Bank Credit And Agricultural Output In South Africa: A Cobb-Douglas Empirical Analysis

Abstract

We empirically examine the impact of bank credit on agricultural output in South Africa using the Cobb-Douglas production function. We utilize time series data of agricultural output, bank credit, capital accumulation, labour and rainfall from 1970 2009. With agricultural output as the dependent variable, we determine OLS estimates of the Cobb-Douglas production function. We observe that bank credit has a positive and significant impact on agricultural output in South Africa. With other factors of production kept constant, a 1% increase in credit results in 0.6% increase in agricultural output. Capital accumulation is also observed to have a positive and significant impact on agricultural output, albeit lower than that of credit, as a 1% increase in capital accumulation results in 0.4% increase in output, other factors kept constant. In terms the Cobb-Douglas elasticities, the combined effect of credit (0.6%) and capital accumulation (0.4%) gives constant returns to scale, meaning that doubling the two inputs will double agricultural output.

Bank Credit And Agricultural Output In South Africa: Cointegration, Short Run Dynamics And Causality

“…Similarly, a 1% increase in bank credit will result in a 0.49% increase in agricultural output holding other factors in the model constant. Similar results were obtained by Bashir (2010), Ahmad (2011) and Chisasa and Makina (2013) for South Africa using the Cobb-Douglas model.…”

“…The main emphasis of this debate has centred on the impact of institutional credit on growth in agricultural output. Several empirical studies have adopted the Cobb-Douglas (1928) production function to estimate agricultural output function (Enoma, 2010;Sial et al, 2011;Chisasa and Makina, 2013). These studies have largely found credit to have a positive impact on agricultural output.…”

“…It seeks to establish the causal relationship between the supply of credit to the agricultural sector and agricultural output as well as investigating whether the two are cointegrated and have a short-run relationship. This article is the first one for South Africa with previous studies either having focused on the credit constraints facing the agricultural sector, particularly smallholder farmers (Lahiff and Cousins, 2005;Chisasa and Makina, 2012) or examined the relationship between credit and agricultural output (Wynne and Lyne, 2003;Chisasa and Makina, 2013).…”

Co-benefits and trade-offs between agriculture and conservation: A case study in Northern Australia

“…The simplest types -Cobb-Douglas production functions -are the most widely used (Chisasa and Makina, 2013), but do not cope with complex systems like those in Fig. 2.…”

A review on trade-off analysis of ecosystem services for sustainable land-use management

“…The Cobb-Douglas Production functions are the most widely used types to depicts the production theory (Chisasa and Makina, 2013), while it cannot cope with the complex systems that with multiple inputs/multiple outputs production systems that influenced by natural resources, external environmental attributes, and the preferences of land managers. To address the multiple-inputs/multiple outputs production functions, the efficiency frontier method has become popular (Grosskopf et al, 1992), which can be traced back to the ideas put forward by Farrell (Farrell, 1957).…”