ABSTRACT
This
study investigated the effect of crude oil price fluctuations and selected
macroeconomic variables on Nigerian agriculture and environment. Time series
data, covering the period of 1970 – 2016, culled basically from the Central
Bank of Nigeria Statistical Bulletin, 2017 were used. Descriptive statistics,
simple reaction function, simultaneous equation system model (Two stage least
square approach), and analytical techniques in multivariate time series which
included Unrestricted Vector
autoregression (VAR), Vector error-correction model (VECM) and Generalized
Autoregressive Conditional Heteroscedasticity (GARCH) models were adopted and
fitted to the data. The result showed that crude oil price and its generated
revenue exacted a significant degree of procyclicality on government total
expenditure, economic growth, agricultural real GDP, and the volume of
government resource allocation in agriculture at 1 percent. Economic growth proxied as total real GDP was
found as the most important and statistically significant selected
macroeconomic variable to influence agricultural real GDP whereas cumulative
foreign private investment in agriculture was the least. In addition, crude oil
price was found as the most significant contributor to environmental
degradation proxied as carbon dioxide emission intensity while total government
expenditure was the least significant. However, the Z – statistics of the
modeled explanatory variables in the estimated economic growth function, showed
that the estimated coefficient of service real GDP (which encapsulates the oil
sector, education, health, entertainment and hospitality, etc) was the most
statistically significant of all the modeled explanatory variables in the
function. Thus, it is the most important estimated macroeconomic variable
required to spur growth and development in Nigeria, followed by agricultural
real GDP (AGRt), industrial real GDP (INDt), exchange
rate (EXRt), financial deepening (FDt), degree of
economic openness (DEOt), carbon dioxide emission intensity (CO2t),
foreign private investment (FPITt), and Lending rate (LRt)
arranged in descending order of importance. Moreover, previous year’s value of
agricultural real GDP (AGR lag – 1) was found to be a significant variable to
explain the fluctuations in current year’s AGR at 5 percent. Therefore, it is
recommended that Nigerian government should double its efforts in reducing the
effect of crude oil price shocks on economic planning and implementation
especially in agriculture. This can be achieved by strategically transforming
the resource wealth generated from crude oil into other assets that support
sustained development by breeding more sustainable livelihood opportunities
that absolutely reduce environmental degradation. Thus, effective macroeconomic
policy strategies that ensures adequate properly targeted investment in the
agricultural sector, boost economic growth, maintains favourable exchange rate
that protects domestic producers from external price shocks, increases
environmental quality by reducing carbon dioxide emission intensity should be
effectively made and sustained. In addition, efforts should be towards
controlling the degree of economic openness in such a way as to spur
exportation of agricultural produce and make agricultural credit widely
accessible from commercial banks at low interest rates.
TABLE OF CONTENTS
CONTENT PAGE
Title
page
Declaration i
Certification
ii
Dedication iii
Acknowledgement iv
Abstract v
Table
of contents vi
List of
Tables x
List
of Figures xi
CHAPTER 1
INTRODUCTION 1
1.1
Background Information 1
1.2
Problem Statement 6
1.3
Objectives of the Study 8
1.4
Hypotheses of the Study 9
1.5
Justification of the
Study 10
CHAPTER 2
LITERATURE REVIEW 13
2.1 Theoretical Concepts 13
2.1.1 Macroeconomics and agriculture: a
theoretical concept 13
