Abstract
The study examined agricultural investments in the light of deregulating the cost of funds. Factors that determine aggregate credit volume to the sector within the costs of funds regulated and deregulated periods and; the growth level in agricultural credit within the deregulated period were the specific objectives. Secondary data were used, sourced from Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). Data were analyzed using Co-integration technique and Real Credit Growth Rate Model. The Co-integration results showed that in the long-run, average interest lending rate and budgetary allocation were key variables on aggregate credit volume to agricultural sector. In the short-run, savings mobilized by financial institutions, the average lending rate, previous year's average saving rate, inflation rate and government budgetary allocation to the sector were the significant variables on credit volume to agriculture. The result of the real credit growth rate within the deregulated period was 8.91%. Arising from this, therefore, the study recommended a complete unbundling of the markets as it will ensure funds availability for investments in the sector.Keywords: Agricultural investments, cost of funds, deregulation, Nigeria.JEL Classifications: G11, Q14DOI: https://doi.org/10.32479/ijefi.8922
Highlights
Nigeria’s agricultural sector is a key sector in economic development of the country
The results of the study obtained showed that, deregulation had significant and positive impact on agricultural growth in Nigeria within the period under study. This implies that a unit increase in the cost of funds or interest rate will Increase agricultural productivity by 1088.82 (Table 1). This result is in line with studies by Onyishi et al (2015) and Ifeanyi and Chukwu (2014), whose results showed that interest rate deregulation had a significant positive relationship with growth of Agricultural
Average interest savings rate (X2). savings mobilized by financial institutions (X3), government budget allocation (X5), credit to private sector (X6), direct investment into Nigeria’s economy (X7) and aggregate credit volume to agriculture (Y) were all stationary at first difference, while the average inflation rate (X4) was stationary at level 1(0), The findings of the study provided the justification of Autoregressive Distributed Lag (ARDL) Approach
Summary
Nigeria’s agricultural sector is a key sector in economic development of the country. Any capital invested in the business whether borrowed or owned has an opportunity cost by using it in one particular fashion or by sacrificing the opportunity to use it in other ways This opportunity cost is represented by the potential return from the best of these other uses, expressed as a percentage of the amount invested (Warren, 1997). This cost of funds is the interest rate which is determine by the demand and supply of money. This is one of many determinants, as risk of non-repayment (default risk premium), loss of purchasing power, liquidity premium, and policy rate are very key in borrowing cost determination
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