Restructuring rural financial market for agricultural growth in Nigeria

Abstract

Abstract. All developing economies require a sophisticated financial system, which incorporates both the financial institutions and financial market. These institutions and market exist to mediate between those who wish to save or lend and those who wish to borrow or invest. This basic rationale seems complex, since offering new types of financial instruments which can reduce transaction cost in the face of highly risky and challenging agricultural business coupled with the urgent quest for revitalization of agricultural sector for meaningful growth and development is needed. This paper searches the missing link between financial sector and agricultural growth in Nigeria between 1996Q1 and 2017Q4. The study adopts Autoregressive Distributed Lag (ARDL) Bounds testing approach developed by Pesaran, Shin and Smith (2001) in estimating the relevant relationship. The results of the long run estimates show that agricultural credit, money markets, capital markets, exchange rate have positive relationship with agricultural growth in Nigeria, while expected inflation has negative impact on agricultural growth in the long run. The results of the short run dynamics of (one lagged) of variables shows negative impacts on agricultural growth, whereas the lagged two of the variables shows positive impacts on agricultural growth in the short run. The study recommends that the policy makers need to restructure the financial sector to influence agricultural credit as mandate to rescue the agricultural sector from this unimpressive growth. Keywords. Financing, Agriculture, Exchange rate, Growth. JEL. L00, L16, F31.