Bank credit and agricultural output in South Africa: A Cobb-Douglas empirical analysis.

Abstract

We empirically examine the impact of bank credit on agricultural output in South Africa using the Cobb-Douglas production function. We utilize time series data of agricultural output, bank credit, capital accumulation, labour and rainfall from 1970 2009. With agricultural output as the dependent variable, we determine OLS estimates of the Cobb-Douglas production function. We observe that bank credit has a positive and significant impact on agricultural output in South Africa. With other factors of production kept constant, a 1% increase in credit results in 0.6% increase in agricultural output. Capital accumulation is also observed to have a positive and significant impact on agricultural output, albeit lower than that of credit, as a 1% increase in capital accumulation results in 0.4% increase in output, other factors kept constant. In terms the Cobb-Douglas elasticities, the combined effect of credit (0.6%) and capital accumulation (0.4%) gives constant returns to scale, meaning that doubling the two inputs will double agricultural output.