TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1
Background of
the Study
1.2
Statement
Of The Problem
1.3
Scope
of Study
1.4
Objectives
of Study
1.5
Significance
of Study
1.6
Research
Questions
1.7
Hypothesis
of the Study
1.8
Methodology of the Study
1.9
Data Sources
1.10
Outline
of Chapters
CHAPTER
TWO
LITERATURE
REVIEW AND THEORETICAL FRAMEWORK
2.1
Introduction
2.2
Monetary Policy and Agriculture in Nigeria
2.3
Theoretical
Framework
2.3.1
Supply-Leading
and Demand-Following Hypothesis
2.3.2 The Monetary Transmission Mechanism
2.4
Review of Current Literature
CHAPTER THREE
RESEARCH
METHODOLOGY
3.1
Introduction
3.2
Model Specification
3.3
Description of Variables and A
priori Expectation
3.4
Method
of Data Analysis and Presentation.
CHAPTER
FOUR
ESTIMATION
AND RESULTS
4.1
Introduction
4.2
Descriptive
Analysis of Monetary Policy Instruments and Agricultural output.
4.3
Empirical
Analysis of The Effect of selected Monetary Policy variables on Agricultural
Output
4.3.1
Unit
Root Test
4.3.2
Cointegration
Test using Johansen’s Vector Autoregressive Model
4.3.3
Normalized Cointegrating Coefficients
4.3.4
Vector
Error Correction Model (VECM)
CHAPTER
FIVE
SUMMARY,
CONCLUSION, AND RECOMMENDATION
5.1
Summary
5.2
Findings
5.3
Conclusions
5.4
Limitations of Studies
5.5
Suggestions
for Further Studies
5.6
Recommendations
REFERENCES
APPENDICES
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
The
significance of agriculture in bringing about economic growth and development
of a nation cannot be underestimated, the reason why a nation possesses
sustainable food security, is because it
produces enough food to feed her citizens and even export these goods to
other needy countries thereby generating foreign exchange which in turn
increases the national income in the long-run. The agricultural sector serves
all other sectors in the economy especially the industrial sector. The problem
facing the Nigerian agricultural economy is inadequate capital and credit for start-up,
investment and expansion. Monetary policy through its influence on the
financial sector of the economy plays a
major role in making credit available to the agricultural sector.
Monetary
policy refers to the combination of measures designed to regulate the value,
supply and cost of money in an economy. It can be described as the art of
controlling the direction and movement of credit facilities in pursuance of
stable price and economy growth in an economy (CBN, 1992). Monetary policy in
the Nigerian context refers to the actions of the Central Bank of Nigeria to
regulate the money supply which could be through discretional monetary policy
instruments such as the open market operation (OMO), discount rate, reserve
requirement, moral suasion, direct control of banking system credit, and direct
regulation of interest rate (Iyoha, 2002).
The
Central Bank of Nigeria (CBN) derives its mandate from the CBN Act of 1958.
Section one of the CBN Decree No. 24 of 1991, stipulates that the principal
objects of the Bank shall be to issue legal tender currency in Nigeria;
maintain external reserves to safeguard the international value of the legal
tender currency, promote monetary stability and a sound financial system in
Nigeria, and act as banker and financial adviser to the Federal Government
(CBN, 2006). Therefore the central bank is the principal monetary authority.
Agriculture in the context of the economy
is tied with the various sectors and is essential for generating broad based
growth necessary for development. Agriculture is fundamental to the sustenance
of life and is the bedrock of economic development, especially in the provision
of adequate and nutritious food vital for human development, the sector is a
catalyst and major source of raw materials for the industrial sector and
provides most of the staple food consumed by the 120 million Nigerians.
Although developments in the oil sector have dominated Nigeria's economic scene
since the mid-1970s, the country remains basically agricultural. More than 70
percent of its population depends on agriculture, which contributes roughly 25
percent of GDP and 60 percent of non-oil exports.
Monetary
policy facilitates the establishment of agricultural businesses through
availability of credit and finance for start-up, investments, and expansion.
The CBN controls the availability of credit through monetary policy
instruments. These instruments affect agricultural output through agricultural
banks and other financial institutions. Therefore, in our study of agricultural
output monetary policy is a very important factor.
