Banking Sector Development and Agricultural Productivity in Central African Economic and Monetary Community (CEMAC)

Abstract

: There is high pressure for investment capital and financial services for agricultural activities necessary for poverty reduction, economic growth, sustainable development and food security. This study investigated the long-term causation between banking sector development and agricultural productivity in the six Central African Economic and Monetary Community (CEMAC) states from 1990 to 2018, hypothesizing no causation between banking sector and agriculture output. With the autoregressive distributed lag (ARDL) model and vector error correction model (VECM), the study demonstrates that banking sector and agricultural productivity in the CEMAC region are related. It implies long-run relationship exists between banking sector and agricultural productivity in the CEMAC zone. The results reveal that bidirectional causality exists between banking sector and agricultural productivity in the CEMAC region. This is insinuating that in the CEMAC region, agricultural productivity and banking sector development are operating in mutualism. The findings indicate the reason to establish the banking sector using proper macroeconomic, legal and regulatory policies to boost agricultural productivity by creating incentive systems that channel more credit to agricultural investment and promoting the banking system.