Restructuring rural financial market for agricultural growth in Nigeria
Abstract. All developing economies require a sophisticated financial system, which incorporates both the financial institutions and financial market. These institutions and market exist to mediate between those who wish to save or lend and those who wish to borrow or invest. This basic rationale seems complex, since offering new types of financial instruments which can reduce transaction cost in the face of highly risky and challenging agricultural business coupled with the urgent quest for revitalization of agricultural sector for meaningful growth and development is needed. This paper searches the missing link between financial sector and agricultural growth in Nigeria between 1996Q1 and 2017Q4. The study adopts Autoregressive Distributed Lag (ARDL) Bounds testing approach developed by Pesaran, Shin and Smith (2001) in estimating the relevant relationship. The results of the long run estimates show that agricultural credit, money markets, capital markets, exchange rate have positive relationship with agricultural growth in Nigeria, while expected inflation has negative impact on agricultural growth in the long run. The results of the short run dynamics of (one lagged) of variables shows negative impacts on agricultural growth, whereas the lagged two of the variables shows positive impacts on agricultural growth in the short run. The study recommends that the policy makers need to restructure the financial sector to influence agricultural credit as mandate to rescue the agricultural sector from this unimpressive growth.
Keywords. Financing, Agriculture, Exchange rate, Growth.JEL. L00, L16, F31.
Anyawu, T.C. (1997). The Structure of The Nigerian Economy 1960-1970: Onitsha, Nigeria. Joanee Educational Publishers.
Allen, F. & Gale, D. (2000). Financial cantagion. Journal of Political Economy, University of Chicargo Press, 108(1), 1-33. doi. 10.1086/262109
Babcock, L.H. (2015). Mobile payments: How digital finance is transforming agriculture. Wageningen, the Netherlands: Technical Centre for Agricultural and Rural Cooperation. [Retrieved from].
Beck, T., & Maimbo, S.M. (2013). Financial Sector Development in Africa Opportunities and Challenges. Washington, DC: The World Bank. [Retrieved from].
Calice, P. (2016). Assessing implementation of the principles for public credit guarantees for SMEs: A global survey. The World Bank, Policy Research Working Paper, No.7753. [Retrieved from].
Chen, G., & Faz, X. (2015). The Potential of Digital Data: How Far Can It Advance Financial Inclusion? CGAP Focus Note 100. Washington, DC: World Bank Group. [Retrieved from].
Chenery, H., & Bruno, M (1962). Development alternatives in an open economy: The case of Isreal. Economic Journal, 72, 79-103.
Christen, R.P., & Anderson, J. (2013). Segmentation of smallholder households: Meeting the range of financial needs in agriculture families. CGAP Focus Note 85. Washington, DC: World Bank Group. [Retrieved from].
Nigerian Stock Exchange, (2016). Nigerian Stock Exchange Factbook.
Demirguc-Kunt, A., Klapper, L., Ansar, S., & Jagati, A. (2017). Making it easier to apply for a bank account: A study of Indian market. The World Bank, Policy Research Working Paper Series, No.8205. [Retrieved from].
Domar, E.D. (1946). Capital formation, rate of growth and employment. Econometrica. 143, 137-147. doi. 10.2307/1905364
Dugger, C., & Sberro R. (2016). Experiences in index-based insurance for farmers. ProparcoMagazine,Issue25. [Retrieved from].
Fankun, D.S., & Evbuonmwam, G. (2017). An evaluation of agricultural financing, polices and initiatives for sustainable development in Nigeria, 21st Century. Journal of Economics and Finance, 8(3), 32-38.
Fasanya, I.O., & Onakoya, B. (2012) Does foreign aid accelerate economic growth? An empirical analysis for Nigeria. International Journal of Economics and Financial Issues. 2(4), 423.
