Monetary And Fiscal Policy Dynamics And Their Effects on Farm Credit And Agricultural Output in Nigeria (1983-2014)

ABSTRACT  

The study analysed the monetary and fiscal policy dynamics and their effects on farm credit and agricultural output in Nigeria between the years (1983-2014). The specific objectives of the study were to analyse the effect of fiscal policy on agricultural output during military and democratic eras (1983-1999) and (1999-2014), analyse the effects of monetary policy on agricultural output, analyse the effects of monetary policy on farm credit (1983-1999) and (1999-2014), analysed the effects of fiscal policy on farm credit within the same period. The study further analysed the effects of policy mix on farm credit as well as analysed the effects of policy mix on agricultural output (1983-2014). The data for this study were mainly time series data collected from Central Bank of Nigeria (CBN), CBN statistical bulletin of various years, National Bureau of statistics various years and index mundi. The data were analysed using graphical trend analysis, ordinary least square multiple regression; Chow F-test, Augmented - dickey fuller unit root, co-integration (max-Eigen value and trace) tests were used to test the results of the analysed data. The results of the data analysed showed that fiscal policy had positive effect on agricultural output especially during the democratic period while it (fiscal policy) had negative effects on agricultural output in the military era. The study also showed that monetary policy had positive effect on agricultural output apart from inflation during democratic era. The results further showed that policy mix apart from inflation had a more favourable effects on agricultural output. The result also showed that policy mix had a positive effect on farm credit. The mean agricultural output in military era (1983-1999) was 354.78 metrics tonnes while the mean agricultural output during the democratic era was 991.51 metrics tonnes. This showed that democratic era recorded higher agricultural output. The study further showed that the mean amount of loan disbursed in military era (1983-1999) was one hundred and fifteen million, four hundred and six thousand naira while the mean loan disbursed in democratic era (1999-2014) was four billion two hundred and twenty five thousand naira (4,296,226.89). The maximum loan disbursed during democratic era was ten billion naira. The result further showed that the coefficient of cointegration for loan disbursement was positive. The study also showed that Agricultural Credit Guarantee Scheme Fund (AGGSF) had a positive relationship with policy mix except inflation. This suggests that farmers were sensitive to borrowing during inflation in democratic era. The result of the Chow-F-tests conducted for all the hypotheses showed that there were significant structural changes and effects of policy mix, monetary policy and fiscal policy on both agricultural output and credit The result of the Augmented-dickey fuller test showed that at level, only exchange rate was stationary at 5% but at difference, almost all the variables were stationary at 5%. The result of the co-integration showed that at 5% critical value, inflation (X1) showed the presence of co-integration since the maximum Eigen value rank statistics (114.7472) was greater than critical (55.728). The maximum Eigen value for interest (X2), money supply (X3) exchange rate (X4) budgetary allocation to Agric Sector (X5) were higher than the critical values. This means agricultural output had long run relationship with monetary and fiscal policy. The results of the multiple regression analysis showed that majority of the fiscal and monetary policy measure were positively related to various agricultural outputs especially in democratic era. All policy mix were positively related to agricultural output (crops) except inflation. The coefficient of multiple determination (R2 ) showed that in all (R2 ), variations in the dependent variables were adequately and jointly explained by the independent variables. This means that in all twenty three (23) regression cases more that 70% of the variation in the dependent variables were explained by the independent. Only about 30% was not explained. The f – values also showed that the models were significant. The study recommended that the Agricultural Credit Guaranteed Scheme Fund (AGGSF) be strengthened to carry out more lending, that policy mix be encouraged instead of single monetary or fiscal policy alone. Democratic institutions be strengthened since Agricultural output was seen to have done better during democratic era than in military era.