Agricultural Growth and Macroeconomic Disparities in Nigeria: an ECM Approach

International Journal of Research and Innovation in Applied Science (IJRIAS) | Volume VI, Issue V, May 2021|ISSN 2454-6194

Agricultural Growth and Macroeconomic Disparities in Nigeria: an Ecm Approach

Eche Nwachukwu Austine¹, Pam Bitrus James², Pam Felix Dung^3
1,²,³Department of Economics, Air Force Institute of Technology, Kaduna, Nigeria

Abstract
This study examined the effect of macroeconomic disparities on agricultural growth in Nigeria between 1985 to 2020. The macroeconomic variables adopted for the study include—exchange rate (EXR, inflation rate (INF), interest rate (INT) and government expenditures (GEX) on agricultural growth. The study utilized Error Correction Model (ECM) in the analysis of the short and long run coefficients. To prevent spurious regression, Augmented –Dickey Fuller (ADF) and Phillip Peron Tests were carried out on each of the variables to determine their level of stationarity. All variables were found to be integrated of order one I(1). Since all variables have unit root at levels, the long run relationship among the variables was tested using Augmented Engle-Granger test. The test showed cointegration. The results of the analyses of short run model showed that macroeconomic variables interest rate, exchange rate exerts significant impact on agricultural growth in both the short run and the long run. Though government expenditures on agriculture was significant in the short run, it was not in the long run. Inflation was not significant in both short and long run. Diagnostic tests such as Normality, autocorrelation and heteroscedasticity tests were carried out on the model output to establish the robustness or otherwise of the models. It was found that the residuals were normally distributed, free from autocorrelation and homoscedastic, lending credence to the robustness of the work and its ability to make correct forecast. The study recommendations that government should devise means of giving soft loans to farmers who may not be able to afford the cost of borrowing in any financial institution.

Keywords: Agriculture, macroeconomic variable, Error correction model, Interest rate, exchange rate, government expenditure

1.Introduction
Efficient agriculture and agricultural sector play a central role in achieving economic development of any country and particularly developing country like Nigeria. According to Ojo and Akanji (1996), agriculture is the most important single sector that employed about 70% of the population, in spite of the predominance of the petroleum sector in recent times, thus, agriculture remains a major source of economic resilience. In earlier time, agriculture played a critical role in advancing economic development in Nigeria through the provision of the needed foreign exchange earning for capital development projects. With reference to the earlier trade in palm oil, agricultural export grew to include cocoa beans and palm kernel. As such, the sector contributed to over 75% of total annual export in Nigeria (Ekpo and Egwaikhide 1994).

Read More