An Analysis of the Relationship Between Interest-Free Financing of Agricultural Production and Agricultural Growth Using Contemporary Econometric Methods

Abstract

Participation banks, operating on the principle of interest-free banking in the Turkish banking sector, have increasingly specialized in agricultural banking. Agricultural banking is a specialized sector of the banking industry that provides financial services to agricultural enterprises to help them manage their financial status, sustain their production activities, and further grow their businesses. Besides the financial gains accrued by banks, one of the primary objectives of providing financial services under agricultural banking is to enable agricultural enterprises to achieve high productivity per unit area, thereby contributing more significantly to growth in the agricultural sector. Hence, participation banks, similar to other banks, offer a diverse range of services to achieve this goal. Investigating the effects of participation banks' services is a noteworthy research topic. By employing time series analysis, this study examines the impact of participation banks' financing of the agricultural sector on agricultural gross domestic product (GDP) in Turkiye. The data sets used in the analysis include the agricultural financing supplied by participation banks and the agricultural GDP values. The period examined spans from 2005Q1 to 2023Q4. The methods applied in the analysis include the Fourier Augmented Dickey-Fuller (FADF) unit root test, the Fourier Autoregressive Distributive Lag (FADL) cointegration test, the Residual Augmented Least Squares-Fourier Autoregressive Distributive Lag (RALS-FADL) cointegration test, and the Fourier TodaYamamoto (FTY) causality test. According to the cointegration tests, a 1% increase in the agricultural financing provided by participation banks leads to a rise in agricultural GDP by 0.80% in the long-run and 0.15% in the short run. The results of the cointegration test are further supported by the findings of the causality test. Consequently, it is evident that the growth in funding allocated to the agricultural sector by participation banks in Turkiye triggers a surge in agricultural GDP. In this regard, it is recommended that all participation banks, particularly the publicly funded Ziraat Katilim Bankasi A.S., which receives support from the Treasury, continue to increase their financial support to the agricultural sector annually to ensure its sustainable growth.