Determining the Optimal Period of Islamic Banking Contract-Based Facilities Impact on Agricultural Value Added in Iran in the Framework of BVAR Model and SSVS-Wishart Prior

Document Type : Research Paper

Author

• Mahdi Ghaemi asl

Assistant Professor, Faculty of Economics, Kharazmi University, Tehran, Iran

10.30495/jae.2022.22335.2061

Abstract

In this study, a Bayesian Vector Auto Regression (BVAR) model with SSVS-Wishart prior in the period 1971:1-2017:4 was used to determine the optimal period of credit impact of banking system on agricultural sector in Iran. The results show that the optimal period of positive impact of banking system facilities is between 3 to 5 seasonal periods. Therefore, the impact of banking facilities on the agricultural sector is not sustainable, but due to the short grace period, necessity of repay the principal and interest of the facility and probable default and late payment fees, these facilities can also modify agricultural production and value added in the long run (after six seasonal periods). Therefore, given the centrality of banking facilities in financial markets in Iran, it is suggested that the structure of bank facilities (including facility rate, repayment period, grace period, interest rate and type of collateral and guarantees) should be specified in a way that increase the period of positive impact of banking facilities on agricultural value added

Keywords

• Banking Facilities
• Value Added
• Agriculture
• Bayesian Analysis
• SSVS-Wishart

---

References

1. Schumpeter JA, Entrepreneurship as Entrepreneurship: The social science view, 2000; 1 (1): 51-75.

http://people.soc.cornell.edu/swedberg/2000%20The%20Social%20Science%20View.pdf

2. Levine R, Finance and growth: theory and evidence. Handbook of economic growth, 2005; 1 (1): 865-934. [DOI:1016/S1574-0684(05)01012-9]
3. Uzawa H, Optimum technical change in an aggregative model of economic growth. International economic review, 1965; 6 (1): 18-31. [DOI:10.2307/2525621]
4. Lucas R, On the Mechanics of Economic Development. Journal of Monetary Economics, 1988; 22 (1): 3-42. [DOI: 10.1016/0304-3932(88)90168-7].
5. Benhabib J, Perli R, Uniqueness and indeterminacy: on the dynamics of endogenous growth. Journal of economic theory, 1994; 63 (1): 113-42. [DOI: 1006/jeth.1994.1035]
6. Were M, Nzomoi JN, Rutto N, Assessing the impact of private sector credit on economic performance: Evidence from sectoral panel data for Kenya. International Journal of Economics and Finance, 2012; 4(3), 182-204. http://ccsenet.org/journal/index.php/ijef/article/view/15160/10277
7. Litterman RB, A random walk, Markov model for the distribution of time series. Journal of Business & Economic Statistics, 1983; 1 (2): 169-173. [DOI: 1080/07350015.1983.10509336]
8. Qureshi SK, Shah AH, Vosti SA, A Critical Review of Rural Credit Policy in Pakistan [with Comments]. The Pakistan Development Review, 1992; 31 (4): 781-801. https://www.jstor.org/stable/41259600
9. Mankiw NG, Principles of Economics (Ed.). Mason, United States: 2007; Thomson South-Western.

