Macroeconomic determinants of Agricultural Sector Growth in NIgeria

ABSTRACT

 

The study examines the macroeconomic determinants of agricultural sector growth in Nigeria which is based on the empirical evidence of the short-run and long-run interrelationships among capital expenditure on agriculture, inflation rate, exchange rate, interest rate and credit availability to the sector using agricultural GDP as dependent variable. Time series data from 1981 – 2015 were sourced from Central Bank Statistical Bulletin. The data were analysed based on bound test form of cointegration and Auto Regressive Distributed Lag model was used to investigate the nature of the relationship among the macroeconomic determinants affecting Agricultural sector growth in Nigeria in the short run and long run.

            The result of the bound test implies that there is a cointegration (long run relationship) between agricultural sector growth, interest rate, exchange rate, inflation rate, government expenditure on agricultural sector and credit to agricultural sector from commercial banks and therefore, the null hypothesis of no cointegration between the variables is rejected and the alternative hypothesis is accepted. The ARDL shows all the variables have negative relationship with agricultural sector growth while credit available to agriculture has a positive relationship with the Agricultural sector growth in the short run. In the long run, the nominal exchange rate has a positive relationship with agricultural sector growth while other macroeconomic variables have a negative relationship with agricultural sector growth

                It is therefore recommended that the Nigerian government should double its efforts in designing sector-specific agricultural policies that will facilitate improvement in the quality of the institution, long-term sustainable government expenditure in agriculture, maintenance of favourable exchange rate and commercial banks’ credit accessibility to farmers at low interest rate. These will act as incentives to farmers for increased agricultural production in Nigeria which will lead to the growth of the Agricultural sector.

 

 

 

TABLE OF CONTENTS

CONTENTS                                                                                       PAGE

Title page                                                                                                                                i

Dedication                                                                                                                              ii

Certification                                                                                                                            iii

Acknowledgement                                                                                                                  iv

Abstract                                                                                                                                  v

Table of contents                                                                                                                    vi

CHAPTER ONE: GENERAL INTRODUCTION

1.1       Introduction to the study                                                                                            1

1.2       Statement of the problem                                                                                           2

1.3       Research Questions                                                                                                     4

1.4       Objectives of the study                                                                                               4

1.5       Justification of the study                                                                                            4

1.6       Scope and Limitations of the study                                                                            6

1.7       Organization of the study                                                                                           6

CHAPTER TWO: BACKGROUND TO THE STUDY

2.0       Introduction                                                                                                                7

2.1       Trend Analysis of Agricultural Sector Output in Nigeria                                           7

2.2       Trend Analysis of Interest Rate in Nigeria                                                                 8

2.2.1    Interest Rate Policy in Nigeria                                                                                    9

2.3       Trend Analysis of Exchange Rate in Nigeria                                                             9

2.3.1    Exchange Rate Policy in Nigeria                                                                                11

2.4       Trend Analysis of Inflation rate in Nigeria                                                                 12

2.4.1    Inflation rate in Nigeria                                                                                              12

2.5       Trend Analysis of Government Recurrent Expenditure on Agriculture                     13

2.5.1    Government Expenditure Programmes and Policies on Agriculture                          14

2.6       Trend Analysis of Credit to Agricultural Sector                                                        16

2.6.1    Credit Guarantee Schemes in Nigeria                                                                         17

2.7       Summary of the background to the study                                                                  19

 

 

CHAPTER THREE: LITERATURE REVIEW

3.1       Introduction                                                                                                                21

3.2       Theoretical Review                                                                                                     21

3.2.1    The Solow-Swan neoclassical growth theory                                                             21

3.2.2    Endogenous Growth Theory                                                                                      22

3.2.3    Rostow’s Theory of Economic Growth                                                                      22

3.2.4    Wagner’s Law                                                                                                             23

3.2.5    Export growth theory                                                                                                 24

3.3       Methodological Review                                                                                              26

3.3.1    Method Employed in the Studies                                                                               26

3.3.2    Summary of the Methodological Review                                                                   27

3.4       Empirical Review                                                                                                        28

3.4.1    Summary of Empirical Review                                                                                   34

3.4.2    Gaps in the Literature and the Contributions of the Study                                        35

CHAPTER FOUR: THEORETICAL AND METHODOLOGICAL FRAMEWORK

4.0       Introduction                                                                                                                36

4.1       Theoretical framework                                                                                                36

4.2       Model Specification                                                                                                    39

4.3       Methodological framework                                                                                        40

4.4       Scope and Sources of Data                                                                                         42

CHAPTER FIVE: DATA PRESENTATION AND ANALYSIS

5.1       Descriptive Analysis                                                                                                   43

5.2       Unit Root Test                                                                                                                        44

5.3       ARDL Bounds Test for Cointegration                                                                       46

5.4       Estimated Short run and Long run relationship                                                          47

CHAPTER SIX: SUMMARY: CONCLUSION AND RECOMMENDATION

6.1       Summary                                                                                                                     51

6.2       Conclusion                                                                                                                  52

6.3       Recommendations                                                                                                      52

 

 

 

 

 

REFERENCES                                                                                                                    54

LIST OF FIGURES

Figure 1           Contribution of agricultural sector to GDP in Nigeria                                   8

Figure 2           Interest rate trend in Nigeria                                                                           9

Figure 3           Exchange rate trend in Nigeria                                                                       10

Figure 4           Inflation Rate trend in Nigeria                                                                       12

Figure 5           Government Recurrent Expenditure on Agriculture in Nigeria                      14

Figure 6           Credit to Agricultural Sector trend from Commercial Banks                         17

LIST OF TABLE

Table 5.1         Result of Descriptive test                                                                               44

Table 5.2.1      Result of Augmented Dickey Fuller Test                                                       45

Table 5.2.2      Result of Phillips-Perron Unit Root Test                                                       46

Table 5.3         Result of Bounds test                                                                                    47

Table 5.4.1      Result of Short-run Model                                                                           49

Table 5.4.2      Result of Long-run Model                                                                             50

 

APPENDIX ONE                                                                                                                

APPENDIX TWO                                                                                                               

APPENDIX THREE                                                                                                           

APPENDIX FOUR                                                                                                             

APPENDIX FIVE