Impact of Financial Sector Reforms on Agricultural Growth in Nigeria: A Vector Autoregressive (Var) Approach

Abstract

The financial sector has witnessed several reforms over the decade. The associated impact of this is also felt in the agricultural sector. The study was carried out to assess the impact of financial sector reforms on agricultural growth in Nigeria from 1970-2009. Secondary data were collected from Central Bank of Nigeria, National Bureau of Statistics and National Population Commission and analyzed using vector error correction model (VECM) approach. The result revealed that financial sector reforms in the baseline and sensitivity model significantly impact on agricultural growth both in the long and short-run. However, the impact of financial sector reforms shock in the sensitivity model on agricultural output growth was lower by 0.60 percent when compared with 78.85 percent in the baseline model. This implied that financial sector reforms could play a significant role in the growth of the agricultural sector by increasing its production level and independently generate positive investments in the sector than in the sensitivity result. It is therefore recommended that government should adopt strong macroeconomic policies targeted to kick-start meaningful growth in the agricultural and financial sectors as well as provide the enabling environment for farming as a business through concessionary interest rates, tax free and import duty concessions. These financial and fiscal incentives when provided would encourage further output growth in the agricultural sector of the country.