Financial inclusion, digital finance and agricultural participation

Muhammad Zubair Mumtaz

Agricultural Finance Review, 2024, vol. 84, issue 2/3, 93-113

Abstract: Purpose - Financial inclusion and digital finance go side by side and help enhance agricultural activities; however, the magnitude of digital financial services varies across countries. In line with this argument, this study aims to examine whether financial inclusion enhances agricultural participation and decompose the significance of the difference in determinants of agricultural participation between financially included – not financially included households and digital finance – no digital finance households. Design/methodology/approach - This study uses Pakistan’s household integrated economic survey 2018/19 to test hypotheses. The logit model is used to examine the effect of financial inclusion on agriculture participation. Moreover, this study employs a nonlinear Fairlie Oaxaca Blinder technique to investigate the difference in determinants of agricultural participation. Findings - This study reports that financial inclusion positively influences agricultural participation, meaning households may have access to financial services and participate in agricultural activities. The results suggest that the likelihood of participating in agriculture in households with mobiles and smartphones is higher. Moreover, household size, income, age, gender, education, urban, remittances from abroad, fertilizer, pesticides, wheat, cotton, sugarcane, fruits and vegetables are the significant determinants of agricultural participation. To distinguish the financially included – not financially included households’ gap, this study employs a nonlinear Fairlie Oaxaca Blinder decomposition and finds that differences in fertilizer explain the substantial gap in agricultural participation. Likewise, this study tests the digital finance – no digital finance gap and finds that the difference in fertilizer is a significant contributor, describing a considerable gap in agricultural participation. Research limitations/implications - Empirically identified that various factors cause agricultural participation including financial inclusion and digital finance. Regarding the research limitation, this study only considers a developing country to analyze the findings. However, for future research, scholars may consider some other countries to compare the results and identify their differences. Practical implications - The accessibility of fertilizer can reduce the agricultural participation gap. However, increased income level, education and cotton and sugar production can also overcome the differences in agriculture participation between digital finance and no digital finance households. Originality/value - This is the first study to decompose the difference in determinants of agricultural participation between financially and not financially included households.

Keywords: Agriculture participation; Financial inclusion; Digital finance; Pakistan; Q12; Q14; G0 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:afrpps:afr-10-2023-0132

DOI: 10.1108/AFR-10-2023-0132

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