The Contribution of Agricultural Sector on the Economic Growth of Nigeria

The Contribution of Agricultural Sector on the Economic Growth of Nigeria

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Agriculture is known as the engine and panacea for economic growth in most developing nations of the world. As once asserted by Nobel laureate in economics Gunner Myrdal “The battle for long-run economic growth is either won or lost in the agricultural sector”. Nevertheless, how this path births economic prosperity has been the subject of debates among economist and development scholars. It is on this premise that this study is based. This study empirically examines the impact of agricultural sector on the economic growth of Nigeria. The study is conducted using annual time series data running from 1981 to 2013. The study employs Johansen multivariate cointegration test and Vector Error Correction model (VECM) as the estimation techniques. The results of the study reveals that Real Gross Domestic Product (RGDP), agricultural output and oil rents have a long-run equilibrium relationship according to the Johansen Multivariate cointegration test. Whereas, the VECM result shows that the speed of adjustment of the variables towards their longrun equilibrium path was low, estimated as 10.3042%. Based on the empirical outcomes of the result obtained, the following recommendations were offered: Firstly, government and financial institutions should make credit facilities readily available to farmers with little payback. Secondly, government should promote the diversification of the Nigerian economy to other non –oil sector and more allocation in terms of budgeting to the agricultural sector.

Keywords: Agriculture, Economic growth, Nigeria, Time series, Cointegration,

Vector error correction model (VECM).


Tarım sektörü gelişmekte olan uygarlıklar için bir motor ve her derde deva olabilen bir ilaç vazifesini görmektedir. Nobel ödüllü ekonomist Gunner Myrdal‟ın da belirttiği gibi “Uzun dönemdeki ekonomik büyüme tarım sektöründeki kazanma veya kaybetmenin mücadelesidir. Yine de bu kavramların ekonomik refahı nasıl doğuracağı ekonomist ve kalkınmacıların tartışma konusudur. Çalışmamız bu öncül tartışma üzerinde yükselmektedir. Bu çalışma ampirik olarak tarım sektörünün

Nijerya örneğinde ekonomik büyüme üzerindeki etkisini ölçmeyi amaçlamaktadır. Bu çalışma 1981 yılından 2013 yılına kadarki zaman serilerini veri olarak kullanmaktadır. Çalışmada Johansen çok değişkenli eş bütünleşme modeli ile vektör hata düzeltme modeli (VECM) kullanılmıştır. Çalışmanın sonuçları reel GSYİH ile tarımsal üretim ve petrol kiraları arasında uzun dönem ilişkiye Johansen eş bütünleşim modeli aracılığıyla işaret etmektedir. Halbuki vektör hata düzeltme modeline göre değişkenlerin uzun dönem dengeye uyarlama hızı düşük olarak gerçekleşmekte yüzde 10,3042 olarak karşımıza çıkmaktadır. Ampirik verilere dayanarak şu tavsiyeler önerilebilir: ilk olarak devlet ve finansal kurumlar çiftçilere düşük geri ödemeli krediler sunmalıdır. İkinci olarak da hükümet Nijerya ekonomisini çeşitlendirmeyi seçmeli, petrol harici sektörlere de öncelik tanımalı, tarım sektörüne ayırdığı bütçeyi artırıp geliştirmelidir. 

Chapter 1


1.1Background to the Study

Agriculture is the bedrock for economic growth, development and poverty eradication in the developing countries. Agriculture has also regarded as the engine and panacea to economic prosperity. In the words of Gunner Myrdal, “The battle for long-term economic growth will be won or lost in the agricultural sector”. However, how this path leads to economic prosperity is still subject to debate among development specialists and economists.

Nigerian economy in past decades strives on the agricultural sector. The agricultural sector is reputed as the mainstay of the economy in the early 1960‟s. The agricultural sector is seen as the key driver for growth and development. In fact to further buttress the pivotal role the agricultural sector plays in the Nigerian economy, the agricultural sector is part of the Millennium Development Goals (MDG‟s) program of poverty reduction in Nigeria. In most developing countries (low and middleincome countries), the agricultural sector remains, the largest contributor providing inputs, food, employment opportunities, raw materials for other industries, provision of foreign earnings from exportation of the surpluses, and more importantly the enormous advantage of the value added in the various production process (Okoro,


Studies reveal that most developing countries of the world are predominantly agrarian and rural in nature. A substantial proportion of the Nigerian population dwells in the remote areas, and this brought the countryside to the attention of policy and decision makers. (Dim, 2013).

