Macroeconomic and Fiscal Policy Variables on Agricultural Sector Output in Nigeria. The Co-Integration Approach

Abstract

The study examined the relationship between selected macroeconomic and fiscal policy variables on agricultural sector output in Nigeria. The study used variables like agricultural output, exchange rate, deposit money bank loans, capital government expenditure, recurrent government expenditure, money supply, inflation rate and interest rate in Nigeria. The study used unit root, Co-integration, error correction mechanism and OLS tests to establish the long run link and short run dynamics. The 2 R was 0.948856 or 94 percent and was statistically significant at 5 percent level of significance. The unit root result indicates that variables are integrated of order 1(1) fostering the need for a Co-integration test. The co-integration test reveals a long run relationship among the variables. This long run links necessitated for the conduct of error correction mechanism in order to link the long run to its short run equilibrium with a value of -0.669805. This means that the speed of adjustment is 66 from the long equilibrium to its short run equilibrium. The stability test carried out revealed that the model is stable over time from 1980-2024. The findings from the study indicates that agricultural sector output, deposit money bank loans, exchange rate and interest rate in the current value are all statistically significant at 5 per cent level of significance whereas government capital expenditure, inflation rate, deposit money bank loans and inflation rate were statistically insignificant in the past lagged (-1) value. On the other hand, government capital expenditure in past lagged (-2) value is statistically significant at 5 per cent level of significance. Finally, all the variables revealed a negative relationship except agricultural sector output and exchange rate in the current value and inflation rate in the past lagged (-1) value. On the basis of the findings, we recommend that government should be careful in issues of exchange rate and that it should be made to lessen the negative effects of exchange rate depreciation on agricultural output so as to allow agricultural activities that are importdependent strive in Nigeria. Again, government in both its recurrent and capital expenditure should make funds available to the agricultural sector to increase and improve agricultural yields, improve on supply of money in a moderate form so as to enable farmers meet up with their required farm tools purchases without snowballing inflation.