2.1.2 Green economy, agriculture and natural resource
use: issues and
opportunities 22
2.1.3 Oil price shocks and its macroeconomic
transmission channels to
agriculture in Nigeria 24
2.1.4 Oil price fluctuations: implications and issues
in an emerging economy 29
2.1.5 Rural poverty and oil price shocks:
prospects and challenges 33
2.1.6 Trends and issues in the Nigerian oil and
agricultural sector 34
2.2 Empirical Literature 38
2.2.1 Significance of crude oil price shocks on
the Nigerian macroeconomic
aggregates 38
2.2.2 Crude oil price shocks, its macroeconomic
transmission channels and
agricultural production in Nigeria 47
2.2.3 Carbon dioxide (CO2)
emission, agricultural development and economic
growth: any linkages? 52
2.3 Analytical
Concepts 55
2.3.1 Basic concepts in time series econometrics 55
2.3.2 Tests of stationarity (unit root test) 58
2.3.3 Approaches to economic forecasting 61
2.3.4 Measuring volatility in time series
variables: The ARCH and GARCH
models 69
2.3.5 Analytical techniques adopted in related
empirical studies 69
CHAPTER 3
METHODOLOGY 74
3.1 Study
Area 74
3.2 Sources
of Data 75
3.3 Method
of Data Collection 75
3.4 Method
of Data Analysis 76
3.5
Model Specification 78
CHAPTER 4
RESULTS AND
DISCUSSIONS 89
4.1 Analysis of the Trend and Degree of Procyclicality
of Crude Oil Price
on
Selected Macroeconomic Variables 89
4.2 Effects of Selected Macroeconomic
Variables on Agriculture and the
Environment 96
4.2.1 Estimated
effects of selected macroeconomic variables on agricultural
real
GDP function (endogenous variable I) 96
4.2.2 Estimated function of carbon dioxide emission
intensity
(endogenous variable II) 105
4.2.3 Estimated function of farmers’ credit access
from commercial banks 110
4.2.4
Estimated function of industrial real
GDP (endogenous variable iv) 112
4.2.5 Service real GDP estimated function (endogenous
variable v) 114
4.2.6
Estimated function of economic growth
(endogenous variable vi) 115
4.3 Analysis of the Long-run Relationship
Between Crude Oil Prices,
Agricultural
Real GDP and Exchange Rate in Nigeria 118
4.3.1 Univariate stationarity test (augmented
dicky fuller method) 118
4.3.2 Lag-order selection criteria 121
4.3.3 Cointegration test 121
4.3.4 Vector autoregressive model 122
4.3.5
Impulse response function 126
4.3.6 VAR post-estimation test: lagrange-multiplier
test of autocorrelation 128
4.4 Agricultural
Growth, Economic Growth and Carbon Dioxide Emissions
from
Solid, Liquid and Gaseous Fuel Energy Consumption 129
4.4.1
Stationarity test 129
4.4.2 Lag order selection criteria 129
4.4.3 Cointegration
test 129
4.4.4 Vector
error correction model 130
4.4.5 Carbon
dioxide emission from solid fuel energy consumption
(D_Co2
Solid) 132
4.5 Modelling
the Volatility of Crude Oil Price Returns and Factors Affecting
the Volatility in the Return Process 135
4.5.1 Pre-estimation
test: testing for the presence of clustering volatility and
Arch-effect in the
residual of the mean models 135
4.5.2 GARCH
(1,1) modeling of the volatility of crude oil price return 137
4.5.3 Portmanteau test for white noise in the GARCH (I, I) model 140
CHAPTER 5
SUMMARY,
CONCLUSION, AND RECOMMENDATION 141
5.1 Summary 141
5.2 Conclusion 144
5.3 Recommendations 145
REFERENCES
APPENDICES
LIST OF TABLES
4.1
Simple Regression Result of the
Reactions of Selected Macroeconomic
Variables
to Changes in Crude Oil Price. 94
4.2
Simple Regression Analysis Result of
the Reactions of Selected
Macroeconomic
Variables to Changes in Crude Oil Revenue. 95
4.3 Summary Results of the 2SLS
Inter-Variable Relationships Between
Agricultural Real GDP, Carbon Dioxide Emission
Intensity, and Selected
Macroeconomic Variables. 98
4.4 Augmented
Dicky Fuller Method for Stationarity Test of AGR, EXR, and
OILP at Level 119
4.5 ADF Unit Root Test at First Difference of
AGR, EXR, & OILP 120
4.6 Lag Order Selection Results 121
