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Analyzing the effective role of formal credit and technological development for rice cultivation

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Abstract

We investigated the short-term (ST) and long-term (LT) effects of formal credit, technological development (via improved quality seeds, and use of chemical fertilizers) on rice cultivation in Nepal over the period 1991 to 2019. The ARDL bounds testing co-integration was applied to estimate the long-term association between formal credit, technological development, cultivated area, energy consumption, and rice cultivation. Simultaneously, the VECM method was applied to discover the direction of the causal association between the considered variables. The findings were as follows: (1) the present study verified a long-term co-integration connection between the variables. (2) Formal credit significantly increased rice cultivation in the LT and ST. (3) Technological development factors such as improved quality seeds significantly augmented rice cultivation only in the ST. (4) Correspondingly, chemical fertilizers significantly enhanced rice cultivation in LT and ST. (5) The causality outcomes confirmed a strong LT impact of all variables on rice production. (6) The ST bidirectional causality runs from formal credit and cultivation area to rice cultivation, whereas the causal association of the remaining variables is uni-directional. (7) Additionally, the outcomes of IRF and VDM again confirmed that all factors influence rice cultivation in LT. This study verified that credit played a dynamic role in enhancing rice production and improving food security in Nepal. Consequently, based on our findings, we recommend efforts to increase rice production and improve credit supply in farming communities through financial institutions at flexible interest rates and ensure proper credit utilization.

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Fig. 1

Source: World Bank (2018)

Fig. 2

Source: World Bank (2018)

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Notes

  1. Ministry of Finance. 2017. “Economic Survey 2017/18, Singha Darbar, Kathmandu, Nepal.

Abbreviations

ARDL:

Autoregressive distributed lag

GDP:

Gross domestic product

VECM:

Vector error correction model

ADF:

Augmented dickey-fuller

P-P:

Phillips-Perron

IRF:

Impulse response function

VDM:

Variance decomposition method

NGOs:

Non-governmental organizations

CUSUM:

Cumulative sum of recursive residuals

CUSUMSQ:

Cumulative sum of squared recursive residuals

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Authors and Affiliations

  1. College of Economics, Sichuan Agricultural University, Chengdu, 611130, China

    Abbas Ali Chandio, Ghulam Raza Sargani & Martinson Ankrah Twumasi

  2. School of Economics, Lanzhou University, Lanzhou, 730000, China

    Fayyaz Ahmad

  3. Postdoctoral Station of Management Science and Engineering, College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing, 211106, China

    Asad Amin

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  1. Abbas Ali Chandio
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Ali Chandio, A., Ahmad, F., Raza Sargani, G. et al. Analyzing the effective role of formal credit and technological development for rice cultivation. Asia-Pac J Reg Sci 6, 683–711 (2022). https://doi.org/10.1007/s41685-022-00240-z

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