Gujarat Journal of Extension Education (ISSN 2322-0678)

Title: ANALYSING THE EFFECTS OF CREDIT ON TOBACCO PRODUCTION

Authors: Clemence Mucharedzeyi and Elvis Munetsi

Publisher: Society of Extension Education Gujarat

Keywords: agricultural credit production, tobacco

Volume: 33

Issue: 2

Year: June 2022

DOI: https://doi.org/10.56572/gjoee.2022.33.2.0029

Abstract: This study examined how agricultural credit relates to tobacco production in Zimbabwe between 1980 and 2012. Time series data from FAO was used. Major crops like tobacco and cotton have been facing financial challenge in their production. This is examined through a system of equations in which both variables enter the vector auto-regression (VAR, hereafter) as endogenous variables. According to the results, the value of the coefficient of determination is 0.82 indicating that the estimated model explains about 82% variation in tobacco output while 18% variation is accounted for by the error term. This makes the estimated model capable of explaining variation in tobacco production in the Zimbabwean context. The result means that if tobacco producer price increases by 100%, tobacco output will increase by a magnitude as low as 0.01% holding other explanatory variables constant. The result suggests that if agricultural credit increases by a magnitude of 10%, tobacco output will increase by almost 6% holding constant the producer price and the increase is statistically significant at 1% level of significance. A positive shock in agricultural credit is found to facilitate a steady increase in tobacco output in the first five years. Interesting is that the magnitude of increase in response to the shock reaches a peak of almost 4.5% which is close to the 5.6 long run effect of agricultural credits on tobacco. The impulse response functions on the other hand confirmed that tobacco output significantly responds to unexpected shocks in agricultural credits with the effect lasting for at most 5 years. Therefore the government needs to promote the banking and micro-finance sector to boost the economy through growing tobacco.

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