Role of Commercial Banks in Agricultural Development: Evidence From Pakistan

Abstract

This paper discusses the role of commercial banks in the development of the agricultural sector in Pakistan especially, the role that institutional credit among others plays in agricultural productivity. Based on the annual time-series between 2000 and 2024, the study investigates the correlation between institutional credit, labor per hectare of land being cultivated, water supply on farms, level of crop intensiveness, policy rates and the value of agricultural GDP per hectare (AGDP). In pursuit of capturing the long-term and the short-term dynamics, the study used quantitative technique, namely the Autoregressive Distributed Lag (ARDL) model and another is the Ordinary Least Squares (OLS) regression. The results show that institutional credit has a statistically significant and positive effect on AGDP, which reiterates the importance of official credit tools as an effective means to promote output in agriculture. Conversely, water availability, agricultural labor, per acre are negatively associated with AGDP, whereas the crop intensity and policy rates give mixed results. Policy implications of the results include the following: First, policymakers ought to make it easier to access institutional credit, manage water resources, and overcome labor inefficiency to enhance sustainable and inclusive agricultural growth.