Commercial Banks’ Credit Allocated to Agricultural Sector and Economic Growth in Nigeria

A Chuba Mathias and Hitlar Inedu

Nigerian Agricultural Policy Research Journal (NAPReJ), 2023, vol. 10, issue 01

Abstract: The empirical literatures on the effect of commercial banks’ credit allocated to agricultural sector on economic growth in Nigeria are mixed. The previous studies in Nigeria did not determine the percentage of the commercial banks’ credit allocated to agricultural sector and the percentage contribution of agricultural sector to gross domestic product (GDP). The main objective of this paper is to evaluate the effect of commercial banks’ credit allocated to agricultural sector on economic growth in Nigeria from 2014q1 to 2020q4 using error correction model (ECM). The other objective of the study is to determine the percentage of commercial banks’ credit allocated to agricultural sector and the percentage contribution of agricultural sector to GDP in Nigeria from 2014 to 2020 using a descriptive statistics. The ECM results revealed that the commercial banks’ credit to agricultural sector had a significant positive effect on economic growth. The ECM results indicated that a 1% increase in commercial banks’ credit to agricultural sector led to 23.37% increase in real GDP in Nigeria. The results of the descriptive statistics indicated that agricultural sector was allocated 3.92% of commercial banks’ credit and agricultural sector contributed 24.58% to real GDP. The agricultural sector was allocated the lowest percentage of commercial banks’ credit than any other sector. With every 1% of sectoral allocation of commercial banks credit, the agricultural sector contributed more to GDP than any other sector. The agricultural sector that is the backbone of Nigerian economy is not accorded the priority in credit allocation. The inefficiency of commercial banks in the allocation of resources has resulted into low level of economic growth in Nigeria. The apex bank should ensure that the commercial banks are efficient in the allocation of resources. The Central Bank of Nigeria should direct the commercial banks to allocate the highest percentage of their credit to agricultural sector in order to achieve a sustainable agri-food system and economic growth by 2025 in Nigeria and Sub-Saharan Africa.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ags:naprej:343420

DOI: 10.22004/ag.econ.343420

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