 https://books.google.com/books?id=KQfFDwAAQBAJ

10. Zuberi HA, Production function, institutional credit and agricultural development in Pakistan. The Pakistan Development Review, 1989; 1 (7): 43-55. https://www.jstor.org/stable/41259212
11. Chizeri A, Zare A, Investigating the effects of credits allocated to the agricultural sector of Mazandaran province by national and agricultural banks. Agricultural Economics and Development, 2000; 8 (32): 69-92. https://www.sid.ir/fa/Journal/ViewPaper.aspx?ID=20746
12. Bakhtiari P, Paseban F, The role of bank credits in the development of job opportunities: a case study of the Agricultural Bank of Iran. Agricultural Economics and Development. 2013; 12 (46): 73-106. https://www.sid.ir/fa/journal/ViewPaper.aspx?id=6604
13. Biniyaz A, Mohammadi H, The effect of the degree of trade openness of the agricultural sector on food security in Iran (autoregressive approach with distributive breaks). Agricultural Economics Research. 2017; 10 (38), 81-104. http://jae.marvdasht.iau.ir/article_2833.html
14. Movahed A, Abolhasani A, Pourkazmi MH, Mousavi Jahormi Y, Designing the optimal resource allocation model in Iran's banking system. Economic Modeling, 2016; 11 (40): 115-136. https://eco.firuzkuh.iau.ir/article_604883.html?lang=fa
15. Kazemzadeh L, Abu-Nouri A, Estimation of supply and demand functions of Iranian date export using simultaneous equation system model. Journal of Economic Research, 2006; 54 (17): 58-23. http://agrijournals.ir/article_58917.html
16. Karbasi A, Ahmadi H, Investigating the effects of exchange rate fluctuations on the export volume and price of Iranian raisins. Knowledge and Development Journal, 2009; 7 (32): 147-163. https://danesh24.um.ac.ir/article_26617.html
17. Tawakoli A, Sayah M, The effect of exchange rate fluctuations on the country's economic activities. Quarterly Journal of Money and Economics. 2009; 4 (11): 77-58. https://jmbr.mbri.ac.ir/article-1-46-fa.html
18. Mehrabi Beshrabadi H, Javadan A, The effect of exchange rate uncertainty on the employment of Iran's agricultural sector. Journal of Agricultural Economics and Development, 2011: 20 (77): 63-79. https://journals.areeo.ac.ir/article_58737.html
19. Sharifi Renani H, Tawakli A, Hanror N, The effect of agricultural bank credits on the added value of the agricultural sector in Iran. Agricultural Economics and Development, 2012; 21 (84): 205-228. http://aead.agri-peri.ac.ir/article_58725.html
20. Ismailzadeh Padari S, Hosseini M, Omid Najafabadi M, Investigating the role of agricultural bank loans in rural development: a case study of Tehran Province. Rural and Development Quarterly. 2016; 20 (1): 169-147. http://rvt.agri-peri.ac.ir/article_59491.html
21. Koop GM, Forecasting with medium and large Bayesian VARs. Journal of Applied Econometrics, 2013; 28 (2): 177-203. [DOI:1002/jae.1270]
22. George EI, McCulloch RE, Approaches for Bayesian variable selection. Statistica sinica, 1997; 1 (3): 339-373. https://www.jstor.org/stable/24306083
23. George EI, Sun D, Ni S, Bayesian stochastic search for VAR model restrictions. Journal of Econometrics, 2008; 142 (1): 553-580. [DOI:1016/j.jeconom.2007.08.017]
24. Jochmann M, Koop G, Strachan RW, Bayesian forecasting using stochastic search variable selection in a VAR subject to breaks. International Journal of Forecasting, 2010; 26 (2): 326-347. [DOI:1016/j.ijforecast.2009.11.002]
25. Mohammadnejad N, Fitras M, Masoumi M, Analysis of the relationship between bank credits and economic growth. Monetary and Financial Economics, 2014; 22 (10): 1-21. https://danesh24.um.ac.ir/article_30661.html
26. Hadinejad M, Mehrabian A, Investigating the effect of bank loans on the growth of the country's industrial sector. Financial Economics and Development (Economic Sciences), 2017; 1 (2): 75-85. https://www.sid.ir/fa/journal/ViewPaper.aspx?ID=181807
27. Korkmaz KB, CFD Predictions of Resistance and Propulsion for the JAPAN Bulk Carrier (JBC) with and without an Energy Saving Device (Master's thesis), https://hdl.handle.net/20.500.12380/219361
28. Liang HY, Reichert AK, Economic growth and financial sector development. The International Journal of Business and Finance Research, 2007; 1 (1): 68-78. https://ssrn.com/abstract=1543402