Exploring the nexus between agriculture orientation index, government subsidies, and exchange rates: new evidence from Türkiye

Abstract

Access to agricultural credit is a key factor of rural development, productivity growth, and food security; however, there is no clear consensus on how it should be allocated. Using annual data from 1999 to 2023, this study investigates the long-run and causal relationship between the Agriculture Orientation Index for Credit (AOIC), government agricultural support, and exchange rates in Türkiye. To capture long-run dynamics and to accommodate structural breaks and nonlinearities, we employ the Fourier Augmented Dickey-Fuller (ADF), Fourier Autoregressive Distributive Lag (FADL), and Fourier Toda-Yamamoto (TY) causality tests. The results indicate the existence of a significant cointegration relationship between the variables, with 1% increase in government agricultural support and exchange rate leading to a decline in AOIC by 3.13% and 2.62%, respectively. Causality tests verify unidirectional linkages from government support and exchange rates to agriculture credit orientation. These findings suggest that subsidies can replace rather than complement formal agricultural credit, while exchange rate fluctuations further constrain banks’ willingness to direct funds into the sector. By identifying AOIC as a new indicator and applying sophisticated econometric tools, this study provides new empirical evidence for a middle-income economy, offering important implications for the construction of subsidy systems and macroeconomic stabilization policies.