SOWING GROWTH WITH FINANCE: CROP-WISE IMPACTS OF AGRICULTURAL CREDIT ON FARM PRODUCTION IN PAKISTAN

Abstract

One of the ways to understand the development of the agricultural sector in Pakistan through the supply of agricultural credit is to see how it helps in the enhancement of the productivity of the farming sector through the provision of new inputs and production techniques. Therefore, this paper focuses on agricultural credit and its influence on the production of major and some selected minor crops in Pakistan, namely, wheat, rice, cotton, sugarcane, maize, tobacco, and bajra. The study used secondary data for the period 2015-2025, which was collected from the Ministry of Finance and the State Bank of Pakistan, to employ Structural Equation Modeling (SEM) in estimating the effects of agricultural credit for each crop. It is noted that in comparison to other estimation techniques, the SEM is preferred in that it allows for estimating various relationships at the same time as it incorporates errors of measurement and relationships of dependent and independent variables. The findings of the study show that agricultural credit positively impacts the production of each of the selected crops. It was also found that the most notable production for wheat, maize, and rice was that these input-intensive crops valued high in credit responsive production. Positive extended production was also noted in cotton, sugarcane, tobacco, and bajra. This shows the necessity for production-oriented credit policies in agriculture opposed to generalized credit extension policies. This research outlines the practical implications for farmers, banking institutions, and policymakers, emphasizing the necessity of precise credit allocation, adaptable loan disbursement systems, and increased financial inclusion. From this perspective, the study adds to the literature by identifying and assessing, on a comprehensive and disaggregated basis, the effectiveness of credit on crops, providing insights with policy relevance on sustaining the growth of agriculture and ensuring food security in Pakistan.