ABSTRACT
This research work
examined the impact of commercial Bank credit on Agricultural output in Nigeria using
Macroeconomic variables (commercial bank credit and agricultural output). The
broad objective of the study is to investigate the extent to which commercial
bank credit had supported agricultural output Nigeria. The specific objectives
are: (i) to determine the impact of commercial banks credit on agricultural
output in Nigeria,
and (i) to determine the impact of agricultural output on economic growth in Nigeria. The
methodology adopted for the study was
ordinary least square (OLs) involving the student’s T-test, to test the significance of the individual parameter estimate, the
F-test, to test the significance of the entire regression plane, the R2
and Adjusted R2, to test the joint influence of the explanatory
variables on the dependent variable. Finally, Durbin-Watson’s statistics (DW)
was used to check the presence or absence of serial correlation on the data. After the regression, the result shows that:
firstly, agricultural output as well as commercial bank credit to agriculture
and real interest rate contributed a lot to economic growth in Nigeria.
Secondly there is a general agreement that Nigeria agricultural sector is
grossly underfunded. Finally, the share
of actual expenditure that went to the agricultural sector compared unfavorable
with the shares that went to other sectors. Based on the findings above, the
researcher made the flowing suggestions:
There is the need for improvement of public expenditure
tracking system in agricultural sector.
There is also the
need for clarification of the roles of the three tiers of government in agricultural
services delivery.
There is the need for
applied research targeted at priority issues
TABLE OF CONTENTS
TITLE PAGE……………………………………………………………..i
APPROVAL PAGE………………………………………………………ii
DEDICATION…………………………………………………………….iii
ACKNOWLEDGEMENT…………………………………………………iv
ABSTRACT………………………………………………………………..vi
TABLE OF CONTENT……………………………………………………viii
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY……………………………………….1
1.2 STATEMENT
OF PROBLEM…………………..………………………..6
1.3 OBJECTIVE
OF THE STUDY…………………………….…………..…9
1.4 HYPOTHESIS
OF THE STUDY…………………………………………9
1.5 SIGNIFICANCE
OF THE STUDY…………………….………………..10
1.6 SCOPE
AND LIMITATION OF HE STUDY…………………………..10
CHAPTER
TWO
REVIEW
OF RELATED LITERATURE
2.1 THEORITICAL L ITERATURE……………………………….……….12
2.1.1
THE PRE-REQUISITE THESIS VERSUS
THE
CONCURRENCE THESIS……………………………………….14
2.2 FINANCING AGRICULTURE IN NIGERIA …………………………18
2.1.1 SOURCES OF AGRICULTURAL FINANCING
…………………….20
2.3 COMMERCIAL BANK CREDIT AND AGRICULTURAL
OUTPUT………………………………………………………………... 23
2.4 EMPIRICAL LITERATURE……………………………………………..28
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1 MODEL SPECIFICATION …………………………………….……….34
3.2 ESTIMATION PROCEDURE………………..…………………………36
3.3 EVALUATION TECHNIQUES………..………………………………..37
3.4 DATA REQUIRED AND SOURCES…………………………………..41
CHAPTER
FOUR
DATA
PRESENTATION AND ANALYSIS
4.1 UNIT ROOT TEST………………………………………………………43
4.2 CO INTEGRATION TEST………………………………………………44
4.3 PRESENTATION AND INTERPRESTATION OF RESULT………..46
4.3:1 INTERPRESTATION OF REGRSSION RESULT…………..………..47
4.4 EVALUATION OF EMPIRICAL RESULT……………………………..48
4.4:1 ECONOMIC CRITERIA (A
PRIORI EXPECTATION)……………....48
4.4:2 STATISTICAL
CRITERIA……………………………………………..50
4.4:3 COEFFICIENT OF
DETERMINATION (R2)………………………….51
4.4.4 THE
T-STAISTICS……………………………………………………..51
4.4.5 THE F-TEST…………………………………………………………….52
4.5. ECONOMIC CRITERIA
(SECOND ORDER TEST)…………………53
CHAPTER
FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATION
5.1 SUMMARY……………………………………………..……………..… 59
5.2 CONCLUSION …………………………………………………………..62
5.3 RECOMMENDATION………………………………………..………….63
BIBLIOGRAPHY……………………………………………….…………67
APPENDIX
CHAPTER ONE
1.1 BACKGROUND
TO THE STUDY
As
confirmed by Ugochukwu (1999:02), agriculture is the first and most thriven
occupation of mankind. From its early form of wild fruits, leaf, root, snail
and insect gathering, fishing and hunting, to its present mechanized and almost
automated form, it has undergone a lot of development
Okah (2007:04) conceived agriculture
as the cultivation of land, raising animals for the purpose of production of
food for man, feed for animals, and raw materials for our industries. It also
consist of croup production, forestry, livestock and fishing. It is also
essential for expansion of employment opportunity, reduction of poverty and
improvement of income distribution, speeding up industrialization and easing
the pressure of balance of payments disequilibrium.
