ABSTRACT
The study examined the effect of macroeconomic variables on the performance of agricultural output in Nigeria. The work aims at investigating the effect of interest rate (INTR), inflation rate (INFR), exchange rate (EXRT), government agricultural expenditure (GAEX) and trade openness (TOPN) on agricultural output (AGDP) in Nigeria from 1981 – 2020. The data set used for the study consists of annual time series obtained from Central bank of Nigeria Statistical Bulletin, National Bureau of Statistic and World Bank Development Indicator covering the period of the study. Autoregressive Distributed lag (ARDL) form of Ordinary Least Square method was used for purposes of estimation. The independent variables that include interest rate, inflation rate, exchange rate, government expenditure, trade openness and agricultural credit guarantee loan (the control variable) were regressed against the agricultural output (predictor variable). The result of the stationarity test showed that all the variables were stationary at levels. The co-integration test revealed an evidence of long-run relationship between the selected macroeconomic variables in the study. The findings showed strongly that the independent variables positively influenced the criterion variable and therefore the model was fit for estimation. The result further revealed significant relationship between agricultural output and some macroeconomic variables (interest rate, exchange rate, trade openness and agricultural credit guarantee loan) while inflation and government expenditure showed insignificant impact on the criterion variable of agricultural sector performance. Based on these findings, the study recommended that Central Bank of Nigeria (CBN) should make a single digit interest rate a policy for loans in the agricultural sector; government should take advantage of rising exchange rates in the country by encouraging export promotion strategies that will improve the sectors performance; government should improve the budget and the policy-making process that will enhance expenditure on the agricultural sector and also support farmers through the provision of inputs, subsidy and infrastructural development for increased agricultural production; government at all levels (Federal, State and Local governments) should prioritized agricultural spending which include investment in infrastructure, irrigation, research and development, modern machineries and equipment. This incentive, if adopted, will increase agricultural output and profitability, reduce food prices, and alleviate poverty; government should adopt measures and programmes that will ensure that its export products compete favourably with those of other countries, particularly producers of similar commodities globally.
TABLE OF CONTENTS
Title
Page i
Certification ii
Declaration
iii
Dedication iv
Acknowledgements v
Table
of Contents vii
List
of Tables xii
List
of Appendices xiii
Abstract xiv
CHAPTER 1: INTRODUCTION
1.1
Background of the Study 1
1.2
Statement of the Problem 9
1.3
Objectives of Study 13
1.4
Research Questions 14
1.5
Research Hypotheses 14
1.6
Scope of the Study 15
1.7
Significance of the Study 16
1.8
Limitations of the Study 17
CHAPTER 2: LITERATURE REVIEW
2.1 Conceptual Framework 19
2.1.1 Macroeconomic variables 19
2.1.2 Selected macroeconomic variables 19
2.1.3 Relationship between macroeconomic variables
and agricultural output 28
2.1.3.1 Interest rate and agricultural output 28
2.1.3.2 Inflation and agricultural output 32
2.1.3.3 Government expenditure and agricultural output 33
2.1.2.4 Exchange rate and agricultural output 35
2.1.2.5
Trade openness and agricultural output 37
2.1.4 Agricultural policy framework 39
2.1.4.1 Colonial periods 40
2.1.4.2
The post-colonial periods 42
2.1.4.3 Present day 49
2.1.5 Impact of
agricultural policy measure 51
2.1.5.1 Performance of
Nigeria agriculture 51
2.1.6 Agricultural
finance scheme in Nigeria 53
2.2 Theoretical Framework 61
2.2.1 Exogenous theories of economic growth 61
2.2.2 Endogenous theories of economic growth 65
2.2.2.1 Physical capital based endogenous
growth theories 66
2.2.2.2 New economic growth theories (endogenous
growth) 67
2.2.3 Summary of the theoretical framework 70
2.3 Empirical Review of Studies on
Macroeconomic Policies and Agricultural Output 71
2.3.1 Summary of Empirical Review 91
