Analysis of the Threshold Effect of Government Expenditure and Commercial Bank Credit on Agricultural Output in Nigeria

Abstract

This study empirically investigated the threshold effect of government expenditure and commercial bank credit on agricultural performance in Nigeria spanning 1986 to 2021. The study used the Threshold Autoregression (TAR) analysis to carry out the analysis. The result of the TAR regression established a threshold value of N390.01 billion for government agricultural expenditure. The TAR regression established a linear relationship between government expenditure and agricultural performance in Nigeria, thus, a positive threshold effect of 2% and 22% below and above the threshold value respectively was established by the TAR regression. Similarly, an asymmetric inverted U-shaped relationship exists between commercial bank credit to the agricultural sector and the performance of the agricultural sector in Nigeria. It found a threshold value of commercial bank credit to the agricultural sector at N610.15 billion; stating that below this threshold, commercial bank credit to the agricultural sector has a positive and significant effect of 51% on the performance of the agricultural sector in Nigeria. However, above this threshold, commercial bank credit adversely affect the performance of the agricultural sector, reducing the sector’s performance by 6%. Based on these findings, this study recommends that commercial bank credit to the agricultural sector should be kept within the established threshold level. Furthermore, to maximize the performance of the agricultural sector, the study recommends the allocation of additional funds to the agricultural sector by the government.

Keywords: Government Expenditure, Commercial Banks Credits, Agricultural Output, Threshold Regression.

Jel Codes: H50,G21,Q10,C14

DOI: 10.7176/JESD/13-18-06

Publication date:September 30^th 2022