Agricultural Output And Macroeconomic Policy: Examining The Delicate Linkage in Nigeria

Obasaju Barnabas Olusegun and Baiyegunhi Lloyd-James Segun ()
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Baiyegunhi Lloyd-James Segun: Landmark University, Nigeria

Journal of Developing Areas, 2019, vol. 53, issue 1, 17-31

Abstract: The Nigeria's agricultural sector performance has remained dismal, characterized by years of inertia and unpredictability in production and marketed volume, even though it is one of the leading sector of the economy contributing about 75% to its non-oil exports. Agricultural economists have shown that there exists a macroeconomic policy–agricultural sector linkage. This study assesses the short-run and long-run linkages of macroeconomic policies with real agricultural output in Nigeria (1980:Q1 - 2014:Q4) by a Vector Error Correction Model (VECM) and Variance Decomposition techniques. It adopts the Augmented Dickey Fuller (ADF) test for stationarity of each variable, and the Dickey-Fuller Generalised Least Square (DF-GLS) and Phillips-Perron (PP) tests for selected variable(s). However, since the ADF test is sensitive to the choice of lag order, the Akaike Information Criteria (AIC) is used first to determine lag lengths for the unit root test. The Granger-causality test is employed to investigate feedbacks while also garnering crucial insights from variance decomposition. The macroeconomic variables used are the nominal money supply, interest rate, inflation rate and real exchange rate as endogenous variables. The normalised co-integration result of the VEC model showed that in the long-run, inflation and money supply are the two macroeconomic variables that are statistically significant in explaining variation in real agricultural output, with inflation having the most impact on real agricultural output while the real interest rate is not a significant determinant of real agricultural output. The Toda and Yamamoto Granger non-causality also lends credence to the estimates of the other techniques and shows that the inflation rate Granger-causes real agricultural output in Nigeria, implying that the past values of inflation could help in predicting the current value of real agricultural output. The variance decomposition test revealed that the inflation rate is the highest contributor to the forecast error variance of real agricultural output both in the short and long-run. Going by the insignificance of interest rate, the study recommends the need for policy makers to administer considerate rate of interests while also keeping the price level stable in order to raise effective demand and investment and consequently boost real agricultural output in Nigeria.

Keywords: Macroeconomic Policies; Real Agricultural Output; Nigeria; Vector Error Correction Model; Toda and Yamamoto Granger Non-Causality (search for similar items in EconPapers)
JEL-codes: C50 E00 Q10 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.53:year:2019:issue2:pp:16-31

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