The role of agriculture in transforming
both the social and economic frame work of an economy cannot be over emphasized.
Anyanwu (1997:213) posits that “agriculture has been the main source of gainful
employment from which Nigeria
nation can feed its feeding population, providing the nations industries with
local raw materials and as a reliable source of government revenue.
Corroborating the above is Reynolds(1975.35) who asserts that agricultural
development can promote the economic development by increasing the supply of
food available for domestic consumption and releasing the labour needed for
industrial employment.
The major agricultural export
commodities in Nigeria include cocoa, coffee, cotton, groundnut, groundnut oil,
palm kernel, soya beans, ginger rubber, benign –seed and chili pepper
(CBN,2003).there are other commodities that are being demanded in the world
market such as cassava and cassava products, banana, plantain and so on. The
Nigerian economy until today is still dependent on primary products both as foreign
exchange earner and contribute to gross domestic product.(GAP). Olurosunsola
(1996:131) attributes this to the fact that the main interest of the colonial
masters was and still is the exportation of products needed for their home
industries.
The continuous production and exports
of the agricultural product played a dominant role in attracting foreign
exchange to boost economic activities from independence to the early 1970s.
Obadan (2000:68), observes that the production and palm oil accounted for 96.4%
of total exports earnings while non- oil export product accounted for 97.3% for
total export then. He observed further that from the 1970s, the
Nigerian economy became mono-cultural, having been transformed from one
dependent on fairly diversified portfolio of agricultural products to an
economy heavily dependent on crude oil for growth and sustenance. Oyo (1994:23)
observed that the advent of crude petroleum production and related activities
especially in the early 1970’s changed radically the structure of Nigeria
economy. The huge foreign exchange earnings from crude oil export encouraged
importation of finished foods to the detriment of domestic manufactured ones,
while the agricultural sector was rendered less competitive over time through
over-valued currency, inappropriate pricing policies and scarcity of farm
labour caused mainly by the migration of youth to urban areas in search of wage
employment.
Nigeria agriculture is divided into
two types, the subsistence agriculture and commercial agriculture-: the
subsistence agriculture is the type of farming which involves only the farmer
and his family i.e the farmer produces for himself and his family with little
or none to sell in the market it is practiced in small scale system. It
involves only a little amount of money to practice unlike commercial farming
that involves huge amount of money to practice. It does not involve the machine
to carry out, since the land is very small and fragmented (Amechi 2004).
The second type is commercial
agriculture, and this is where a farmer produces his crops and sells them in
the market. It is carried out in large scale with enough land and machines.
These machines are used in cultivating crops. It involves a lot of capital and
time, and also increase the farmers income. Commercial farming helps farmers
to
engage in the cultivation of different varieties of crops, since the money,
land and equipment could easily be used.
In agriculture, fund is needed to
enable the farmer purchase more land, buy his inputs at the appropriate time
and to pay for hired labour or farm machinery. Unfortunately, credits are not
easily available for most of the farmers because of collateral and other things
that are usually required by the commercial banks and other credit institutions.
This makes it possible for most of the farmers in Nigeria to lack the required
capital for investment in large scale agriculture, hence the reason for the
recent low agricultural productivity.
