Formal Agricultural Credit Schemes and Economic Growth in Nigeria

Abstract

This study examined the impact of formal agricultural credits on economic growth in Nigeria between 1981 and 2021. The specific objectives were to determine the effects of the agricultural credit guarantee scheme fund, bank loans and advances to agriculture, foreign aid to agriculture and the cost of funds on real gross domestic product (GDP) growth. The data required for the analysis were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and the Organization for Economic Cooperation and Development (OECD) Statistics. The descriptive statistics, fully modified ordinary least squares (FM-OLS) and parsimonious error correction model (ECM) formed the basis for the data analysis. The unit root and Johansen cointegration tests results showed that the variables are all stationary at the first difference and cointegrated at the 5 per cent significance level. The long-run regression results showed that the agriculture credit guarantee scheme fund positively affected real GDP growth. The results further showed that bank loans and advances to the agriculture sector have a positive and significant effect on real GDP growth. It was found that 1 per cent increase in that bank loans and advances to the agriculture sector leads to 0.0378 per cent in real GDP growth. The effect of foreign aid to agriculture on real GDP growth was positive but insignificant at the 5 per cent significance level. Evidence of a positive and significant effect of the cost of funds on real GDP growth was established from the long-run results. The estimated coefficient showed that the real GDP growth increases by 0.00356 per cent due to a 1 per cent increase in the cost of funds. The short-run results showed that the coefficient (-0.5125) of the error correction term is negative and significant at the 5 per cent significance level, indicating that about 51.25 per cent distortion from the long-r