Empirical Analysis And Financing Of Agricultural Sector In East Java

Abstract

Purpose: Agriculture is one of the leading sectors in East Java as indicated by its contribution of 11.90% to the total Gross Regional Domestic Bruto (GRDP). Agriculture, forestry, and fishery businesses were also reported to have experienced the highest growth of 12.23% in quarter I-2021. East Java is Indonesia's most significant agricultural product-producing province but several factors were discovered to be causing GRDP fluctuations in the farming industry. Therefore, this study was conducted to analyze the relationship and response of the agricultural sector GRDP to the Farmer's Exchange Rate (FER), financing of Islamic commercial banks (PBS), funding from Islamic People's Financing Bank (PBPRS), and inflation (INF).

Methodology/approach: The analysis was conducted using the Vector Error Correction Model

Results/findings: The results showed that the FER was positively related to GRDP and this means an increase in the farmer's welfare encouraged growth in the GRDP of the sector. The PBS and PBPRS were also observed to have a positive contribution to the GRDP. Meanwhile, inflation was found to be negatively related and this means a price increase led to a lower GRDP. However, the inflation rate in East Java was observed to be relatively stable at an average of less than 3 percent. Regarding the response, the results showed that the GRDP, FER, and PBS responded positively while PBPRS and inflation reacted negatively in the short term. Furthermore, the variance test conducted revealed that the most significant factor affecting the sector was the GRDP at 79.25 percent followed by PBS at 9.1 percen, the farmer's exchange rate at 7.9percent, inflation at 3.2, and BPRS at 0,38 percent

Limitations: This research focuses on the factors that influence the growth of the agricultural sector in East Java

Contribution: Hopefully, this research will be useful for academics, practitioners, especially in agricultural growth. Moreover, this research can also contribute to formulating economic development policy strategies in East Java.

Novelty: In addition to examining the agricultural sector in East Java, this research also reports on financing factors. A relatively small number of studies combine two financing factors. .