Correlation between second-tier bank credit and agricultural GDP in Mexico

Abstract

Objective: to evaluate the impact that the operation of second-tier bank loans has had on Mexico's agricultural Gross Domestic Product (GDP).

Design/ Methodology/ Approach: a set of 1360 data records corresponding to the operation of the discounted credit and the one guaranteed by the Trusts Instituted in Relation to Agriculture (in Mexico, FIRA) were used, as well as the agri-food Gross Domestic Product (GDP) reported by the Bank of Mexico (BANXICO). These records were grouped into 40 four-month periods between March 2013 and December 2022. The information was presented in constant values to be comparable; it was analyzed through a correlation model with the stepwise procedure in R statistical software.

Results: a 0.1471 positive impact on agricultural GDP growth was observed for each unit of credit drawn down by FIRA with a determination coefficient R²=0.973. This impact derives from FIRA's large participation in the agri-food sector; and it was also highly influenced by seasonality in agricultural cycles.

Limitations/ Implications of the study: by shortening the periods of time analyzed, the results can be affected by external factors as happened with the recent global economic contraction generated by the CovID-19 pandemic in 2020 and whose effects have lasted for three years.

Findings/ Conclusions: FIRA has fulfilled its character within development banking by adapting its policies and services to the economic conditions of the moment. And for adjusting to those that are required, within its financial model, to maintain and promote the placement of the credit necessary for the operation and growth of agricultural companies in Mexico.