THE IMPACT OF GOVERNMENT AGRICULTURAL EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This study looked into the impact of government agricultural expenditure on economic growth in Nigeria. Time series data were gathered from secondary sources on real GDP, government agricultural expenditure, agricultural output and agricultural credit from the CBN statistical bulletin covering the period between 1981 and 2019. Econometric methods such as Augmented

Dickey-Fuller unit root test, Johansen Co-integration test, Ordinary Least Squares method and Granger Causality tests were used for data analysis. The study revealed that the overall model was statistically significant at 5% level of significance. Agricultural output and agricultural credit have a positive effect on economic growth whereas government agricultural expenditure has a negative effect on economic growth. Therefore, the study recommends that budget allocations to the agricultural sector should be closely monitored and ensured that they are channeled into the right targets. The government should also put forth policies that will promote good lending environment for agricultural related investments. Financial institutions should be made more available in rural areas where most farmers reside.

CHAPTER ONE

INTRODUCTION

                 1.1      Background of the Study

Nigeria is endowed with abundant natural resources ranging from solid minerals to arable land with varieties of agricultural produce such as palm oil, cocoa, groundnut, beans, melon, corns, and rice, among others. The hub of Nigeria economy before the advent of oil in commercial quantity was agriculture, but with the emergence of oil, there were focus shift from being agricultural dependent country to crude oil dependent nation. Since the era of oil boom in the 1970’s, Nigeria has been a victim of monolithic economy and since then have been enjoying crude crash without adequately evolving a sound policy that will put the nation’s economy on a firm foundation for steady growth. Today, oil revenue accounts for about 90% of the nation’s gross export revenue. From the 1970 oil boom era in the country, to date, heavy reliance was on oil revenue and with the fluctuation of oil prices and a subsequent sharp decline in the world oil price in the recent periods, it is obvious that over dependence on oil as major source of revenue could fail the country as it can’t finance the budget as usual (Ikpor, 2016)

Ewubare and Eyitope (2015) stated that the growth and development of any economy, to a large extent depends on the development of its agricultural sector. In Lewis’s model of economic development with unlimited supply of labor, he discussed five roles of agriculture in the development process – product contribution, factor contribution, source of employment, foreign exchange contribution and means of technological advancement (Ayesha, n.d).

Ayunku and Etale’s study (2015) identifies the agricultural sector in Nigeria as the segment that is most critical to the achievement of the elusive goal of a diversified economy.

Recent researches on the reasons for development and underdevelopment haven distinguished agricultural transformation as key to economic liberation of worsening countries. The growth and development for most nations arise from the functions of agriculture and basically from its relationships with other sectors of the economy (Oluwatoyese, Applanaidu & Abdul Razak, 2015).

Petroleum production and export play a dominant role in Nigeria’s economy and account for about 90% of her gross earnings. This dominant role has pushed agriculture, the traditional mainstay of the economy from the early fifties and sixties, to the background.

Nigeria entered recession in 2016 as a result of lower prices and production, exacerbated by militant attacks on oil and gas infrastructure in the Niger-Delta, coupled with detrimental economic policies, including foreign exchange restrictions. GDP growth turned positive in 2017 as oil prices recovered and output stabilized. With oil price volatility, the economy becomes highly vulnerable to unpredictable external shocks. This brings about the need to shift the focus from oil to the agricultural sector. This study is an improvement on other studies on the relationship between government expenditure on agriculture and economic growth in Nigeria.

                 1.2      Statement of the Problem

The agricultural sector used to be the primary foreign exchange earner of Nigeria. Before the Nigerian civil war, Nigeria was self-sustaining in food production. However, agriculture has now failed to keep up with Nigeria’s fast growing population, and Nigeria now depends on food imports to sustain itself. Between 2010 and 2018, Nigeria has imported agricultural products worth a total of US$231,550,000 (Central Bank of Nigeria Statistical Bulletin, 2018).

Regardless of the involvement of Nigeria in international trade, hunger, malnutrition, mass poverty and income among individuals, groups of businessmen and politicians, unemployment and lack of executive capacity, overdependence on petroleum and import goods and services continues to take a turn for the worse thereby delaying the economic growth in Nigeria (Ijirshar, 2015).

                    I.3     Research Questions

At the end of this study, the researcher provided answers to the following questions:

1. What is the impact of government agricultural expenditure on economic growth in

Nigeria?

1. What is the nature of the relationship between government agricultural expenditure and economic growth?

                 1.4      Objective of the Study

The broad objective of this study is to examine the impact of government agricultural expenditure on economic growth. Other specific objectives are:

1. To ascertain the impact of government agricultural expenditure on economic growth in

Nigeria.

1. To examine the causal relationship between government agricultural expenditure and economic growth.

                    I.5     Hypothesis of the Study

H₀ = Government agricultural expenditure has no impact on economic growth in Nigeria.

H₀ = There is no causal relationship between agricultural expenditure and economic

growth                                                          in                                                          Nigeria.

                 1.6      Significance of the Research

The significance of this research originates from the role of agriculture in the economy. Since a greater part of the population is employed in farming, the economic development is practically difficult to accomplish without building up this sector. Research on this issue is, therefore, essential to help policy decisions with regard to allocation of public expenditure. This research will also provide information to future researchers on matters concerning the relationship between government agricultural expenditure and economic growth.

The study will assist in disclosing the factors hindering the effective implementation of government policies and programmes on agriculture and will make practical suggestions towards ensuring the achievement of goals of such agricultural policies and programmes. This is important because it is only through feasible agricultural policies that the government can restore the agricultural sector and ensure its target goals and objectives in national development.

Furthermore, this research has the potential of not just developing the agricultural sector, but a whole lot of other issues Nigeria is facing – unemployment, low standard of living, rekindle the bond between agricultural sector and other sectors through supply of raw materials, balance of payment deficit. With more people engaged in agricultural activities, unemployment rates will reduce and subsequently improve the standard of living of the economy. Also, agricultural output can serve as a source of raw materials for the manufacturing sector. It could be cotton, timber/wood, fur, wool, hides and skin, etc.

                 1.7       Scope and Limitation of the Study

This study is limited to the analysis of the impact of government agricultural expenditure on economic growth. Therefore, the study will cover the period of thirty eight years from 19812019. This study focuses on the trend of government agricultural expenditure and some contributions of agriculture to the output of the Nigerian economy itself during the period under study. The choice of this study period is based on the availability of data.

                 1.8      Organization of the study

This paper is divided into five chapters, of which the first chapter consists of background of the study, statement of the problem, research questions, objectives of the study, hypothesis to be tested in the study, significance and scope of the study, and definition of terms. Chapter two reviews related literature on the impact of government expenditure on agriculture on economic growth in Nigeria, and provides the theoretical framework. Chapter three discusses the research methodology used in designing the study, including the data collection and data analysis methods. Chapter four presents the data analysis, hypothesis testing and discussion of findings.

Chapter five summarizes the study, draws conclusions and makes recommendations.

THE IMPACT OF GOVERNMENT AGRICULTURAL EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA

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