The finance-growth nexus in South Africa’s agricultural sector: a structural equation modeling approach.

Abstract

This paper examines the relationship between finance and growth in the agricultural sector in South Africa using a structural equation model (SEM) approach. A total of 500 smallholder farmers were surveyed in the Mpumalanga and North West Provinces using a structured questionnaire. Data from the 362 responses received was captured in the Sta-tistical Package for Social Sciences (SPSS) and analyzed using the Analysis of Moment Structures (AMOS). It was observed that short-term debt and long-term debt contribute to growth in the farmers’ output. This is achieved through the acquisition of improved seed technologies and pesticides using short-term debt on the one hand. On the other, long-term debt is used to acquire capital equipment used on the farm. Furthermore, labor was observed to have a positive and significant influence on the farmer’s output growth. The implications of the study are that farmers should use more long-term debt than short-term debt to maximize productivity. These results support policies directed at increasing credit supply to farmers in South Africa.