4.7 Johansen Tests for Cointegration 122
4.8 Vector Autoregressive Results between
AGR, EXR, and OILP 123
4.9 Granger Causality Wald Tests 125
4.10 Lagrange-Multiplier
Test of Autocorrelation 128
4.11 Lag
Order Selection Criteria 129
4.12 Johansen
Tests for Cointegration 130
4.13 Vector
Error-Correction Model 131
4.14 Regression
Results of Crude Oil Price Return 135
4.15 LM
test for ARCH effect in OILP return residual 137
4.16 GARCH
(1, 1,) Family Regression Multiplicative Heteroskedasticity 138
4.17 Portmanteau
Test for White Noise 140
LIST
OF FIGURES
4.1 Crude
Oil Price and Crude Oil Revenue Co-Movement 89
4.2 Trend and Magnitude of Crude Oil Price
and Government Total
Expenditure 90
4.3 Crude Oil Revenue and Government Total Expenditure
Co-Movement 90
4.4 Crude Oil Price Movement and Government Expenditure
in Agriculture 91
4.5 Crude Oil Revenue Movement and Government
Expenditure in
Agriculture 91
4.6 Oil Price and Gross Domestic Product
Co-Movement 92
4.7 Oil Revenue and Gross Domestic Product Co-Movement 92
4.8 Oil Price and Agricultural Real Gross Domestic
Product Co-Movement. 93
4.9 Oil
Revenue and Agricultural Real Gross Domestic Product
Co-Movement 93
4.10 Impulse
Response Function of Agricultural Real GDP to Shocks
in
Itself, Exchange Rate And Crude Oil Prices 126
4.11 Impulse Response Function of Nominal
Exchange Rate to Shocks on
Agricultural Real GDP, Itself, and Crude Oil Price 127
4.12 Impulse Response Function of Crude Oil
Price to Shocks in Agricultural
Real
GDP, Exchange Rate and Crude Oil Price 128
4.13 Residual
Plot of OILP - Mean Model 136
CHAPTER
1
INTRODUCTION
1.1 BACKGROUND INFORMATION
Economies well-endowed with a
non-renewable resource, especially the crude oil producing countries like
Nigeria, extract a substantial resource rent. A large degree of the resource
rent usually accrues to the government through ownership, royalties and taxes.
Therefore, macroeconomic policies (fiscal, monetary and exchange rate policies)
play important role in the economy wide and intertemporal distribution of the
rent.
However, non-renewable resource
revenues in Nigeria, as in other non-renewable resource exporting countries has
been circumscribed in high degrees of volatility and uncertainty engendered by
fluctuations in the international prices of the commodities, especially that of
crude oil which constitutes more than 80% of Nigeria’s foreign exchange earnings (Abdulkareem and
Abdulhakeem, 2016). These often lead to extemporaneous changes in public
spending and procyclicality in fiscal policy instruments. Thus, exposing policy
makers to the vast challenges involved in effectively transforming exhaustible
resource wealth (like that of crude oil) into a portfolio of other pro-poor
assets that ensure a green economy, breed more sustainable livelihood opportunities and reduce
environmental degradation by operating at optimal level of pollution.
Presently, Nigeria is facing the
challenges of how to cushion the effect of plummeting global oil price which
has negatively affected the total volume of investable capital of the federal
government, eroded the foreign reserve and the real exchange rate (Abubakar,
2015). This has culminated in reduction of government consumption and
investment with its multiplier ripple effect affecting the disposable income of
the citizen, reducing aggregate demand, savings and investment decisions in the
economy (Akpata et al., 2015). Obviously,
given the dearth of experience in Nigerian economy, government often make their
spending decisions in response to short term fluctuations in petroleum
earnings. Thus, crude oil commodity price volatility exercises a destabilizing
influence on different sectors of the
economy and effective macroeconomic policies assumes an additional role
of managing risks associated with the price fluctuations of the natural
resource.
