Value Added Agricultural Output and Macroeconomic Dynamics in the Nigerian Economy

Abstract

This paper investigated the impact of macroeconomic variables on the Nigerian value-added agricultural output from 1971 to 2016 both in the short and the long-run. The descriptive statistics and stationarity tests were conducted prior to the long run tests using the Johansen co-integration procedure and the Vector Error Correction Model (VECM) technique. In the third step, the serial correlation and the heteroscedasticity tests were conducted in addition to the Impulse Response analysis. The result revealed the absence of linkage between each of interest, exchange rate and employment in agriculture, and oil revenue on the one hand and agricultural value added output on the other. However, external reserves and real per capita GDP as a proxy of aggregate demand shock in the short term significantly affected the output of the value chain. In the long run, inflation rate, exchange rate and agricultural employment rates were positively related with and are significant in forecasting the value-added agricultural output. However, the interest rate, external reserves, aggregate demand shock and Oil revenue although significant, inversely affect value added agricultural output. The study recommended continued the diversification of the economic base of the country. In addition, employment – generating policies and measures that create aggregate demand together with subsidized interest rate regime in line with the Anchor borrowers programme should be intensified. Agriculture must run as business.

Keywords: Agricultural output, Exchange rate, Fiscal policy, Inflation rate, Interest rate, Unemployment rate, Monetary policy.