credit in Pakistan and presents results of estimated production function using institutional credit as one of the explanatory variables. Over the years, increased percentage of agricultural GDP has been disbursed as institutional credit. During the study period disbursement of institutional credit per cropped hectare also depicted an increasing trend in nominal terms. However, it declined in real terms from late 1980’s to early 1990s. Zarai Taraqiati Bank Limited (ZTBL)-- formerly known as Agricultural Development Bank of Pakistan (ADBP), provides the major share of institutional credit. The share of production loans in total loan advanced has been increasing during 1980-81 to 1986-87 and after mid 1990’s. It shows multiple shifts in credit policy from loans for fixed capital to advances for operational capital during the study period. The OLS estimates of the production function revealed that institutional credit affects agricultural production positively. Water availability at the farm gate, labor, and cropping intensity are the other important variables that affect agricultural output positively. However, the shocks like floods, cotton leaf curl virus (CLCV), and drought have caused significant decline in agricultural output during certain years.institutional credit; agricultural production; production function