Effect of Private Investment and Exchange Rate on Groundnut Production in Nigeria: 1980–2016

Abstract

AbstractThis study was carried out to analyze the effect of private investment on groundnut output in Nigeria using the Vector error correction model: 1980–2016. Based on the availability of data, secondary data consisting of annual times covering a period of 37 years (1980–2016) were obtained from the World Bank development indicators database, food and agriculture organization. United Nations conference trade and development (UNCTAD), was analyzed using VECM (vector error correction model), Impulse response, and Variance decomposition. The result of the direction of growth showed that the coefficients of the exchange rate (−0.005), groundnut (−0.002), and FDI (−0.000) were negative and significant at 1% and 5% levels. This implies that the output groundnut decelerated over the period under review. The results showed that groundnut responded positively to unit shock in itself, and labor in both the short and long run. Also, groundnut output responded positively to the unit shock of itself, labor, and public agriculture spending in both the long and short run. Further, in the long run (10 years), groundnut output contributed to itself by 96%, labor contributed by 2%, GDPI contributed by 2% and FDI contributed by 1%. In the short run (5 years), groundnut output contributed to itself by 97%, labor contributed to groundnut output by 2, exchange rate contributed by 0.3% and public agriculture spending contributed by 0.3%. Government should consider tax incentives and security in making foreign direct investment policies to attract foreign investors in the sectors. The exchange rate should be controlled to encourage both exports of domestically produced goods and importation of agrochemical, genetically modified seeds, farming equipment, etc., which will increase agricultural subsector output. It is expected that depreciation of local currency would reduce imports as a result of the higher relative price of imported goods, thus increasing net export and income. These policies would influence production incentives, which in turn affect the flow of resources among sectors.KeywordsPrivate investmentExchange rateGroundnut outputForeign direct investment