2.3.2 Summary of Literature Review 100
CHAPTER 3: METHODOLOGY
3.1 Research Design 102
3.2 Sources and Nature of Data 102
3.3 Model
Specification 103
3.4 Method
of Data Analysis 105
3.5 Description
of Model Variables 106
3.5.1 Control
variable 109
3.5.2 Apriori expectations 109
3.6 Technique for Data
Estimation 110
3.6.1 T-test 110
3.6.2 Unit
root test 111
3.6.3 Co-integration
test 112
3.6.4 Error correction model (ECM) or co-integration
equation 113
3.6.5 F-test 114
3.6.6 Coefficient of multiple determination (R2) 115
3.6.7 Durbin watson test (DW) 115
CHAPTER 4: DATA PRESENTATION AND INTERPRETATION
4.1 Data
Presentation 116
4.2 Data Series Estimation and Analysis 118
4.2.1
Results of unit
root test
118
4.2.2
Results of lag selection
119
4.2.3 Results
of autoregressive distributed bound test 120
4.2.4 Results co-integration test 121
4.2.6 Results of Stability tests 122
4.3 Hypotheses
Testing 123
4.3.1 Test
of Model Significance – F-ratio test 124
4.3.2 The hypotheses that test the impact of macroeconomic variables
on the performance of agricultural output in
Nigeria 125
4.4 Autoregressive
Distributed Lag Regression Result
126
4.5 Test of Individual Hypotheses 128
4.6 Discussion
on Findings and Result 130
4.7 Implication of the Result 133
CHAPTER 5: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 135
5.2
Conclusion 136
5.3 Recommendations 136
3.4 Contribution
to Knowledge 138
References 140
Appendices
153
LIST OF TABLES
2.1:
Summary
of Literature Relevant to the Macroeconomic Variables and the
Performance of Agricultural Sector 92
3.1: Apriori expectations 109
4.1
Selected Macroeconomic variables 117
4.2: Summary result of unit
root test 118
4.3: Bound Test 121
4.4: Co-integration Test 122
4.4: Summary of
the ARDL Regression Estimation Results for the
Hypotheses on the Relationship between macroeconomic variables and the performance
of Agricultural output in Nigeria. 125
LIST OF FIGURES
2.1 : Visual Representation of conceptual framework 60
4.1: Akaike information
criteria 119
4.2: Test of stability result 123
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
In recent
years, most of the discussions on macroeconomic policy in Nigeria have been on
the effect of the dynamics of the macroeconomic variables on agricultural
sector performance. This is because agriculture has been the pillar of the
Nigerian economy and has contributed significantly to the national economy. The
key impacts of the agricultural sector on Nigeria’s economy include the
provision of food; contribution to the gross domestic product (GDP); provision
of employment; provision of raw materials for agro-allied industries; provision
of employment to a large number of educated, uneducated, and unskilled labour
and generation of foreign exchange through the export of agricultural products.
Thus, it will be appropriate to place greater emphasis on the output of the
agricultural sector. Nigeria’s agriculture is made up of four sub-activities: Crop Production, Livestock,
Forest and Fishing.
The agricultural sector is the backbone of the Nigerian economy; it provides
the basic ingredients for mankind and raw materials for industries. Cocoa,
peanuts, sesame, kolanuts, palm oil, corn, rice, sorghum, millet, cassava (tapioca),
yam, rubber, cattle, fish and timber are among the agricultural commodities
produced in the country (Central Intelligence Agency,2019).
Agricultural progress is required to improve the supply of raw materials for
agro-based industries, particularly in our developing country. Agricultural
performance is a measure of output per unit of input that allows more to be
produced while maximizing the use and impact
of scarce resources. Improved output in agriculture lowers the cost per unit of
output, helping producers succeed in the current competitive business cycle and
enabling agricultural-food systems to provide foods for consumers at lower
prices (Global Agricultural Productivity, report, 2016). For an increase in
agricultural output, the key factors are innovation, farm management systems,
investment in new techniques, and research and development. Recently,
agriculture remains an important part of the national economy for the
increasingly growing populace with the challenge of providing both food
security and safety and sustainable development and wealth creation.
