Credit Supply and Agricultural Production in Nigeria: A Vector Autoregressive (VAR) Approach

Abstract

Agriculture used to be the mainstay of the Nigerian economy contributing over 70 percent to the country’s total output and accounts for over 90 percent of total food consumption. However, the performance of the sector has drastically deteriorated since the discovery of crude oil in 1956. The strategic roles of the agricultural sector in national development led the Federal Government to establish agricultural sector credit schemes and various other institutions to boost the level of productivity in the sector. Notwithstanding, the intensification of government and private sector support to the sector, the contribution of agricultural to GDP has fallen significantly creating a fundamental gap in resource allocation to the agricultural sector. The basic question raised in this research, is, does increased credit supply through the Agricultural Credit Guarantee Scheme Fund (ACGSF) and commercial loans to the sector boost agricultural sector productivity? This study examines the impact of the credit supply, and various commercial bank loan schemes on agricultural sector production using vector autoregressive (VAR) approach. Using time series data sourced from Central Bank of Nigeria Statistical Bulletin over the sample period of 1981-2013, the study found ACGSF to have performed poorly in explaining agricultural sector performance while commercial loans to agricultural sector had a significant impact on agricultural production. The policy implication of this study is that government should encourage the commercial bank to finance investment in the agricultural sector by granting credit facilities at below market interest rates.

Keywords: ACGSF; Agricultural Production; Credit Supply; Nigeria; Vector Autoregressive Model