Examining the Linkages between Agricultural Output and Financial Development: Empirical Evidence from Nigeria

Lawal Adedoyin Isola, Babajide Abiola Ayopo, Nwanji Tony Ikechukwu, IseOlorunkanmi Joseph, Lawal-Adedoyin Bukola and Ojeka John Dean

Abstract:

Agriculture plays an important role in the economic growth of Nigeria. This is based on the fact that over seventy per cent (70%) of her population depends largely on agriculture as a source of livelihood. Attaining food security has recently been identified worldwide as a key policy instrument to achieving sustainable economic growth. In a related development, financial development has been identified as key to driving sustainable economic growth. There have been concerted efforts by successive governments in Nigeria to increase investment in agriculture with mixed results. Furthermore, the debate on existence of a positive and significant relationship between financial development and increased agricultural output has remained inconclusive. The question is, ‘Does financial development matter for agricultural output in Nigeria?’  This study intends to examine the nature of the relationship between the two constructs using Cobb-Douglas production function that calibrates the impact of capital and labour into the financial development- agricultural output nexus. Drawing from four financial development – growth theories (supply-leading; demand-following; finance-growth indifference; and the reciprocal theories), this study intend to use the Autoregressive Distributed Lag (ARDL) bound testing approach to examine the existence or otherwise of long run relationship between agricultural output and financial development in Nigeria based on data sourced between 1970 and 2016 from the Central Bank of Nigeria Statistical Bulletin (various issues). If cointegration is established, the study also intends to examine the direction of causality among the variables.  The results of the analysis are expected to have significant policy implications, for instance, policy makers among others, will find the results useful as it will help in proper situating the diversification drive of the government by calibrating agro-allied employment generation, financial products innovation and development into her developmental goals, as well as showing possible ways to properly achieve sustainable food security drive of the government.