Formal Credit Supply Determinants of Agricultural Contribution to Gross Domestic Product (GDP) in Nigeria (1992-2012)

Abstract

There is no gainsaying the fact that agriculture is the second largest contributor to Nigeria Gross Domestic Product (GDP). To sustain contribution of agriculture to GDP, formal financial institutions were induced by moral suasion and correction to extend a minimum prescribed percentage generation of their loanable funds at concessionary interest rate to agriculture. This study specifically determined formal credit supply factors that influenced agricultural contribution to GDP; and discussed constraints to formal financing of agriculture in Nigeria identified in the literature. Time series data, covering periods of 1992 to 2012, sourced from the Central Bank of Nigeria statistical bulletin and National Bureau of Statistics, and Information got from other published studies on constraints to agricultural financing in Nigeria were used. Co-integration, error correction model and Ordinary Least Square regression technique were used for data analyses; both Augmented Dickey-Fuller (ADF) and Phillip-Peron (PP) tests were adopted in testing for the unit root. Outcome of the unit root and co-integration tests showed that the variables were stationary and co-integrated in the long run. The Ordinary Least Square regression estimation showed that total government expenditure in agriculture, interest rate and total credit accessed by farmers were credit supply factors that influenced agricultural contribution to GDP in Nigeria within the period under review. Government should encourage multi-sourcing of agricultural credit to drive farmers’ innovativeness and efficiency and thus minimize any risk of monopoly in farm credit supply. Widening of financial markets will engender competition, reduce interest charges and increase contribution of Agriculture to GDP.