EFFECT OF INTEREST RATE AND RECURRENT EXPENDITURE ON AGRICULTURAL GROWTH IN NIGERIA

Abstract

This study examined the trend as well as relative effect of interest rates and recurrent expenditure on agricultural growth in Nigeria. Existing data reveals that present macroeconomic policies though in the right direction are not sufficient for the development of Agriculture in Nigeria. In an attempt to investigate the effect of interest rates and government recurrent expenditure on agricultural growth, Gross Domestic Product was used a s proxy for economic growth while data on government recurrent expenditure and interest rates from 1960 to 2010 were analyzed using the Johansen cointegration method. The result revealed that rising government recurrent expenditure has not translated to meaningful agricultural development as Nigeria still ranks among the world’s highest food importers. Though recurrent expenditure on agriculture has a positive and significant effect on agricultural growth in the long run, the annual effect (i.e. short run) is negative, showing the low budget and inconsistency in expenditure on agriculture. The interest rate was discovered to have a negative and insignificant effect on agricultural growth in the short run while the relationship is positive and insignificant in the long run. The integrated Error Correction Model showed that both interest rate and government recurrent expenditure have cointegrating effect on agricultural growth in Nigeria. It was also revealed that the speed of adjustment back to equilibrium in the long run is rapid and significant in the event of any disequilibrium caused in the short run. The relationship has a 65% goodness of fit. The study concluded that interest rate and recurrent expenditure are important macroeconomic variables that have significant effects on agricultural growth in Nigeria. They should therefore be effectively combined to achieve maximum growth of the Nigerian economy.