Notwithstanding the overall economic growth of a nation, it accelerates the
growth of the industrial and services sectors.
The
improvement in agriculture through policies has been fair despite the different
agricultural programmes in Nigeria. Since the 1970s, different programmes have
been presented and executed by the government to improve the sector. These
programmes were introduced to encourage mechanized, large-scale farming by the
federal and state governments. They include: the National Accelerated Food
Production Programme (1972); Operation Feed the Nation (1976); River Basic and
Rural Development Authority (1976); Green Revolution Programme (1980); the
National Fadama Development Programme (1990)
and the National Special Programme on Food Security (2002). The agricultural
sector has witnessed remarkable policy changes since the Nigerian Vision 20:
2020 (NV20:2020) was launched in 2009. The first implementation plan
(2010-2013) was ongoing when the Agricultural Transformation Agenda (ATA) came
on stream in 2011 and lasted till 2015. In August 2016, the Agriculture
Promotion Policy (otherwise known as the Green Alternative) was launched and is
reshaping the direction of agricultural development in the country. As the
nation experiences these different phases of strategic planning, there has been
no systematic framework for reviewing the performance of the sector
holistically to provide evidence to guide policy decisions and development
strategies (Olamola and Nwafor, 2018).
Macroeconomics
deals with the performance, structure, behaviour and decision-making of an
economy as a whole. Usually, the performance of the national economy is
implemented through two sets of macroeconomic policy tools: monetary and fiscal
policy. Monetary policy is described as a deliberate action by the monetary
authority to control the supply of credit to achieve certain broad economic
objectives, which include price stability; maintenance of the balance of
payments equilibrium; promotion of employment and output growth and sustainable
development (Falade and Folorunson, 2015). Fiscal policy involves the use of
parameters such as taxation, budgets, and quotas that will influence government
revenue and expenditure with a view to achieving macroeconomic objectives. The
changes in macroeconomic variables directly come from the implementation of
monetary and fiscal policies that affect agricultural output. Such changes are
observed through their influence on the exchange rate, inflation rate, net
export, interest rate, government expenditure, and money supply (Kadir and
Tunggal, 2015). Contractionary monetary policy decreases the supply of money
available in circulation, thus increasing the interest rate and decreases the
accessibility of credit, causing relative prices of agricultural products to
increase, while expansionary monetary policy increases the supply of money
available in circulation, which lowers or drives down the interest rate. By
implication, lower interest rates reduce the cost of borrowing money for
short-term farm inputs such as fertilizer, seed, and chemicals and long-term
capital investment, which includes machinery and land. An expansionary fiscal
policy increases the level of aggregate output and demand for agricultural
products as government expenditure increases through reductions in taxation. An
increase in aggregate demand drives up agricultural production in the economy
and thus leads to an increase in employment, profitability, and
investment. While contractionary fiscal policy increases tax rates and decreases
government expenditure. Thus, changes in
macroeconomic policy have become increasingly significant within the
agricultural sector, such that it has become more dependent on macroeconomic
indicators and more vulnerable to variations in interest rates, inflation
rates, exchange rates, government spending and international growth rates (
Eyo, Nwaogu and Agenson,2020; Awolaja and Okedina, 2020; Abubakar, 2019;
Adekunle and Nduka, 2018 and Anowor, Ukweni
and Martins, 2013).
