Fiscal Policy, Institutional Quality and the Growth of the Agricultural Sector in Nigeria

Lawrence Ehikioya Imoughele; Kehinde Oluwole Ola

doi:10.58709/kiujss.v9i1.1587

Lawrence Ehikioya Imoughele Ambrose Alli University, Ekpoma, Edo State, Nigeria
Kehinde Oluwole Ola Glorious Vision University, Ogwa, Edo State and UNICAF, Malawi

DOI: https://doi.org/10.58709/kiujss.v9i1.1587

Abstract

The productivity of the agricultural sector in Nigeria has dwindled over time despite the government’s intervention through fiscal policy and institutional quality reforms. It is against this backdrop that this study employed the Fully Modified Ordinary Least Squares (FMOLS) methodology to examine the effect of fiscal policy, institutional quality, deposit money bank credit to the agricultural sector, interest rate and exchange rate on Nigeria’s agricultural sector using data from 1986 to 2020. The ADF test was employed in testing the stationarity of the variables and the results revealed that all of the series were stationary at first difference. While the Johansen co-integration result revealed that growth in Nigeria’s agricultural sector output is cointegrated. This implies that there is a long-run relationship between the growth of the agricultural sector and the explanatory variables. The findings from FMOLS regression results showed that government expenditure on agriculture and total tax revenue as fiscal policy variables have direct and significant impact on Nigeria’s agricultural sector output. Also, the fiscal freedom index as institutional quality has an inverse but significant effect on Nigeria’s agricultural sector output while the economic freedom index has a direct but insignificant impact on the agricultural sector in the country. Furthermore, deposit money bank credit to agriculture and exchange rates has direct and significant effect on agricultural sector output while interest rate has a direct but insignificant impact on agricultural sector performance. Therefore, the study recommended that the Nigerian government needs to fine-tune its fiscal responsibility by increasing its expenditure on the agricultural sector, there is a need for institutional reforms that will drive credit facilities to the agricultural sector, and promote favorable institutional environments, make it stronger and Anti-corruption laws should be applied strongly, so that illegal agricultural sector business can be curtailed in the country.

Keynotes: Fiscal Policy, Institutional Quality, Agriculture, Growth of the Agricultural Sector