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Effects of credit on national and agricultural GDP, and poverty: a develo** country perspective

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Abstract

A develo** country's economy, such as Bangladesh's, mainly focuses on agriculture, and credit plays a vital role in economic development and poverty alleviation. Therefore, this study aims to narrate the effects of credit on the national Gross Domestic Product (GDP), agricultural GDP, and poverty. Forty-three years' data (from 1976 to 2018) on credit, GDP, and poverty are collected from different secondary sources, whereas four prominent credit disbursement organizations are considered for this study. A fixed-effect model is employed to reveal the effect of credit. The study finds that credit has significant positive effects on both national and agricultural GDP. An increase in the amount of loans, number of loanees, and number of banks' branches indicate an increasing number of people getting access to finance, which would increase their production-related activities and eventually contributed to increasing GDP. The study also finds that credit has a significant favorable effect on poverty alleviation. The findings highlight the importance of credit in Bangladesh and other emerging economies to flourish the economy and ease poverty. Therefore, the study suggests that financial institutions should expand their credit programs for rural entrepreneurs and farmers to ensure sustainable rural development as well as economic development.

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Fig. 1

Source: Bangladesh Bank annual report 2019

Fig. 2

Source: WDI 2019

Fig. 3

Source: WDI 2019

Fig. 4

Source: BBS 2018a

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Data availability

Data included in the article are available from the corresponding author on reasonable request.

Notes

  1. This study considered only “rural credit”, which is taken by the rural households for the purpose of agricultural activities or operating small and medium business in rural areas. The rural people are in most adverse situation on taking loan because of limited number of credits providing institutions operated in rural areas but the urban manufacturing industries can take loan from any commercial bank or non-bank financial institutions (NBFIs) due to easy accessibility. Therefore, this research particularly focused on rural credit and the institutions provide credit in rural areas.

  2. VIF was 4.12, 5.51 and 1.28 for amount of loan, number of members and number of branches, respectively, in model 1 and 2 while it was 3.24, 5.59 and 5.99 for amount of loan, number of members and number of branches, respectively, in model 3.

  3. Domestic production, investment and consumption influence the others components of national GDP (e.g., government spending, net export, etc.) directly or indirectly.

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Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

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Authors and Affiliations

  1. Department of Agricultural Finance and Banking, Sylhet Agricultural University, Sylhet, Bangladesh

    Tanni Roy & Jiban Krishna Saha

  2. Department of Agricultural Finance and Banking, Bangladesh Agricultural University, Mymensingh, 2202, Bangladesh

    Md. Emran Hossain

  3. WaterAid Bangladesh, Dhaka, Bangladesh

    Md. Jahid Ebn Jalal

  4. South Asian Network on Economic Modeling (SANEM), Dhaka, Bangladesh

    Eshrat Sharmin

  5. Department of Agricultural Finance and Banking, Bangladesh Agricultural University, Mymensingh, Bangladesh

    Md. Akhtaruzzaman Khan

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  1. Tanni Roy
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Roy, T., Hossain, M.E., Jalal, M.J.E. et al. Effects of credit on national and agricultural GDP, and poverty: a develo** country perspective. SN Bus Econ 1, 140 (2021). https://doi.org/10.1007/s43546-021-00146-6

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