The Nigerian
agricultural sector is one of the most heavily regulated sectors of the
Nigerian economy. Though CBN usually regulates the rate of bank credit to the
agricultural sector due to its relevance in the provision of raw materials for
industries and most importantly, the provision
of food for the teeming Nigerian population and also serves as a source of
foreign exchange for the economy (Adofu, Abula
and Audu., 2010). Onyishi, Arene, and Ifiorah (2015) show that the interest
rate is an important determinant of aggregate credit volume to the agricultural
sector in Nigeria. Adofu, et al., (2010) identified among other variables, that interest
deregulation has a significant and positive impact on agricultural productivity
in Nigeria and also enhances economic activity by bridging the gap between the
savers and the investors. Kolawole (2013) stressed that agricultural output
must be increased for the benefit of rural and urban dwellers alike. The
possible ways forward, among others, include the provision of finance through
cheap access in the form of low-interest rates from rural banks specializing in the provision of finance to small
farmers. Asekome and Ikojie (2018) observed the significance of interest in
agricultural investment in Nigeria. They believe that the lending rate determines
the return on agricultural investment, and that because the lending rate
translates into a cost of capital, the relationship has a direct impact on
agricultural investment.
Agricultural
input prices have increased globally over the years, and this has called for
serious concerns among policymakers. Agricultural performance is sensitive to
changes in prices of fuel, fertilizer, and chemicals, labour, and seeds. High
prices of most agricultural inputs constrain the development of efficient farm
input distribution systems and also predispose farmers to sell the output at
high prices after harvest. For example, higher energy-related production costs
would generally lower agricultural output, raise prices of agricultural
products and reduce farm income regardless of the reason for the energy price
increase (Sands and Westcoll, 2011). Also, value addition makes agricultural
products more competitive in the global market as well as earns farmers the
maximum returns (Muraya and Ruigu, 2017). Farmers export semi-processed
agricultural products, which are often low in value, and these form a
significant percentage of the entire agricultural-related exports. The
relatively high production costs and inability to add value to agricultural
output make exports less competitive globally.
Exchange
rate or export price competitiveness is a vital component of the macroeconomic
in assessing agricultural performance in Nigeria. Exchange rate devaluation
stimulates exports and curtails imports, while overvaluation harms exports and
stimulates imports. However, devaluation may not result in increased exports
because exchange rate movements affect agricultural exports not only through
their depreciation but also through their variability (Partnership Initiatives
in the Niger Delta, 2017). Since most international agricultural transactions
are in the US dollar, there is a need to recognize
the impact of fluctuating currency on businesses and consider ways to manage
the variability (risk). Exchange rate risk may be managed in two ways. First, a
producer can hedge transactions in the futures or options market. Secondly,
they can hedge through an exchange rate forward or options contract with a bank
(Alberta, 2019). Variability in exchange rate
discourages agricultural firms from undertaking investment, innovation, and
trade. Also, it deters firms from entering into the export market, thereby
weakening investor interest in agricultural sectors. Finally, it may raise the
price of imported inputs such as seeds and fertilizers, thereby reducing the
output of agricultural commodities and the income of farmers (Gatawa and
Mahmud, 2017).
Government
expenditure on agriculture is important for the sustainable growth of the
performance of the agricultural sector in Nigeria. The government solely finances
agricultural development due to the presence of externalities, high risk, and
inadequacies in agricultural institutions, which discourage investment in
agriculture (Mogues, Yu, Fan and McBride, 2012). Aina and Omojola (2017) noted
that increased budgetary allocation to the agricultural sector improves the
provision of infrastructural facilities such as a good road network and
electricity to rural farmers. With more efficient targeting of government
through infrastructural development, it stimulates growth in the agricultural
sector, which ultimately leads to higher wages and lower food prices and hunger
(Gilberto, 2012). Also, government investment in research and development,
irrigation and extension services can increase the profitability of private
investment. For example, when road infrastructure reduces the cost of
transportation and thus the cost of agricultural inputs and output, or when
investments in research and development result in crop varieties with higher
yields, bringing greater revenues and profits for agricultural enterprises. In
this sense, government investment can expand the opportunity set for market
actors and induce more (that is, a crowd in) private investment. However,
public investment can have a crowding-out effect through macroeconomic effects.
An increase in interest rate raises the cost
of borrowing and consequently reduces the profitability of private investment.
Consequently, less private investment will be undertaken than would occur
without this increase in the cost of capital (Mogues, et al., 2012).
