Effect of Deposit Money Banks Credit on Agricultural Output in Nigeria: An empirical Analysis

Abstract

This study investigated the relationship between deposit money banks credit and agricultural output in Nigeria from 1981 to 2023, using time series data from the CBN Statistical Bulletin. The dependent variable was agricultural output, while independent variables included credit to the agricultural sector (CAS), the Agricultural Credit Guarantee Fund Scheme (ACGFS), and interest rate (ITR). Data analysis techniques employed included descriptive statistics, unit root tests, bounds cointegration, the Autoregressive Distributed Lag (ARDL) estimation method, and residual diagnostic tests. The Augmented Dickey-Fuller (ADF) unit root tests revealed a mix of I(1) and I(0) series, indicating varying levels of integration among the variables. Evidence of cointegration found suggested a long-term equilibrium relationship among the variables. The ARDL results showed that deposit money banks' credits to agriculture had a positive but statistically insignificant effect on agricultural output, implying that increased credits do not significantly boost output. Interest rates had a negative yet statistically insignificant effect on agricultural output, suggesting that higher rates do not significantly reduce output. Additionally, the Agricultural Credit Guarantee Fund Scheme had a positive long-run relationship with agricultural output, though this effect is statistically insignificant, indicating that increases in the scheme do not significantly enhance output. Given these findings, this study concludes that deposit money banks' credits to the agricultural sector affects agricultural output in Nigeria. Recommendations include optimizing the allocation of existing credits by targeting high-potential agricultural value chains, promoting farmer cooperatives, and implementing smart subsidy programs to enhance credit utilization efficiency.