No doubt, fluctuations in crude oil
prices have a deleterious influence on Nigeria’s macroeconomic outlook since
oil generates more than 75% of total government revenue and its price per
barrel is the dominant anchor for Nigeria budget. Therefore, fluctuations in its
price exert great impact on the fiscal rules and macroeconomic adjustments of
the federal government by rendering a strict balance – budget policy highly
procyclical and destabilizing (Allegret et
al., 2014).
Obviously, crude oil price, by
extension its revenue, tends to bring about shifts in the relative size of the
tradable and non-tradable sectors, especially agriculture. In other words,
crude oil price has a far reaching implications for exchange rate,
international competitiveness of local producers, volume of government
expenditure, aggregate demand and other macroeconomic variables such as
inflation, net export, employment etc that controls the flow of economic
activities in any sector of the economy (Allegret et al., 2014). Therefore, it is pertinent for one to expect crude
oil price to have influence in the agricultural sector and the environment
since whatever disturbs the macroeconomic environment (by way of inter-linkage
effects) also affects the agricultural sector and the environment’s carrying
capacity. In addition, modern food production is based on input-intensive agriculture,
meaning that it depends heavily on additional fertilizer, pesticides, water for
irrigation and mechanization which all in turn, depend on fossil-fuel energy.
Empirically, it has been observed
that crude oil price fluctuation exacts great influence on agriculture and the
environment through various channels. Specifically, the supply side channel
considers oil as a production input. Thus, an oil price increase might lead to an
increase in the marginal cost of production which would result in reduction of
output and negatively affect farmers’ gross margin and their willingness to
invest in practices that improve the environment’s absorption capacity, which
will consequently affect its source and sink functions.
The demand side channel however,
focuses on the effect of oil price fluctuations on the demand capacity of the
citizens for agricultural produce and the volume of investment in agriculture.
It follows that an increase in oil price may lead to increases in the unit cost
of energy which translates to reduction in real disposable income of
stakeholders (farmers and energy dependent general public) and consequently
reduces the real volume of investment in agriculture and the demand for
agricultural produce for raw materials. This is because it has been empirically
substantiated that consumption and investment are positively related to income,
a reduction in income as a result of crude oil price increase, would lead to a
reduction in consumption and investment in the agricultural sector in
particular and other sectors of the economy in general. Thereby, affecting the capacity
utilization and productivity disposition of stakeholders in the economy.
Nevertheless, oil price fluctuations
have different economic implications for different economies and different
sectors of the same economy depending on their crude oil production capacity
and consumption needs (Allegret et al.,
2014). Net-exporters of crude oil benefit from oil price hike while net-oil
importers suffer. Likewise sectors that require crude oil in the production of
its raw materials like the agricultural sector and manufacturing sector, suffer
more during oil price surge (Anzuini et
al., 2014; Ayadi, 2000). However, the Nigeria economy has a unique
idiosyncratic nature of qualifying as both oil-exporter and oil-importer since
the economy exports crude oil but imports refined crude oil by- products. Thus,
swings in crude oil price (whether upward or downward) have a mixed ripple effects
on the Nigerian economy. In other words, it can both benefit and hurt the
Nigerian economy at the same time.
Although by reason of the vast
degrees of corruption and bureaucratic bottlenecks in the oil industry,
decreases in crude oil prices exacts more negative influence than any of its
perceived positive influence on the Nigerian economy. Specifically, apart from
the reduction in the pump price of premium motor spirit (fuel) from N97.00 per liter in January, 2014 to N87.00 since March, 2015 and later dropped
to N86.00 since January 2016 which has somewhat
increased the disposable income of commuters
and other fuel dependent manufacturing and service sectors (all things being
equal especially, fuel scarcity), it has nevertheless, negatively affected
government revenue used in the payment of workers’ salaries and other economic
development projects such as investing in agricultural productivity enhancing
activities (such as roads, irrigation facilities, research and development, education,
health etc) and natural capital development (such as climate change mitigation investment, construction of
drainages for erosion control, pollution control investments to increase the
environment’s source and sink functions) and other environmental protection and
social overhead investments.
