The Empirical Investigation of the Relationship between Banks’ Lending Rate and Coffee Export Growth in Tanzania

Abstract

This paper examines the relationship between banks’ lending rate and coffee export growth in Tanzania by the help of Johansen Co-integration test and vector error correction (VECM) model. The research results suggested that there is a negative relationship between banks' lending rates and coffee export growth both in the short run and long run. In the long run, the study found that, a unit change in BLR results in a 0.1936 percentage point decrease in the coffee export growth; while, in the short run, the study suggests that, a unit change in banks’ lending rate results in a 0.0303 percentage decrease of the coffee export growth, ceteris paribus. This result supports the argument that, as the cost of loans became cheaper (the low-interest rate charged on loans by commercial banks) will attract farmers to borrow for purchasing farm inputs and expanding agricultural production and hence this will intern enhance export growth, and the high-interest rate correlated with inhibited growth in the coffee exports growth. Based on the results obtained, this study recommends that, the monetary policy of the country periodically has to influences outcomes in the agriculture sector especially exportable crops such as coffee through easier monetary conditions. This will promise the availability of agricultural financing through borrowing from lending institutions at an affordable borrowing rate. Along with this, the availability of farm inputs especially fertilizers, mode seedlings, and pesticides has to be assured to farmers; which will undoubtedly produce the desired impact and lead to optimum productivity and crop quality to enhance exports.