The effect of bank credits on agricultural output in Nigeria: 1981–2019

Abstract

The agriculture sector of the Nigerian economy has suffered a severe setback, particularly after the advent of oil in mass production. The government shifted attention completely to the oil sector at the detriment of the agriculture sector, resulting in a practice of mono-economy. However, in recent times, the government has seen the need to diversify the economy to reduce its overdependence on the oil sector. Thus, both the bank and the government have been channeling resources to the sector to boast its productive capacity. Thus, this study seeks to investigate the impact of bank credit on the agriculture sector from 1981 to 2019. The data was subjected to a preliminary test—a unit root test—to ascertain the order of integration and subsequently the method of estimation. The unit root outcome shows a mixed order, which informed the adoption of the dynamic ARDL method. The finding from the estimation proved that the impact of bank credit on agriculture productivity in the long run is positive but weak. This suggests that bank credit to agriculture could not explain the variation in the performance of sectoral output. In contrast, the impact of government expenditure on the agriculture sector is strong and positive. This validates the significant contribution of government involvement to the revival of the sector. Thus, a recommendation is made of the need for banks to increase their credit and loan advances to the agriculture sector by lowering the interest charged on loans to the sector. Secondly, banks should give close monitoring to the funds loaned out to the agriculture sector to ensure the funds are truly channeled to the sector and not diverted. Moreso, the government can still do more for the sector to fully revive. More productivity-enhancing strategies, such as subsidizing modern farm equipment, seeds, and so on, can still be put in place by the government to help the sector regain its lost glory.