With the recent move by the leading
economies of the world to diversify their economy Nigeria in a bid to join the rest
of the developed economies is conscious of the danger signals observed both
within and outside the country that underscores the need to move away from
total reliance on petroleum related revenues. These signals according to soludo
(2009:28) include the on-going global economic crisis that is threatening the
growth and development agenda of the present administration, the crisis in the
Niger delta which has interrupted petroleum operations in the past few year’s,
and the frightening revelation that the united states of America, the highest
buyer of Nigeria crude oil, Brazil and several other countries are seriously
engaged in research for an alternative source of energy.
Hence, the need to diversify Nigerian
economy, especially Agricultural sector that has for long, been neglected.
1.2 STATEMENT OF THE PROBLEM
Several
research have shown that Nigeria Is endowed
with Huge expance of fertile Agriculture
land rivers, streams, lakes, forest and grassland, as well as a large
active population that can sustain a high productive and profitable
agricultural sector. Adubi(2000:103) admits that this enormous resource baser
if well managed could support a vibrant agricultural sector capable of ensuring
self- sufficiency in food and raw materials for the industrial sector as well
as, providing gainful employment for the teeming population and generating
foreign exchange through exports.
In spite of these endowments, the
sector has continued to record a declining productivity. The capacity of the
sector to fulfil it tradition roles in Nigerian economy has been constrained by
various social-economic and structural problem such as;
a. Unavailability
of credits to local farmers
b. The
civil war of the late 1960S
c. The severe drought of the early 1970s and
1980s
d. The
discovery of oil (the oil boom of the 1970 created relative disincentives for
agriculture in relation to other sectors of the economy).
e. High
interest rates on loans to farmers
f.
Rural- urban migration
g. Ineffective
institutions charged with policy implementations.
Not until recently, have government
seriously thought and attempted to mobilize potential savings for the rural
farmers. Commercial banks themselves have given little attention to the
approval of loans to farmers for fear of defaults. Where credits are received
from other sources apart from government and commercial lending, the interest
rates have been too high. These reported high interest rates are stark
realities to the peasant farmers.
However, Ogunfowora etal
(1972:35) attributed most of the short comings on institutional credits in Nigeria to
factors such as, ineffective supervision or monitoring insufficient funds, political
interference, cumbersome and time consuming loan processing, large loan
defaults and absence of financial projections.
The question deducible from the above
is, how have the credit institutions, especially commercial banks, been able to
impact positively on the level of agricultural productivity in Nigeria a midst
aformentioned problems?
b. Is the high interest rate on loans given to
farmers really preventing them from borrowing from credits institutions? Or are
the commercial banks afraid of fraud, the risk of not paying them back the
loans?
c.
Do framers really use the money for
agriculture or do they (farmer) use it for their personal needs, i.e getting
married, build houses etc?
d. is market failure the problem of low
productively in Nigeria Agricultural sector?
1.3 OBJECTIVE OF THE STUDY
The broad
objectives of the study is to investigate the extent to which commercial bank
credit had supported agricultural output in Nigeria.
However,
the specific objectives of the study are as follows.
1. To determine
the impact of commercial banks credit on agricultural output in Nigeria.
2. To
determine the impact of agricultural output on economic growth in Nigeria
1.4
HYPOTHESIS OF THE STUDY
Following from the
above stated objectives, the following hypothesis are tested in this study;
1 Commercial banks credit has no significant
impact on agricultural output
2 Agricultural output has no significant impact on economic growth.
1.5
SIGNIFICANCE OF THE STUDY
Agriculture is expected to make a significant
contribution to net foreign exchange earnings to Nigerian economic growth. As a
result, this study sets to reveal the important problems and prospect of the
agricultural financing and economic growth in Nigeria. It becomes important to
carry out a research on this area of study so as to suggest ways of combating
the perceived problems of the peasant scales farmers, such as, loan procurement,
and effective credit lending to the benefit of the local farmers. Also, it sets
out to help proffer solutions to the problems being faced by the sector.
This
study will serve as a good background for those intending to carry out further
research work on related topics.
1.6
SCOPE AND LIMITATIONS OF THE STUDY
This is an
investigation into the impact of commercial bank credit on the agricultural output
in Nigeria
for the period 1982-2007.
The
major problem encountered by the researcher is inconsistency of data. The data
as reported by CBN is not consistent with that of federal office of statistics.
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