The Role of Agriculture in Nigeria's Economic Growth: A General Equilibrium Analysis

Abstract

Nigeria’s economy has a modern segment dependent on oil earnings, overlaid by a traditional agricultural and trading economy. Despite Nigerias rich natural resources, poverty is widespread and Nigerias basic social indicators place it among the 20 poorest countries in the world. The wealth from oil has not fed through to the wider population. Economic growth since the early 1970s has been erratic, driven primarily by the fluctuations of the global oil market. The oil sector is now of overwhelming importance: it provides a fifth of GDP, most of foreign exchange earnings, and more than half of government revenues. Agriculture has not kept up with rapid population growth, and Nigeria, once a large net exporter, now imports food. Agriculture has suffered a relative decline because of the dominance of oil in the economy, but it still accounts for about a third of GDP and provides employment for a large majority of the population. Agriculture is still dominated by traditional smallholders raising subsistence crops. Attempts to revive agriculture have been largely unsuccessful. But recently, irrigation schemes, higher producer prices, the expansion of credit and improvements in the rural infrastructure are beginning to show results. Livestock farming is important, and poultry farming and fisheries are s rapidly increasing. This work will provide an analysis and estimates of the contribution of agriculture to economic growth in Nigerian, both in absolute terms and relative to the contributions that can be made by other sectors. The work would also analyze the effects of import tariffs and other policies on the competitiveness of Nigerian agriculture. The work will be based on the most recent version of the GTAP global trade framework (Hertel, 1997; and Dimaranan and McDougall, 2006). Recently, the Nigerian Input-Output accounts were included in the GTAP database. The GTAP model is based on assumptions that are common in the literature: perfect competition, constant returns to scale, and no change in the economy-wide employment of resources. Each regional economy consists of several economic agents: on the final demand side of the model, a utility-maximizing household purchases commodities and it saves part of its income, which consists of returns to primary factors and net tax collections. On the production side of the model, cost-minimizing producers employ primary factor services and intermediate inputs to supply commodities. International trade clears world commodity markets and provides linkages among economies. A global trade and economy-wide approach is most appropriate for this analysis. When an agricultural industry in Nigeria gains in productivity, other agricultural industries would be affected too not only through price changes in intermediate inputs (e.g., cheaper feed grains), but also through price changes in primary factors (e.g., land and labor), which would the affect incomes and consumption of food items. The global markets aspect of the approach is important too. The extent and conditions of international trade would determine the benefits accruing to the Nigerian economy. A series of GTAP model simulations will be performed to simulate the effects of: (1) Hicks-neutral technical change (i.e. augmenting all productive factors equally), (2) factor-biased technological change (e.g. land-specific vs. capital-specific productivity improvements), (3) Productivity improvements at the post-harvest level (e.g. cost savings in processing, transportation and storage of agricultural commodities), (4) productivity gains in Nigerian agriculture subject to trade-offs between gains in staple food crops and gains in tree crops on one hand and between staple food crops and livestock and fisheries on the other hand, and (5) trade policy reform. The work will discuss the implications of the simulated effects for poverty. References Dimaranan, B.V. and R.A. McDougall, Global Trade, Assistance, and Production: The GTAP 6 Data Base, Center for Global Trade Analysis, Purdue University, 2006, forthcoming. Hertel, T.W. (ed.), Global Trade Analysis: Modeling and Applications, Cambridge, Cambridge University Press, 1997.