Thus, the reduced pump price of PMS (which
is a byproduct of crude oil) was not sustainable as government revenue was
drastically affected. This led to the official removal of fuel subsidy and
average pump price of PMS in Nigeria became N145.00
per liter since March, 2016 till now. All these have reduced consumption, affected
gross savings and investment in the economy and consequently, have slowed down
economic growth to the extent that analyst has described the economy to be in recession
while the presidency has officially said the country is broke.
Therefore, with this gloomy
macroeconomic outlook of the Nigerian economy, the question now is how can
these challenges translate to opportunities for change in such a way that will
make Nigeria to adequately and fairly feed her growing population in a manner
that will alleviate poverty and advance economic development while reducing pressure
on natural resources and environment’s absorption capacity? The central
challenge has been to move from one-sided concern with the use of crude oil
revenue for enhancing expenditure towards the pursuit of macroeconomic
stability, sustained growth and diversification through agriculture. This
nevertheless, will require a holistic and coordinated macroeconomic policy
strategies for agricultural growth and development in the economy.
However, strategies and policies
alone will not be sufficient to transform Nigerian agriculture into a dynamic
engine of pro-poor growth unless they can be translated into an implementable
action plan that is supported by legislative action and backed up by appropriate
public expenditure and conducive macroeconomic environment. In other words, a
paradigm shift towards a sound evidence-based policy making process is needed
to promote a more competitive, equitable, gender sensitive and environmentally
sustainable growth in the agricultural sector. The recent global crude oil
price plunge and food price surge have made this paradigm shift even more
important.
1.2 PROBLEM
STATEMENT
The
recent fall in crude oil price globally, has generated in itself a series of
mixed multiplier ripple effect in the world, necessitating a macroeconomic paradigm
shift that may not be too comfortable for most oil exporting countries especially
Nigeria whose budget benchmark is predicated in crude oil prices and about 80%
of her foreign exchange earnings is attracted by crude oil exports. The Nigerian
economy is badly affected in this regard because successive Nigerian government
over the years lacked the political will to adopt a strong fiscal rule that
will effectively transform her exhaustible resource revenues (like that of crude
oil which has high degree of volatility and uncertainty in its prices) into
other productivity enhancing assets that generates more sustainable livelihood
opportunities (Akpata et al., 2015).
Apparently
crude oil wind fall revenues in Nigeria over the years are intuitively expected
to offer divers opportunities for economic growth and development in the
country. Paradoxically however, the countries socioeconomic outlook is still mirrored
in infrastructural decay, poor rate of development in all sectors especially
the agricultural sector, environmental degradation, hydra-headed levels of
corruption and poverty. These have combined to create an economic environment
that hardly support agricultural production, while increasing dependence on
crude oil and burdening the environment’s carrying capacity with cumulative
pollutants. Obviously, these effects were exacerbated by weak bureaucracies in
government which failed to effectively adopt any of the recommended profound
approaches in managing oil revenues and its volatility price mix, ranging from
savings in stabilization fund (also known as sovereign wealth fund), through
public investment in real sectors of the economy especially agriculture and
natural capital, counter-cyclical fiscal policy, to export diversification. Thus,
the experience of Nigeria and other economies with abundant non-renewable
resources in retrospect, often points to lack of fiscal discipline as well as
weak and inefficient resource management (Allegret et al., 2014).
Now
the rainy day is here. Perpetual decline in oil price will eventually deplete
Nigeria’s foreign reserves, strain her budgets, and trigger cuts in social
overhead spending and other austerity macroeconomic policy adjustments. These will
adversely affect the productivity disposition and capacity utilization of
stakeholders especially farmers by reducing the liquidity and consumption
smoothening effect of their available income which will affect their investment
decisions and the volume of resources they appropriate on environmental
improvement in their farms.