FAO, (2013). Credit Guarantee Systems for Agriculture and Rural Enterprise Development. Rome, Italy: Food and Agriculture Organization of the United Nations (FAO). FAO. (in press). Agricultural Investment Funds for Development: Descriptive Analysis and Lessons from Fund Management, Performance and Private-Public Collaboration. Rome, Italy: Food and Agriculture Organization of the United Nations (FAO). [Retrieved from].
Fiebig, M. (2001). Prudential Regulation and Supervision for Agricultural Finance. Agriculture Finance Revisited 5. Rome, Italy: Food and Agriculture Organization of the United Nations (FAO) and Deutsche Gesellschaft fürTechnischeZusammenarbeit (GTZ). Financial Sector Deepening Trust. (n.d.). Review of Guarantee Schemes in Tanzania. [Retrieved from].
Grossman, J., & Tarazi, M. (2014). Serving smallholder farmers: Recent developments in digital finance. The World Bank, CGAP Focus Note No.94. [Retrieved from].
Höllinger, F. (2011). Agricultural Finance - Trends, Issues and Challenges. Eschborn: Deutsche Gesellschaft fürInternationaleZusammenarbeit (GIZ) GmbH. [Retrieved from].
Höllinger, F., Rutten, L., & Kiriakov, K. (2009). The use of warehouse receipt finance in agriculture in ECA countries. Rome: Food and Agriculture Organization of the United Nations (FAO). [Retrieved from].
IFC, (2013). Warehouse Finance and Warehouse Receipt System. Washington, DC: World Bank Group. iVeri. (2014). Accessing the Unbanked: Branchless Banking for Africa. Delivering a secure and cost-effective solution to gain new customers. iVeri Payment Technologies.
Jayanty, S. (2012). Agency Banking: New Frontiers in Financial Inclusion. Infosys Finacle Thought Paper, Bangalore. [Retrieved from].
Karlan, D., Osei, R.D., Osei-Akoto, I., & Udry, C. (2012). Agricultural decisions after relaxing credit and risk constraints, NBER, Working Paper Series, No.18463. doi. 10.3386/w18463
Kendall, J. (2010). Improving People’s Lives Through Savings. Global Savings Forum. Bill & Melinda Gates Foundation. [Retrieved from].
Kemp, S. (2017). Digital in 2017 Global Overview Report. We are Social. [Retrieved from].
Lonie, S., & Makin, P. (2016). Digitizing Agriculture Value Chains: Building Value for Farmers. Blog post, January 22. [Retrieved from].
Keynes, J. (1936) The General Theory of Employment, Interest rate and Money (1973 eds.). The Royal Economic Society.
Levine, R (2012). Finance and Growth, University of Minnesota, Mimeo.
Love, I., Martinez Peria, M. S., & Singh, S. (2013). Collateral registries for movable assets: does their introduction spur firms' access to bank finance? Washington, DC: World Bank Group. [Retrieved from].
Lowder, S.K., Skoet, J., & Raney, T. (2016). The number, size, and distribution of farms, smallholder farms, and family farms worldwide. World Development, 87, 16-29. doi. 10.1016/j.worlddev.2015.10.041
Lumpkin, S. (2009). Regulatory issues related to financial innovation. OECD Journal: Financial Market Trends, 2, 1-31.
Maimbo, S.M., Gallegos, H., & Alejandra, C. (2014). Interest Rate Caps around the World: Still Popular, but a Blunt Instrument. The World Bank, Policy Research Working Paper No.7070. [Retrieved from].
Markowitz, H. (1955). Portfolio selection. Journal of Finance. 7(1), 77-91. doi. 10.1111/j.1540-6261.1952.tb01525.x
Martin, C., Harihareswara, N., Diebold, E., Kodali, H., & Averch, C. (2016). Guide to the use of digital financial services in agriculture. USAID and mSTAR. [Retrieved from].
Mas, I., & Radcliffe, D. (2010). Mobile payments go viral: M-PESA in Kenya. Washington, DC: World Bank Group. [Retrieved from].
