The Empirical Investigation of the Relationship between Banks’ Lending Rate and Coffee Export Growth in Tanzania

Raphael Mbunduki *

Dar es Salaam (DSM), Tanzania.

*Author to whom correspondence should be addressed.


Abstract

This paper examines the relationship between banks’ lending rate and coffee export growth in Tanzania by the help of Johansen Co-integration test and vector error correction (VECM) model. The research results suggested that there is a negative relationship between banks' lending rates and coffee export growth both in the short run and long run. In the long run, the study found that, a unit change in BLR results in a 0.1936 percentage point decrease in the coffee export growth; while, in the short run, the study suggests that, a unit change in banks’ lending rate results in a 0.0303 percentage decrease of the coffee export growth, ceteris paribus.

This result supports the argument that, as the cost of loans became cheaper (the low-interest rate charged on loans by commercial banks) will attract farmers to borrow for purchasing farm inputs and expanding agricultural production and hence this will intern enhance export growth, and the high-interest rate correlated with inhibited growth in the coffee exports growth.

Based on the results obtained, this study recommends that, the monetary policy of the country periodically has to influences outcomes in the agriculture sector especially exportable crops such as coffee through easier monetary conditions. This will promise the availability of agricultural financing through borrowing from lending institutions at an affordable borrowing rate. Along with this, the availability of farm inputs especially fertilizers, mode seedlings, and pesticides has to be assured to farmers; which will undoubtedly produce the desired impact and lead to optimum productivity and crop quality to enhance exports.

Keywords: Coffee export growth, bank lending rate, inflation rate, discount rate, money supply growth, repurchase agreement


How to Cite

Mbunduki , Raphael. 2023. “The Empirical Investigation of the Relationship Between Banks’ Lending Rate and Coffee Export Growth in Tanzania”. South Asian Journal of Social Studies and Economics 20 (3):1-15. https://doi.org/10.9734/sajsse/2023/v20i3708.

Downloads

Download data is not yet available.

References

Tanzania Coffee Board, Annual Report obtained from Tanzania Coffee Board website; 2020.

BOT, Annual Report obtained from the Bank of Tanzania website; 2020.

Marwa N. Unlocking Coffee Production in Tanzania: What Does the Future Holds. Policy Brief. 2019;7.

World Bank, Breaking Down the Barriers to Regional Agricultural Trade in Central Africa; 2018.

Muroyiwa B, Sitima I, Sibanda K, Mushunje A. Monetary policy actions and agricultural sector outcomes: Empirical evidence from South Africa; 2014.

Athanasius N. An analysis of banks’ credit and agricultural output in Nigeria: 1980-2014. International Journal of Innovative Finance and Economic Research. 2017;5(1):54-66.

Lechuga Montenegro J, Vega Miranda F. The Impact of Interest and Exchange Rates on Mexican Agricultural Exports: A Study for the Period 1993-2017. Textual: Análisis Del Medio Rural Latinoamericano. 2018; 72:125-149.

Ita AJ, Owui HO, Dunsin OM, Ita RI. Commercial Banks’ Lending and The Growth of Agricultural Sector in Nigeria. Iiard International Journal of Banking and Finance Research. 2020;6(3).

Adeola O, Ikpesu F. An Empirical Investigation of the Impact of Bank Lending On Agricultural Output in Nigeria: A Vector Autoregressive (VAR) Approach. The Journal of Developing Areas. 2016;50(6):89-103.

George W. Export performance of the horticultural sub-sector in Tanzania. In Trade and Investment in East Africa. Springer, Singapore. 2022;293-313.

Samoei SK, Kipchoge EK. Drivers of Horticultural Exports in Kenya. Journal of Economics and Financial Analysis. 2021;4(2):27-44.

Solanki S, Singh S, Murthy IK. Agricultural Exports and Performance of Agricultural Firms in India: An Empirical Analysis using System GMM. Asian Economic and Financial Review. 2022;12(2):121-131.