Cointegration Analysis of Agricultural Growth and Financial Inclusion in Ghana

Abstract

Agriculture remains the foundation of economic growth for any economy irrespective of their level of development. Being aware of the imperative role of finance in the endogenous growth model, it is admitted that access and usage of finance is critical for the growth of the agriculture sector. Access to and usage of financial services would enable the incorporation of rural farmers into the financial system. In the light of this revelation, this paper examined Cointegration Analysis of Agricultural Growth and Financial Inclusion in Ghana. Time series data from the period of 1980-2014, Johansen Cointegration approach coupled with Fully Modified Ordinary Least Square method (FMOLS) for the estimation of long-run relationship between agriculture growth and financial inclusion in Ghana using Eviews 9 was used. The study revealed that, domestic credit to private sector as proxied for usage has an inverse relationship but significant. The paper also revealed that lending interest rate proxy for accessibility of financial services to farmers portrayed significantly positive impact on the growth of agriculture. As provision of financial services alone cannot enable rural farmers attain financial inclusion, there is an urgent need for the provision of domestic credit to the private sector as they help promote economic growth implying that the better the private sector gets, the bigger role they played in the economy. Government should ensure that lending interest rate of both financial and non-financial institutions that support agriculture sector is flexible to enable farmers to easily have access to capital for expansion.