ABSTRACT
The study
examines the impact of agricultural credit on agricultural output in Nigeria
from 1980-2010. The research design adopted for this study is the analytical/
causal research design which establishes relationship between the dependent and
independent variables. To ascertain the relationship that exist between the
dependent and the independent variables, secondary data were sourced from
central bank statistical bulletin. Descriptive statistics and correlation
matrix analysis were used to check the direction of movement among the
variables. The study adopted the Ordinary Least square (OLS) regression analysis method to test for
the long run relationship between the dependent and the independent variables.
The statistical package used is the EVIEWS 7.0 econometric software package.
The findings of the study were that deposit money bank and government
expenditure exert a significant positive influence on agricultural output in
Nigeria. Base on the findings, we therefore recommend that government should
encourage deposit money banks to allocate and disburse loans to the
agricultural sector, especially to the rural farmers.
TABLE OF
CONTENTS
CONTENTS PAGE
Title Page - - - - - - - - i
Certification - - - - - - - - ii
Dedication
- - - - - - - - iii
Acknowledgement - - - - - - - iv
Table
of contents - - - - - - - v
List
of table - - - - - - - - vi
Abstract
- - - - - - - - vii
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study - - - - - 1
1.2 Statement of Research Problem - - - - - 3
1.3 Research Questions - - - - - - 5
1.4 Objectives of the Study
- - - - - - 5
1.5 Research Hypotheses - - - - - - 6
1.6 Scope of the Study - - - - - - 6
1.7 Significance of the Study - - - - - 6
1.8 Limitations of the Study - - - - - 7
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction - - - - - - - 8
2.2 Empirical Evidence - - - -
- - 9
2.3 Theoretical Evidence - - - - - - 12
2.3.1 Agricultural Based Economic Development Theory - - 12
2.3.2 Structural change Theory - - - - - 13
2.3.3 Cobb-Douglas production Theory - - - - 14
2.3.4 Sustainable Likelihood theory - - - - 15
2.3.5 Theory of Food Security - - - - - 16
2.4 Financing Agriculture in Nigeria - - - - 16
2.4.1 Sources of agricultural financing - - - - 18
2.5 Bank Credit and Agricultural Production in Nigeria - - 19
2.6 Agricultural Financing Policies in Nigeria - - - 22
2.6.1 Agricultural Credit Guarantee Scheme Fund (ACGSF) - 22
2.6.1.1 Roles of Agricultural Credit Guarantee Scheme
Fund - 23
2.6.1.2 Problems of Agricultural Credit Guarantee
Scheme Fund - 25
2.6.2 Self-Help Group Linkage Banking - - - - 26
2.6.3 Trust Fund Model - - - - - - 27
2.6.4 Interest Draw Back - - - - - - 27
2.7 Reasons for Government Policies on Financing of Agriculture 28
CHAPTER THREE
METHODOLOGY
3.1 Introduction - - - - - - - 31
3.2 Research Design - - - - - - - 31
3.3 Population and Sample of the Study - - - - 31
3.4 Sources of Data - - - - - - 32
3.5 Method of Data Analysis - - - - - 32
3.6 Model Specification - - - - - - 32
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction - - - - - - - 34
4.2 Data Presentation - - -
- - - 34
4.3 Presentation and Analysis of Results - - - - 35
4.3.1 Descriptive Statistics - - - - - - 36
4.3.2 Correlation Analysis - - - - - - 37
4.3.3 Analysis of Regression Result - - - - 38
4.4 Test of Hypotheses - - - - - - 39
4.5 Discussion of Findings - - - - - 41
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of Findings - - - - - - 42
5.2 Conclusion - - - - - - - 42
5.3 Recommendations - - - - - - 43
References - - - - - - - - 45
Appendix I: Descriptive Statistics Result - - - - 49
Appendix II: Correlation
Matrix Result - - - - 50
Appendix II: Long Run Regression Result - - - - 51
LIST OF TABLES
Table 4.1: Data of Variables
used for Analysis - - - 34
Table 4.2: Descriptive
Statistics Result - - - - 36
Table 4.3: Correlation Matrix
Result - - - - - 37
Table 4.4: Long
run Regression Result - - - - 38
Table 4.5: Summary of Test of
Hypotheses - - - - 43
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Nigeria in the last few years had clamored for foreign
portfolio investment. This is believed to be a facilitator of stock market
development, which leads to economic development and industrialization of the economy in the long run (Adeleke, 2004).
Foreign portfolio investment means the purchase of shares in a foreign country
where the investing party does not
seek control over the investment. A
portfolio investment typically takes the form of the purchase of equity
(preference share) or government debt in a foreign stock market, or loans made
to a foreign company.