From an
international perspective, the link between agricultural output and trade
openness may suggest that trade liberalization
goes along with economic development. Trade liberalization
increases the availability of goods and services to consumers and also expands
the opportunities for the agricultural sector by enhancing market
competitiveness as well as increasing investment while raising agricultural
output. Furthermore, factors of production such as capital and labour tend to
be encouraged and motivated through trade policy reforms that ultimately
increase welfare with the efficient allocation of domestic resources (DeSilva,
Malaga and Johnson 2014). Trade openness causes domestic resources to be more
efficiently used, which reduces the production of import substitutes and,
finally, strengthens the production of exportable products. Through trade
liberalization, new services are made available to agricultural producers in
the form of new technology, new ideas and
managerial skills. Domestic producers use these to bring innovation, invention and efficiency to domestic producers and
thus enable them to meet foreign competition. These factors stimulate
productive domestic investment and invariably maximize
the welfare of the people, creating output expansion as well as an increase in
export revenue and boosting growth (Alicia, Antonio, Osualdo and Richard, 2014).
However, while trade openness may make agricultural exports possible, it also
makes farmers' income more vulnerable to price variability (risk).
In the light
of macroeconomic linkages with agricultural sector performance, some empirical
evidence on the effect of interest rate on
agricultural performance was documented. The results of empirical studies from
sub-Sahara Africa on the effect of interest rate
on agricultural output show that a high interest rate decreases the
accessibility of credit, which in turn lowers the level of agricultural
performance (Agunuwa Inaya, and Proso 2015; Kolawole, 2013 and Onyishi, et al., 2015). Documented evidence on the effect of a high
inflation rate on agricultural output traces its findings to the effect of
higher input prices on agricultural output. Input price inflation reduces
agricultural output while increasing farm product prices and decreasing farm
income (Dorward, 2013; Hermmiing, 2018; and Sands and Westcott, 2011). Studies
on the effect of the exchange rate on agricultural output provide evidence of
exchange rate fluctuation (Akinniran and Olatunji, 2018; Gatawa and Muhmud,
2017). Moreso Zia and Mahmood (2012) and Oye , Lawal, Eneogu and Ise (2018)
empirically observed that exchange rate devaluation stimulates exports. Abula
and Ben (2016) and Ewubare and Eyitope (2015)
found a clear relation between government expenditure and agricultural output
in Nigeria. In the case of the Philippines, Gilberto (2012) pointed out that
the provision of rural infrastructure significantly improves agricultural
performance. Regarding the effect of trade openness (which most studies look at
as trade liberalization) on agricultural output, the empirical evidence varies;
that is, trade openness does or does not improve efficiency in the agricultural
sector (Anowor, et al., 2013; De
Silva, et al., 2014; Djokoto, 2013 and
Ojeyinka and Adegboye, 2017).
From the
foregoing, it is apparent that there exists much literature on the effect of
individual macroeconomic variables on agricultural performance. However, much
attention has not been given to how these macroeconomic indicators uniformly
affect the performance of the agricultural sector in Nigeria. This, therefore,
raises the question of whether the low performance of agriculture is associated
with macroeconomic variables that do not spur growth in the agricultural
sector. The study seeks to empirically examine the effects of selected
macroeconomic variables on the performance of the agricultural sector in
Nigeria.
1.2
STATEMENT OF THE PROBLEM
Agricultural performance is usually measured by trends in
total agricultural production, food production
and agricultural exports. Agriculture has remained the basis of Nigeria and
most countries in the world as it provides the main source of livelihood.
