Do Foreign Direct Investment and Dual Banking’s Credit Support Agriculture Growth in Developing Eight Organization’s Member?

Document Type : Research Paper

Authors

1 Department of Resources and Environmental Economics, IPB University, Bogor, Indonesia

2 Department of Economics, IPB University, Bogor, Indonesia

3 Department of Islamic Economics, IPB University, Bogor, Indonesia

4 Department of Islamic Economics, TAZKIA Islamic University, IPB University, Bogor, Indonesia

10.22059/ier.2024.369583.1007882

Abstract

Agriculture sector needs to be supported as the most important sector feeds the world, including support from financial sector.  This paper analyzes the relationship between financial sector and agricultural sector.  In theoretical studies, there are different views regarding the relationship between financial sector and economic growth (finance growth nexus). The first view states that there is a relationship and the second view: there is no relationship between financial sector and economic growth. The study uses panel quarterly time series data from 2013Q01-2022Q04 and cross-section data from 7 countries as member of Developing Eight (D8) Organization. This study employs the dynamic panel analysis, Panel Autoregressive Distributed Lag (PARDL) - Pooled Mean Group (PMG) approach. The result shows that finance - agriculture growth nexus exists in Developing Eight. There is co- integration between Foreign Direct Investment for agriculture, agricultural credit, agricultural sharia financing, labor, and agriculture sector in the long run. FDI and agriculture credit from conventional banking has positive significant relationship in the long run, but agriculture sharia financing performs negative significant relationship. The growth of agriculture sector in the short run is supported by FDI, agricultural credit, and agricultural sharia financing.  The result varies across countries in the short run.  Agricultural credit from dual banking behave as complementary each other to support agriculture sector found in Malaysia and shows limited role in other country. This finding recommends a room of improvement to increase productivity in agriculture sector by optimizing financial sector.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 09 April 2024

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