Foreign portfolio flows are commonly known as Foreign
Institutional Investment refers to the flow of capital made by individuals and institutional investors across national
borders with a view to creating an
internationally diversified portfolio. Unlike
Foreign Direct Investment (FDI) flows which
refer to that category of international
investment aimed at obtaining
a lasting
interest by a resident entity in
one economy in an enterprise resident in another economy by way of
exercising significant control over its
management, foreign portfolio investment is the entry of funds into a country where foreigners make
purchases in the country's stock and bonds markets for the sole purpose of financial gains and does not create a lasting interest in the management control. It is
positively influenced by high rates
of returns and reduction of risk through
geographical diversification and the
return on FP1 is normally in the form of interest payments or non - voting dividend. It involves the passive
holdings of securities and other financial
assets which do not entail active management or control of the securities issuers.
Foreign portfolio investment (FPI)
is an aspect of international capital flow comprising the transfer of financial assets: such as cash; stock or
bonds across international borders in need
of profit. It occurs when investors purchase non-controlling interests in
foreign companies or buy foreign corporate or government bonds, short-term
securities, or notes. Thus, just as trade
flows result from individuals
and countries seeking to maximize their well-being by exploiting their own
comparative advantage, so too, are capital flows the result of individuals and countries seeking to make
themselves better off, moving accumulated assets to wherever they are likely to be most productive (ERP, 2006).
In the late 1980s a distinguished international study group for
the World Institute for 'Development
Economics Research (WIDER) headed by Sir Kenneth Berrill, forcefully argued for
developing countries to liberalize their financial markets in order to attract foreign portfolio
equity flows. The study group's essential argument was that there was a huge
amount of financial capital available in developed countries through
pension and investment funds that could
be attracted to developing countries
provided they liberalized their
markets externally and developed their stock markets internally.
Although the report noted the lack of a clear connection between economic
growth and stock market development, it presented a large number of benefits
that developing countries can reap. These included:
·
an additional channel for
encouraging and mobilizing domestic savings;
·
improvements in
the productivity of investments through market allocation of capital: and
·
increased managerial discipline exercised
though the market for corporate control (WIDER, 1990).
Portfolio investment is a recent phenomenon in
Nigeria. Up to the mid 1980's, Nigeria did
not record any figure on portfolio
investment (inflow or outflow) in her balance of payment account. The nil returns on the inflow column of the
account is attributable to the absence of foreign portfolio investors in the
Nigerian economy. This is largely because of the
non-internationalization of the country's money and capital markets as well as the
non-disclosure of information on the portfolio
investments in foreign capital/money
markets (Obadan, 2004).
Following a careful review of the consequences
of the Exchange Control Act of 1962 on the
economy, after some thirty three
years of its operations, Nigerian authorities came to the conclusion that the Act had not brought the economy any substantial benefits. The Act was
judged inimical to a market driven economy, new policy government had pursued since 1986, with the deregulation
of the economy. While equity
investment trickled into Nigeria
as a result of the Exchange Control Act of 1962, Portfolio Investments
dried up, because portfolio investments required an investment climate, which guarantees
speedy "free entry" and "free exit" of investment funds
in a flash. The investment climate
in Nigeria engineered by the Exchange Control Act of 1962 did not guarantee the speedy mobility of
funds across international borders. It took the authorities more than
three decades to realize that protection of the economy in a world striving to dismantle
economic frontiers had not paid off, and that the capital market being a major player in the mobilization
of funds for investment has to be
liberalized and modernized to enable it capture enough resources for the
economy from within and from
outside. The Exchange Control Act of 1962 was identified as a major constraint
on the growth of the Nigerian capital
market. Accordingly the Act was blown away with gale force in 1995, •n the
strong wind of deregulation, which swept across the Nigerian Macro-economic
policy arena, from the beginning of the last quarter of 1986 (Onoh, 2002).
1.2
STATEMENT OF PROBLEM
Although FP flows help supplement the domestic
savings and augment domestic investments without increasing the foreign debt of
the recipient countries, correct current account
deficits in the
external balance of payments' position,
reduce the required rate of return for equity,
and enhance stock prices of the host countries, yet there are worries about the
vulnerability of recipient countries'
capital markets to such flows. FPI flows, often referred to as 'hot money'
(i.e., short-term and overly speculative), are extremely volatile in
character compared to other forms of capital flows. Foreign portfolio investors
are regarded as 'fair weather friends' who come in when there is money
to be made and leave at the first sign
of impending trouble in the host country thereby destabilizing the domestic
economy of the recipient country. Often,
they have been
blamed for exacerbating
small economic problems in the host nation by making large and concerted
withdrawals at the slightest hint
of economic weakness. It is also alleged that as they make frequent marginal
adjustments to their portfolios on the basis of a change in their perceptions
of a country's solvency rather than
variations in underlying asset value, they tend to spread
crisis even
to countries with strong
fundamentals thereby causing 'contagion' in international
financial markets (FitzGerald, 1999). Further, it is feared that 500 worth of
FPI inflows may build up sizeable surpluses on a country's balance of payments,
create excess liquidity and hence exert upward pressure on the exchange rate of
the domestic currency or on domestic prices. The fear of foreigners capturing a
large part of the securities' market also associated with FPI flows.
