Abstract
The study examined the effects of credit rationing by deposit money banks on the performance of agriculture in Nigeria using secondary data between 1981 and 2016 obtained from the CBN Statistical bulletin. The study applied both Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root test to determine the order of integration of each variable, Johansen cointegration and Vector Error Correction Model (VECM) were employed to determine if there is a long run, the short-run relationship between credit rationing and agricultural output. The result showed that all the variables were integrated of order one. The results revealed that credit rationed for fishery has a short-run significant impact on agricultural output while credit rationed for cash crops, food crops, and livestock do not have a significant short-run impact on agricultural output. The findings further revealed that credit rationed for cash crops and livestock farming significantly decline agricultural output to the tune of 26.48% and 75.87% in the long run while credit rationed for food crops and fishery significantly result in 43.52% and 41.89% rise in agricultural output in the long run. Therefore, the study recommends the establishment of special financial institutional to give unconditional loans to farmers, raise credit rationing for food crop production above the current ceiling, and emphasis should be on exchange rate liberalization policy that will shift consumption from imported agricultural produce to local agricultural produce. These measures will promote farmers’ access to funding which will invariably translate to a rise in agricultural output.
 Keywords: Credit, Rationing, Money Deposit Bank, Agriculture, Output, Nigeria
Highlights
The need for agricultural credits to the various subsectors of agriculture is very important to increase diversification in agriculture
The study carried out a controlled experiment using econometric models and tests as well, to trace the effect of credit rationing by deposit money banks on agricultural output growth in Nigeria from 1990 to 2015
The findings showed that credit rationing by deposit money banks, for fish farming has a significant short-run impact while those rationed for cash crops, food crops, livestock farming had insignificant short-run effects on agricultural output growth
Summary
The need for agricultural credits to the various subsectors of agriculture is very important to increase diversification in agriculture. The credit market is faced by much imperfection, involving lack of collateral, lack of information management, high level of illiteracy of the borrowers and loan default among borrowers This statement was affirmed by the words of Olomola, (1999), where he noted that information asymmetry most times leads to challenges in adverse selection and moral problems, which cause the reluctance of the commercial banks to lend to smallscale farmers. Agricultural production is seen not to have achieved its objectives in contributing to our economy despite the advancement in technologies and policy incentives by the government This is attributed to the inability of the financial sector to deliver the services which have led to low investment in agriculture. These schemes were designed to encourage lending to the agricultural sector by providing guarantees against the inherent risk in
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