After the discovery of the black gold, oil (post-oil boom), a decline in the agricultural sector‟s share was recorded, in term of its contribution to Real Gross Domestic Product (RGDP). Empirical research shows that the proportion of the agricultural sector in Gross Domestic Product had been 29.2 percent and 33.3 percent between 1970 and 1980. According to Aigbokhan (2011) prior to the oil boom in the 1950s and 1960s the agricultural sector accounted for over 63 percent and 54 percent of RGDP respectively. 

Emeka (2007) asserts that the agricultural sector creates jobs for a large number of the teeming unemployed population in Nigeria, which accounts for over 65 percent of the entire population. This high percentage comprises of subsistence farmers using crude and rudimentary implements like hoes, cutlass and shovel among others to cultivate fragmented farmlands as a source of livelihood. In affirmation of Emeka, Mackie (1964), Abayomi (1997), Abdullahi (2002); World Bank, (2007), all agree that, the agricultural sector contributes to the economy in four perspective areas namely; provision of products, contribution of inputs, market participation i.e.

marketing and accrual from foreign exchange.

1.2 Statement of the Problem

According to Manyong et al. (2005) Nigeria is endowed with a large deposit of agricultural resources and huge arable land for the cultivation of crops and rearing of animals. In the 1960s and 1970s the agricultural sector was constituting over 65 percent of total export. The Nigerian agricultural sector was renowned for the export of cash crops (agricultural crops and produce with export value) namely cocoa, rubber, hides and skin, groundnut palm among a host of many others. The agricultural sector holds an enormous potential for the growth and economic development of the country.

 In a similar study carried out by (Bekun, 2011) titled Economics of Yam Marketing in Minna, Nigeria. The study reveals that over 31.5 million metric tons of yams was produced in the study areas overwhelmingly huge, enough to engage more than half of the population in the study area.  Regardless of vast potentials the agricultural sector possesses, the industry endowment has not been fully harnessed. There has been a downturn in the late 1970s and figures have dropped significantly to 20 percent at the end of the 1990s. The decline in the agricultural sectors‟ contribution is explained by the oil boom in the late 1970s.  The 1970s outlined the period when oil was discovered in commercial quantity. This discovery has led to the neglect of the agricultural sector and more focus on the petroleum sector (energy sector). The sole dependence on oil (energy sector) turned Nigeria into a monoculture economy.

With the agricultural sector being so productive with arguably massive potential, why then has it been neglected?  The answer to this question prompts the motivation for this study.  Recent literature is attempting to estimate the relationship between the agricultural sector and economic growth, do so using cross-sectional data.  We argue that this methodology is flawed in the sense that the relationship between the agricultural sector and economic growth is best captured over time.  Given the so few studies done using time-series data, there is a gap in explaining the real effect of the agricultural sector on economic growth in Nigeria.  This gap is what this study aims

to fill.

This study seeks to estimate the effect of the agricultural sector on economic growth under the time series framework, using the vector error correction model (VECM) approach. We also try to identify the existence of a long-run relationship between the agricultural sector and economic growth using the Johansen co-integration test.  In this study, we also, by extension, determine the possible reasons for the neglect of this sector beyond the oil boom in 1970s and the impediments to the growth of the sector in Nigeria.

1.3 Objective of the Study

The primary purpose of this study is to investigate the impact of agricultural sector on the Nigerian economy‟s growth. The research aim to answer the following

pertinent questions:

1.                  Why are there inconsistencies in the agricultural sector‟s contribution to economic growth?

2.                  Is there any long-run relationship among agricultural sector and the Nigerian economy?

3.                  What are the various challenges facing the development of the agricultural sector in Nigeria?

1.4 Research Methodology

This study employs a time series analysis to investigate the contribution of agricultural sector to the economic growth of Nigeria. Given the period under review

(1981-2013), unit roots test was carried out with the widely used Augmented Dicky Fuller (ADF) and Phillips-Peron (PP) to check the degree of stationarity of variables employed in the study. Since it is a well-established fact that, GDP is usually difficult to be stationary at levels form. Also, co-integration test will be carried out to test the long-run equilibrium relationship between the variables and VECM will be used.

1.5 Organizational Structure 

The make-up of this research work comprises of six chapters. Chapter one is the introduction, background of the study, statement of the problem, the objective of the study, research methodology, and organizational structure.

Chapter two comprises the literature review. It entails theoretical and conceptual framework of agricultural sector contribution to the economic growth of the Nigerian economy. 

The next chapter is three which dwells on the Nigerian economy and its agricultural sector. Chapter four focuses on research methodology, nature of data, method of data collection, and method of data analysis.

While chapter five of this research focuses more on data presentation, data analysis, discussion of findings and interpretation of results, chapter six forms the summary, conclusion and policy implication from this study.

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