Accordingly it is viewed that as securities markets in developing countries
like Nigeria are narrow and shallow and as the foreign investors have command
over considerable funds and occupy a dominant position in the capital market.
FPI flows have the potential for major capital flight out of Nigeria driving
the prices down sharply and hence inducing considerably instability in the
Nigeria stock market. The danger of abrupt and sudden outflows inherent with
FPI flows have been highlighted in several research studies. Froots, O'Connell,
and Seasholes (2001). These issues have made the policy makers all the more wary
about FPI flows as questions have begun to be raised about the wisdom in
promoting such flows
However, the issues of whether FPI flows affect stock
market returns or the other way round is a matter of controversy. It has been
perceived in some quarters that FPI flows are the major drivers of stock
markets in Nigeria and hence a sudden reversal of such flows may harm the
stability of the market. Contrary to this belief, it is
viewed by others that FPI flows react to the existing crisis in the stock market,
possibly exacerbating it rather than
causing it. The implication of this is that knowledge and understanding
foreign portfolio investment and the Nigerian stock market development is
imperative to save warranted an empirical study of this nature.
1.3 RESEARCH QUESTIONS
To this end, the study intends to
answer the following questions:
1.
What is the relationship between foreign portfolio investment and stock market development in Nigeria?
2.
What is the relationship
between exchange rate on stock market development in Nigeria?
3.
What is the relationship
between interest rate on stock market development in Nigeria?
1.3 OBJECTIVES
OF THE STUDY
Acknowledging the role of
foreign portfolio investment in the mobilization of funds for market
development, this study presents an
overview of the nation's foreign investment activities
and stock market development. This would be made possible by relating the indicators of FPI with the proxies of stock
market development. Specifically,
the study seeks to achieve the following objectives:
1.
to determine the relationship
between foreign portfolio investment and
stock market
development in Nigeria;
2.
to ascertain the relationship between exchange
rate has on stock market
development
in Nigeria; and
3.
examine the relationship
between interest rate on stock market development in Nigeria.
1.4 HYPOTHESES OE THE STUDY
The hypotheses of this study is stated in the null
and alternative forms as follow;
1.
HO1: There is no significant
relationship between foreign
portfolio investment and stock market
development in Nigeria.
HA1: There is a significant relationship between foreign portfolio investment and stock market development in
Nigeria.
2. HO2: There is no significant relationship between
exchange rate and stock market development in Nigeria.
HA2: There is a significant relationship between exchange
rate and stock market development in Nigeria.
3. HO3: There is significant relationship
between interest rate and stock market development in Nigeria.
HA3: There is no significant relationship
between interest rate and stock market development in Nigeria.
1.5 SCOPE
OF THE STUDY
The research work is concerned with the empirical analysis of the
impact of foreign portfolio investment on stock market development using stock
market indicator. This research work covers a time period of 25 years
(1986-2010).
1.6 LIMITATION
OF THE STUDY
It is axiomatic to say that nothing in the real world is absolute and as common to all other this research
was faced with some unavoidable constraints.
The major limitations of this
study relates to data sourcing. There was difficulties in obtaining relevant
data from their various sources.
Secondly, because of
using proxy variables, the conclusion of this study may not be absolute hence the
need for further research in this area
in Nigeria.
1.7 SIGNIFICANCE
OF THE STUDY
As a result of the constantly
changing environmental, economic
and political environment,
this study will help produce or generate current and up to date
information
regarding the state
of the Nigerian stock market in relation to how foreign portfolio investment
flows through the stock market mechanism to engender the growth of our
economy thereby knocking off every form of obsolete
knowledge that existed in this regard. This study will help
policy makers to know the extent to
which their policies towards making
sure that the Nigerian stock market lives up to it bidding have performed.
Furthermore
academicians would find
the outcome of this research useful; because it updates the already existing knowledge on foreign portfolio
investment and stock market development. The findings
of this study might also establish
the basis for further research in this area.
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