Commercial Bank’s Credit, Government Expenditure and Agricultural Output in Nigeria: An Error Correction Model

Abstract

The production of the agriculture sector is central to achieving sustainable economic growth and adequate food throughout the world. In Nigeria, agriculture used to be the mainstay of the economy in the 1960s producing about 90 percent of the government income and providing up to 70 percent job opportunities to the unemployed youths. Owing to diminishing budgetary allocation, these opportunities and potentials are eventually going to extinction. The paper also states that the different financial incentives channelled to the agricultural sector did not translate into substantial and sustainable agricultural production growth in Nigeria. Against this context, the study re-investigates the effect of commercial banks' credit for agriculture and government agricultural spending on agricultural production in Nigeria between 1980 and 2018. The findings of the ARDL co-integration test revealed that there is a long-term co-movement between agricultural government spending, interest rates and agricultural production in Nigeria. Increased budgetary allocation to the agriculture sector is also recommended and a larger proportion of the allocation should be committed to infrastructural improvement of the agricultural sector by the mechanisation of the agricultural system in Nigeria.

Keywords: Agriculture sector, Banks’ credit, Government expenditure, Interest rates