Therefore,
given the Nigerian monoeconomy’s extant dependence on crude oil earnings, the
major challenges of the Nigerian government among her policy makers have been
the most efficient means to cushion the vulnerability created in the economy by
global crude oil price fluctuations, decouple the procyclicality of its
revenues and transit to a green diversified economy. Obviously, the need to diversify
the Nigerian economy away from oil seems clear and highly paramount especially
now that plummeting global oil prices have reduced Nigeria’s foreign exchange earning
capacity, weakened her currency, eroded investors’ confidence and spurred a
gloomy macroeconomic outlook, at least in the short run.
In
that regard therefore, it has been empirically substantiated by several studies
that a holistic approach towards agricultural growth and development is the key
to cushion the Nigeria’s economic vulnerability to crude oil price shocks and
pave the road to economic diversification (Addison et al., 2016; Udensi et al.,
2012; Eyoh, 2008). Profoundly, it has been observed that improved agricultural
development and growth can offer a pathway out of mono-economy towards economic
diversification in Nigeria but evidence-based macroeconomic policy strategies
in the bane of crude oil price fluctuations are needed.
1.3 OBJECTIVES
OF THE STUDY
The
broad objective of this study was to analyze the effect of crude oil price
fluctuations and selected macroeconomic variables on Nigerian agriculture and environment.
The specific objectives were to:
1.
examine the trend and
procyclicality in crude oil price movements, economic growth, agricultural real
GDP, the volume of government expenditure for agriculture and total oil revenue
generated by the federal government.
2.
analyze the effect of carbon
dioxide emission intensity, interest rate, exchange rate, crude oil price,
government expenditure in agriculture, farmers’ credit stock accessed from
commercial banks, industrial real GDP, service real GDP, degree of economic
openness, rate of inflation, oil price volatility, foreign private investment
in agriculture and total real GDP on agriculture and the environment.
3.
determine the long run relationship
between crude oil price fluctuations, agricultural real GDP growth return, and
exchange rate movement.
4.
identify the relationships
between agricultural growth, economic growth and carbon dioxide emission from
solid, liquid, and gaseous fuel energy consumption.
5.
model the volatility of crude
oil price returns and factors affecting the volatility in the returns process.
1.4 HYPOTHESES OF THE STUDY
The following hypotheses were tested
in this study:
i.
Crude oil price has a
positive procyclical effect on economic growth, government expenditure,
agricultural real GDP and volume of government resource allocation in
agriculture.
ii.
Nominal exchange rate,
economic openness, government expenditure in agriculture, industrial real GDP,
service real GDP, economic growth, farmers' credit access from commercial banks,
and foreign private investment in agriculture are positive determinants of agricultural
real GDP.
iii.
Carbon dioxide emission
intensity, lending rate, crude oil price, and annual rate of inflation exact
negative influence on agricultural real GDP.
iv.
Economic growth and
foreign private investment have positive effect on carbon dioxide emission
intensity.
v.
Crude oil price,
agricultural real GDP, and economic openness have inverse relationship with
carbon dioxide emission intensity.
vi.
Lending rate, government
expenditure in agriculture and crude oil price volatility have a negative
influence on the volume of credit accessed by farmers from commercial bank.
vii.
There is no significant
long run relationship between crude oil price and agricultural real GDP in
Nigeria.
viii.
Economic growth and
nominal exchange rate are positive contributors to the volatility of crude oil
price return.
1.5 JUSTIFICATION OF THE STUDY
Crude
oil is arguably the most influential physical commodity in Nigeria and
frequently considered as an important macroeconomic indicator that influences
the agricultural sector, aggregate demand, and real economic growth in both
developed and developing countries (Badel and McGillicuddy, 2015; Basu and
Indrawati, 2015). However, the high fluctuations in crude oil price have
adversely impacted on overall macroeconomic performance and posed significant
challenges to policy makers in Nigeria.
Undoubtedly,
Nigerian economy is facing its worst economic crisis in decades, occasioned by
the global crude oil price plunge, which have reduced government revenues,
weakened the Naira and caused growth to slow. Acute fuel and foreign exchange
crises have probably led to increasing levels of poverty occasioned by high
cost of food and transportation which have combined to stoke up Nigeria’s inflation
rate.