Meyer, R. (2013). Microcredit and agriculture: challenges, successes, and prospects. In J.P. Gueyie, R. Manos, & J. Yaron (Eds.), Microfinance in Developing Countries: Issues, Policies and Performance Evaluation (pp. 199–222). New York: Palgrave Macmillan. Miller, C., & Jones, L. (2010). Agricultural Value Chain Finance: Tools and Lessons. Rome, Italy: Food and Agriculture Organization of the United Nations (FAO).
Mounir, B. (2013). The relationship between Trade, FDI and Economic growth in Tunisia: An application of the autoregressive distributed lag model. Faculty of Economics and Management of Sousse, University of Sousse City Erriadh 4023 Sousse Tunisia.
Muth, J. (1961). Rational expectations and the theory of price movements. Econometrica, 29(3), 315-335. doi. 10.2307/1909635
Narayan, P.K., & Smyth, R. (2008). Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks. Energy Economics, 30, 2331-2341. doi. 10.1016/j.eneco.2007.10.006
Ngozi, O.J. (2015). Agricultural loan as catalyst for production. Research in World Economy. 6(4), 53-63. doi. 10.5430/rwe.v6n4p53
Nnomocha, P.N., & Eke, C.N. (2015). Bank credit and agricultural output in Nigeria (1970-2013): An error correction model (ECM) approach. British Journal of Economics, Management & Trade. 10(2), 1-12. doi. 10.9734/BJEMT/2015/19884
OECD, (2012). SME and Entrepreneurship Financing: The Role of Credit Guarantee Schemes and Mutual Societies in Supporting Financing for Small and Medium Size Enterprises. Final report. [Retrieved from].
Odhiambo, N.M. (2009). Energy consumption and economic growth in Tanzania: An ARDL bounds testing approach, Energy Policy, 37(2), 617-622. doi. 10.1016/j.enpol.2008.09.077
Olorunsola, A., Olowofeso, A., Adeboye, V., Adejo, K., Bassey, J., & Abraham A. (2017) Agricultural sector credit and output relationship in Nigeria: Evidence from nonlinear ARDL. CBN Journal of Applied Statistics, 8(1), 101-122.
Pesaran, M., & Shin, Y. (1999). An autoregressive distributed lag modeling approach to cointegration Analysis, in S. Strom, (ed), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge.
Pesaran, M.H., Shin, Y., & Smith, R.J. (2001). Bounds testing approaches to the analysis of the level relationship. Journal of Applied Economics, 16(3), 289-326. doi. 10.1002/jae.616
Roll, R. (1977). A Critique of asset pricing theory’s test part 1: On past and potential testability of the theory. Journal of Financial Economics, 4(2), 129-179. doi. 10.1016/0304-405X(77)90009-5
Saibu, O.M., & Keke, N.A. (2014). Real output effects of foreign direct investment in Nigeria. Journal of Behavioural Economic, Finance, Entrepreneurship, Accounting and Transport, 2(1), 1-7. doi. 10.12691/jbe-2-1-1
Surubu, O.J, Ajala, O.A., Akande, M., & Olure-Bank, A. (2015) Diversification of the Nigerian economy towards a sustainable growth and economic development. International Journal of Economics, Finance and Management Science, 3(2), 107-111. doi. 10.11648/j.ijefm.20150302.15
Todaro, M., & Smith, S.C. (2010). Economic Development (11th ed.), Prentice Hall, Banerjee, Abhijit.
Udoka, C., Mbat, D., & Duke, S. (2016). The effect of commercial banks credit on agricultural production in Nigeria, Journal of Finance and Accounting, 4(1), 4-11. doi. 10.12691/jfa-4-1-1
Vasicek, O. (1977). An equilibrium characterization of the term structure. Journal of Financial Economics, 5, 177-188. doi. 10.1016/0304-405X(77)90016-2
- There are currently no refbacks.
Turkish Economic Review - Turk. Econ. Rev. - TER - www.kspjournals.org
Copyright © KSP Library