1.2
Statement
Of The Problem
Before
the rapid rise in oil export revenue, Nigeria was a major exporter of
agricultural produce, especially cocoa, groundnuts, cotton, palm oil, palm
kernel, and rubber. Since then however both the volume and the range of
agricultural exports has declined sharply and agricultural imports have
increased dramatically.
In addition, Nigeria no longer produces
sufficient food for the country's large and rapidly growing population. The
average annual rate of real output growth for food crops fell to about 2
percent a year during the 1970s. Between 1970 and 1975, however, the output of
export crops dropped 17percent, the food import bill rose more than 10-fold in
1970-1980.
Low
agricultural output has a negative effect on the economy as a whole, there is a
low production of goods for food and raw materials for industries. A major
challenge facing Nigeria is the inability to capture the financial services
requirements of farmers and agribusiness owners who constitute about 70 percent
of the population. Farmers need access to capital to purchase land and
equipment and to invest in the development of new products, services,
production technologies and marketing strategies. Yet banks are often reluctant
to lend money to farmers for agricultural enterprises due to the lack of
creditability and collateral.
Therefore
there is need for a research in order to effect necessary changes because
activities of the monetary authorities through monetary policy affect the
financial institutions and credit availability to the agricultural sector in no
small measure this will further affect agricultural output positively.
1.3
Scope of Study
This
research seeks to study agricultural output and the how monetary policy affects
it. The study shall be made using
secondary time series data, for a span of 26 years that is from 1980 to 2006
which is sufficient and suitable for conducting a research, making new findings
and relevant recommendations.
1.4
Objectives of Study
The main objectives of
this research are as follows:
1) To
identify the monetary policy instruments used to support the agricultural
sector.
2) To
examine the impact of prime lending
rate, cash reserve ratio, agricultural credit guarantee scheme fund and money supply on agricultural output.
3) To
find out if there is a long-run relationship between certain monetary channels
and variables such as real exchange rates, monetary policy rate, private
investments in agriculture, agricultural credit guarantee scheme fund, and
agricultural output.
1.5
Significance
of Study
Most researches on the Nigerian
agricultural sector has not been specific enough in terms of laying emphasis on
credit availability in relation to monetary policy and the actions of the
Central Bank of Nigeria as it affects the rural farmer and agricultural
businesses, which affect the total agricultural output in the economy.
This research is specific, it emphasizes
the effect of the government’s actions
through monetary policy on agricultural output, which will immensely contribute
to current knowledge on the topic under research.
1.6
Research Questions
1) What
effect(s) will monetary policy instruments have on agricultural output?
2) How
can we use liquidity ratio, prime lending rate, cash reserve ratio,
agricultural credit guarantee scheme fund and
money supply to enhance agricultural crop output?
3) Is
there a long-run relationship between real exchange rates, monetary policy rate,
private investments in agriculture, agricultural credit guarantee scheme fund, and
agricultural output?
1.7
Hypothesis of the Study
Ho: there is no relationship between
liquidity ratio, prime lending rate, cash reserve ratio, money supply, ACGSF
and agricultural output.
H1: there is a
relationship between liquidity ratio, prime lending rate, cash reserve ratio,
money supply, ACGSF and agricultural output.
Ho: there is no long-run relationship
between real exchange rate, MPR, investment, ACGSF and agricultural output.
H1: there is a
long-run relationship between real exchange rate, MPR, investment, ACGSF and
agricultural output.
1.8
Methodology of the Study
A Descriptive Statistical
Analysis as well as an Econometric Analysis using the Johansen cointegration
test and a vector error correction method (VECM) were the methods employed to carry out an
investigation on the subject matter.
1.9
Data Sources
Data
for this study is be obtained from CBN Annual Report, Statement of Accounts
(2006), Statistical Bulletin (2006) volume 16 and the United Nations
Statistical Database.
1.10
Outline
of Chapters
This
study is divided into five chapters where chapter one is the introduction,
chapter two is made up of literature review and theoretical framework, chapter
three consists of the research methodology, chapter four carries out the data
interpretation and analysis, and finally chapter five gives a summary, findings
and conclusion and ends with a recommendation.
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