THE AGRICULTURAL SECTOR AND NIGERIA’S ECONOMIC GROWTH: A VECTOR ERROR CORRECTION MODEL APPROACH

Abstract

The study examined the impact of agriculture on Nigeria’s economic growth, using the vector error correction model approach. Secondary data were obtained from the Central Bank of Nigeria, FAOSTAT and National Bureau of Statistics between 1981 and 2019. Descriptive statistics, Augmented Dickey Fuller test for unit roots, Johansen test for co-integration test and vector error correction model were used. Pre-estimation test showed that variables were I(1); foreign direct investment to the agricultural sector had the highest coefficient of variation (2.50), with the least mean (N18,797.33) and gross domestic product had the least coefficient of variation (0.54). Both trace and maximum statistics of Johansen’s co-integration test showed that the variables had long-run relationship. Of the four optimal lag selection criteria used, the FPE, HQIC and SBIC recommended one lag. The chi-square statistics (1674.845, p<0.01) for the overall co-integrating equations confirmed long-run relationship. Findings also showed that the z-statistics (-15.19) of lnagdp was statistically significant (p<0.01) implying it would increase economic growth in the long-run. Similarly, the z statistic (-4.33) of lnnoe was statistically significant (p < 0.01) and would increase economic growth in the long-run. Also, the z-statistic (-5.89) of lnfdia was statistically significant (p<0.01), and would increase economic growth in the long-run. However, the z-statistics (5.56) of lnnoi (3.3) was positive and statistically significant (p<0.01) implying that it would reduce economic growth in the long-run. The error correction term (-0.2361) suggested that the long run equilibrium would be normalized back if there was any shock to the economic system; and that the speed of adjustment would be 23.61% annually towards equilibrium if the system is distorted. The study concluded that agriculture would be relevant to Nigeria’s economy in the long run. Consequently, efforts to attract foreign direct investment to the agricultural sector, increase growth in agricultural GDP and non-oil export and cut in non-oil import, should be sustained by the federal government.