Agriculture serves different purposes in different sectors, such as the
industrial and non-industrial sectors. These
have, over the years, directly and indirectly, made known the importance of
agriculture for any country. As for Yakubu and Akanegbu (2015), the sector
accounts for approximately 40% of the gross domestic product (GDP), employs
approximately 65-70% of the labour force, is a major source of foreign
exchange, and provides a large share of basic food for survival and income to a
large portion of the teeming population. In addition, it provides the bulk of
the capital for industrial takeoff, thus serving as a forward linkage effect to
output utilization. Prior to the economic recession in 2016, agriculture's
positive contributions to the economy were instrumental in sustaining economic
growth and stability. The bulk of food demand was supplied from domestic
output, thereby solving the need to utilize
limited foreign exchange resources on food importation. Also, stable growth in
agricultural exports leads to a favourable balance of trade and the local
processing industries obtain regular supplies of raw materials from the
agricultural sector, which helps to provide some desirable linkages between
agriculture and the rest of the economy. Contrary to expectations, the
agricultural sector has underperformed in many regards. According to Romanus, Adeleje
and De Alwis (2020), from the period
2016–2019, agriculture’s contributions to the economy in terms of output
growth, employment, adequate food supplies, investment capital, and linkages
with the rest of the economy became relatively insignificant. This development
was reflected in the rising food prices and inflation rate, increase imports of food and agricultural raw
materials for local industries and a relative decline in agricultural export
earnings.
There has been a growth in documented literature both in
developing and emerging economies examining the linkage between macroeconomic
variables and the performance of the agricultural sector (Ali, Ali, Fatah and
Ariff, 2010; Dalamini, Tijani and Masuka, 2015; Ogunjinmi, 2021; Osuji, Tim-Ashama,
Okwara, Effiong and Anyanwu, 2020 and Victor,
Okoro, Bello and Alozie 2019). Despite this, to the best of the
researcher’s knowledge, there is a presence of scarcity in studies empirically
analyzing the influence of macroeconomic variables on the performance of the
agricultural sector in Nigeria. Previous studies have been on the relationship
between individual macroeconomic variables and performance of agricultural
sector in Nigeria (Anina and Omojola, 2017; Abubaka, 2019 and Ibekwe, 2020).
This, therefore, necessitates adoption of selected macroeconomic variables that
collectively have a substantial effect on the performance of the agricultural
sector in Nigeria.
The Understanding
of the nature of relationship between the performance of the agricultural sector
and its macroeconomic variables (interest rate, inflation rate, exchange rate,
government agricultural expenditure and trade openness) is important in
determining growth. This will help investors in agriculture with their
investment decisions and the government in choosing the economic policies and
actions that will drive the economy to attain economic growth. Many researchers
and governments, in collaboration with the Central Bank of Nigeria, have
conducted studies to investigate the extent to which macroeconomic variables
influence the performance of the agricultural sector in Nigeria (Mbutor, Ochu
and Okafor, 2013 and
Adamgbe, Belonwu, Ochu, and Okafor,
2020).
The
agricultural sector requires a lot of credit to finance current operations and
capital investment needed to support the sector in the area of new techniques
and facilities. Provision of credit to farmers to finance their current
operations has been inadequate due to high interest rate charges. According to
Asekome and Ikojie (2018), interest rates determine the return on agricultural
investment and thus have a direct impact on agricultural sector performance. A
lower interest rate reduces the cost of borrowing money for short-term inputs
such as fertilizer, seeds, livestock expenses, chemicals and long-term capital
investments, which include machinery and land. This can enhance productivity
and overall performance of the agricultural sector. Also, if the regulatory
authorities could carefully monitor expansionary pressure on the economy, they
would develop more effective policies.
The general
price rise in the economy (the inflation rate) has its implications on the
performance of the agricultural sector. Oluwafemi (2012) observed that it is
only in the midst of price stability that sustainable growth can be achieved.
Erratic price behaviour is a disincentive to producers and consumers, and it
can also discourage producers from investing in their farm enterprise. To avoid
the effect of inflation on agricultural sector output, the Central Bank of
Nigeria ensures that the price level remains stable. This can be achieved by
implementing prudent monetary and fiscal policies that guard against inflation.
The
agricultural sector is largely affected by exchange rate fluctuations. There is
evidence to suggest that changes in exchange rate policy have significant
consequences for a country’s domestic relative prices, particularly with
respect to the agricultural sector’s importation of raw materials, farm
implements, and the exportation of its output (Iheanachor and Ozegbe, 2021).