Lamentably,
these increasing cost of living have metamorphosed into deprivation in health,
education, nutrition, safety, legal and political rights and many other areas.
All these dimensions of deprivation interact with and reinforce each other
therefore creating political and socio-economic tensions ranging from marginalization,
through insecurity (e.g. militancy, Kidnapping, terrorism, robbery, cattle
rustling, herdsmen-farmer clashes, etc.) to hydra-headed levels of corruption.
Thus, tumbling crude oil
prices is the gravest handicap Nigerians have faced in recent time. It is also,
I suppose, the greatest opportunity. In the short term, there will be colossal
suffering, pain galore. Companies and governments are bound to lay off workers.
Many more of those who remain on the employment roll are likely to experience
slashed entitlements and more frequent cases of unpaid salaries will become the
norm rather than the exception.
Obviously,
Nigeria will not be able to cushion its macroeconomic woes occasioned by
external crude oil price shocks without moving from her mono-economy towards diversification. The diversification of the Nigerian economy
was long overdue as continues reliance on crude oil exports had always made the
economy vulnerable to shocks. Nevertheless, agriculture has been profoundly
adjudged as the best dynamic pathway to pro-poor growth and economic
diversification in Nigeria. Ultimately, efforts to fortify the Nigerian
agriculture have not yielded the required results in the sector. In recent
times where traces of upward trend in agricultural output have been observed however,
it was largely derived from the expansion of cultivated land and is not
sustainable in the long run (Shenggen et
al., 2008). Therefore, to achieve desired socioeconomic development in
Nigeria through agriculture in the light of crude oil price shocks,
evidence-based macroeconomic strategies are needed for government and other stakeholders
to develop synergy in prioritizing their policy and investment interventions in
agriculture.
This
is necessary because it is not debatable that the performance of agricultural
firms to a very large extent depends on the macroeconomic environment, which in
the Nigerian case, is shaped by the degree of crude oil price volatility
mirrored in the uncertainty of its revenue generation that controls the level
of achievement of the cardinal macroeconomic objectives of the federal
government. However, what has been primary in the debate is the nature of this
relationship as well as the timing and degree of influence of these
macroeconomic changes engendered by crude oil price fluctuations on the
performance of agricultural firms and the environment.
Nevertheless,
before an effective macroeconomic framework can be designed and implemented in
the face of oil price shocks however, it would be pertinent for policy makers
and stakeholders (farmers and the general public alike) to have a profound
empirical understanding of the effects of crude oil price macroeconomic
transmission channels of interest in this study on the Nigerian agriculture and
the environment. This hopefully, will contribute significantly to economic
diversification, poverty reduction, economic growth and environmental
sustainability.
Nevertheless,
there is considerable lack of detailed empirical knowledge in this regard to
guide policy-makers in effectively and efficiently directing government
interventions to spur agricultural growth and reduce the constraints that
affect the carrying capacity of the environment through appropriate
macroeconomic policy mix. Most previous studies on related areas were
theoretical in nature, some adopted a single equation system which probably
yielded biased estimates of the identified parameters and incapable of
capturing completely the direct and indirect influences exerted by these
variables on agricultural real GDP (see: Eyoh, 2008; Oluba, 2007). Thus, these
works cannot adequately serve as a policy guide for policy makers.
To
bridge this knowledge gap therefore, this study adopted a Simultaneous
Structural Equations System in which many economic variables were endogenous
and their direct and indirect interactions were explicitly considered in the
model. First, this allowed us to endogenize many economic variables that were
likely to be generated in the same economic process, thereby reducing or even
eliminating the bias resulting from the endogeneity of these variables in the
empirical econometric estimation of the various effects. Second, it also allowed
us to estimate the various direct and indirect effects of the identified macroeconomic
variables on the index of agricultural real GDP.
Login To Comment