Abstract:
Harshly, the problem of poverty and income inequality overwhelmed a tremendous portion of
populations across developing countries like Ethiopia and remains one of the economic curses
posing catastrophic consequences on society’s economic as well as social wellbeing. Hence, this
study investigated the effects of extending bank agriculture credit on poverty level and income
inequality in Ethiopia. The study used unbalanced panel data from 2000 to 2021 collected from 11
regional states in Ethiopia. Additionally, the study determined the effects of bank agriculture credit
on unemployment and GDP per capita in Ethiopia using time series data from 1990 to 2021.
Moreover, the study identified the main determinants of bank agriculture credit volume injected by
commercial banks in Ethiopia using panel data from 2010 to 2021. While figuring out the
relationship between bank agriculture credit and poverty level and income inequality; the study
adopted Panel Corrected Standard Error (PCSE) basing its robust feature on effectively controlling
spatial correlation, heteroscedasticity, and cross-sectional dependence in panel data setting. The
time series analysis is conducted using the Auto-Regressive Distributed Lag model (ARDL).
Additionally, the Augmented mean group (AMG) model is adopted based on the panel data setting
to figure out determinants of bank agriculture volume of commercial banks in Ethiopia. The result
from mean difference test reveals that, from the total banks outstanding loan only 14% goes to
agriculture while 61% and 25% is granted to service and industry sectors respectively. The
regression result also reveals that bank agriculture credit has a significant and negative effect on
poverty level, income inequality, and unemployment and has a positive and significant effect on
GDP per capita in Ethiopia. Finally, bank-specific and macroeconomic factors such as deposit volume, return on assets, branch network, and economic growth positively and significantly
determine the volume of bank agriculture credit provided by commercial banks while interest rate
spread, climate change and inflation negatively and significantly determine the credit volume.
Therefore, renovating the credit distribution aimed at directing the magnitude towards the
agriculture sector is vital to flourishing the society’s economic well-being