However, the influence of exchange devaluation has useful relevance to the
performance of agriculture in Nigeria. For instance, the introduction of
devaluation in 2015 resulted in the competitiveness of Nigeria's products compared
to foreign products in both local and international markets as the prices of
most imported products have more than doubled while Nigeria’s export prices are
lower. Thus, this led to import substitution and increased export
opportunities, thereby helping to support government trade policy. This
evidence will enable the Central Bank of Nigeria to strengthen the naira and
also restore the international competitiveness of the economy.
Normally,
the government provides capital to support a wide range of services and
infrastructure aimed at increasing output. At various times, the government has
provided soft loans through the Agricultural Development Banks, Agricultural
Credit Guarantee Scheme Loan, etc for
provisions of improved varieties of seeds, livestock, fertilizers, agro-chemicals,
irrigation and also has attracted foreign aid to individuals and agro-allied
companies in Nigeria (Ofoegbu, Malanga and Igwe, 2018). The rate of government
budgetary allocation towards agriculture has consistently been inadequate and
short of expectations despite the assumed interests of the respective
governments in recent years (Famobiele, 2013). For example, over the last two
decades, the government allocated less than 2% of the total federal budget to
agriculture, which contributed 2% of GDP (Adambge, et al., 2020).
The
performance of Nigeria's agricultural sector and its export sub-sector is a
function of trade liberalization. This function has not been adequately
performed in the Nigerian environment (Anowor, 2013). Trade integration (both
domestic and foreign) has not substantially enhanced or promoted market
competitiveness as well as increased investment in commodity exports. On the
other hand, to improve agricultural output, the sector requires trade openness
to benefit from technology transfer that integrates the economy into a global
supply chain that will create more job opportunities. Where these innovations
are not forthcoming, agricultural output techniques may be stagnant. In
Nigeria, technical innovation has not adequately made new services available to
agricultural producers in the form of new technology, new ideas, and managerial
skills. Constraints on agricultural sector performance have been in the form of
trade barriers, which impose substantial costs on consumers, distort patterns
of production and trade, reduce economic efficiency and cause environmental
damage. Due to lack of supportive facilities, agricultural growth and
competitiveness declined in their performance.
The issues discussed so far all end up in
making the agricultural sector performance in Nigeria very low. The fundamental
problem is how to improve the agricultural sector's output. Taking the average
production capacity of the agricultural sector in the past 10 years, Nigeria's
agriculture was substantially lower. Against this background of low
agricultural sector output, there is a need for empirical evidence on the
relationship between the selected macroeconomic variables and agricultural
sector performance in Nigeria.
1.3 OBJECTIVE OF THE STUDY
Based
on the above-stated problems, the primary objective of the study is to examine
the effect of macroeconomic variables on the performance of the agricultural
sector in Nigeria. The specific objectives of the study aim to accomplish are
as follows: to
i)
determine the effect of interest rate on the agricultural gross domestic
product in Nigeria.
ii)
analyze the effect of inflation on the agricultural gross domestic product in
Nigeria.
iii)
examine the effect of government agricultural expenditure on the agricultural
gross domestic product in Nigeria.
iv) investigate
the effect of the exchange rate on the agricultural gross domestic product in
Nigeria.
v) show
the effect of trade openness on the agricultural gross domestic product in
Nigeria.
1.4 RESEARCH QUESTIONS
The study will be guided by the following questions:
i) How does interest rate affect the agricultural gross
domestic product in Nigeria?
ii) In what way does inflation affect the agricultural
gross domestic product in Nigeria?
iii) How does government agricultural expenditure affect the agricultural
gross domestic product in Nigeria?
iv) To what extent does exchange rate affect the
agricultural gross domestic product agricultural in Nigeria?
v) To what extent does trade openness affect the
agricultural gross domestic product in Nigeria?
1.5 RESEARCH
HYPOTHESES
Based on the
above objectives and research questions, the following hypotheses are stated to
guide the study:
H01: There is no significant effect of interest rate on the agricultural gross domestic product in
Nigeria.
H02: Inflation rate does not have a significant
effect on the agricultural gross domestic product in Nigeria.
H03: There is no significant effect of government
agricultural expenditure on the agricultural gross domestic product in Nigeria.
H04: Exchange rate does not have a significant effect on
the agricultural gross domestic product in Nigeria.
H05: Trade
openness has no significant effect on the agricultural gross domestic product
in Nigeria.
1.6
SCOPE OF THE STUDY
The study
investigated the effect of macroeconomic variables on the performance of
agricultural output in Nigeria. Interest rate, inflation rate, exchange rate,
agricultural government expenditure, and trade openness were chosen as macroeconomic
factors. These variables were selected based on their strength as economic
indicators.
The study
covered a period of thirty-nine years (1981 to 2020) using annual time series
data. The choice of the period is based on the availability of data; the
coverage period of economic liberalization and other economic reforms and
policies in Nigeria during the study period. The effects of these reforms and
policies on interest charges on agricultural loans and advances, government agricultural
expenditure, exchange rate, inflation, and trade openness on the performance of
the agricultural sector are important to this study.
1.7 SIGNIFICANCE OF THE
STUDY
To the
government: In the past, the implications of macroeconomic indicators and
agricultural output research were not considered among planning priorities
because of insufficient information on the relationships. There is sufficient
interest in recognizing the implications for
research priority setting currently. Information on growth in agriculture will
make government involvement in the agricultural sector pervasive and
significant. The government will formulate and design appropriate policies to
impact agriculture and other complementary policies that stimulate the
performance of the agricultural sector, for example, macroeconomic policies.
Generally, the intended impacts of government agricultural policies are to
lower the cost per unit of output through higher-yielding crop varieties,
better livestock breeding practice and more
efficient supply of seedlings, fertilizer and pesticides, help producers succeed in the competitive business
cycle by reducing the cost of cultivation; improve rural infrastructure as the
road is crucial to raising agricultural performance through a reduction in
transportation costs and loss of perishable produce; and enable agricultural
food systems to provide foods for consumers at lower prices.
To potential
investors: Substantial improvement in the performance of the agricultural
sector is needed to combat poverty and realize
food security and nutritional goals. There is growing evidence that improved
performance of the agricultural sector is among the most efficient ways to reduce
poverty and hunger. Investors can generate a wide benefit from the impact of
the macroeconomic variables on the performance of the agricultural sector. The
effects of these macroeconomic indicators can be short-term, medium-term, or
long-term on the performance of agriculture. This study provides prospective
and current investors with knowledge and vital information on factors affecting
agricultural growth.
To
researchers: This study explains an area that has not been deeply researched,
and thus, this study has formed a foundation where other researchers could
confirm, develop, or enrich the study findings. This research would also
supplement studies on another related area of subject matter. The finding can
only be generalized to these macroeconomic variables,
and students can carry out further studies to capture the effect of additional
macroeconomic variables on the performance of agriculture in Nigeria.
1.8 LIMITATIONS OF
STUDY
This study
focused on the effect of macroeconomic variables on the performance of the
agricultural sector in Nigeria. Like other studies on macroeconomic variables,
monthly, quarterly, and annual time series data can be obtained from the
National Bureau of Statistics and Central Bank of Nigeria. There was a
limitation of timing in data collection as the researcher was faced with the
problem of collecting data to date. This, therefore, resulted in limiting the
annual time series data to 2020. Also, another limitation of the research is
the fact that it focuses mainly on the Nigerian economy.
The problem
of power supply in developing economies like ours is another limitation.
Inadequate power supply, associated with the poor funding of our utility
providers, was a serious impediment to the research effort. Hence, the researcher
relied on an alternative source of power supply to accomplish the work.
However,
these limitations did not affect the outcome of reliable evidence on the study
of the relationship between macroeconomic variables and the performance of the
agricultural sector in Nigeria because of the econometric technique and
analytical tools employed.
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