The Impact of Agricultural Export in the Economic Growth of Nigeria.
CHAPTER ONE
Objective of the study
General objective
The general objective of this study is to understand the role of agricultural exports in Nigerian economy with reference to coffee, Oil seeds and cocoa beans.
Specific objective
The specific objectives are:
- To assess the trend of agricultural exports over time.
- To evaluate the impact of coffee exports on economic growth.
- To evaluate the impact of Oil seeds exports on economic growth.
- To evaluate the impact of pulse exports on economic growth.
- To determine the existence of Granger causality between agricultural exports and economic growth.
CHAPTER TWO
LITERATURE REVIEW
This chapter discusses in detail about what different scholars have done on the agricultural export and economic growth area and empirical evidences which explain about agricultural export contribution to Nigerian economy. The theory behind the study was also discussed and summarized in conceptual framework.
Overview of exports and Economic growth
The relationship between export and economic growth is an area that has been given much attention by different authors. According to Jung and Marshal (1985) growth in real exports tends to cause growth in real GNP for three reasons. First, export growth may represent an increase in the demand for the country’s output and thus serve to increase real GNP. Secondly, increases in exports may loosen a binding foreign exchange constraint and allow increases in productive intermediate imports and hence result in the growth of output. Finally, export growth may result in enhanced efficiency and thus may lead to greater output. Feder (1982) views a given economy as if it consists of two distinct: an export and nonexport sector. According to him, the marginal factor productivities are significantly higher in the former than the latter. This arises from inter-sectorial beneficial externalities (capacity utilization, economics of scale incentives provided for technological improvement and efficient management due to competitive pressures from abroad) generated by the export sector. Thus, growth can be generated by reallocation of the existing resources from the less efficient non-export sector to the higher productivity export sector.
In small open economies, export growth can expand countries’ limited domestic markets, and contribute to the economics of scale necessary for industrial developments. Export growth integrates domestic economy with regional and or global economies thereby expanding the dimension of competition to the international markets. Competition promotes resource allocation in developing countries as they transform from less productive farming sector to relatively more productive manufacturing sector. Therefore, factor productivities are improved through export growth (Chow, 1987).
Clearly, since exports are a component of GDP, exports growth contributes directly to GDP growth, they relax binding foreign exchange constraints and allow increases in imported capital goods and intermediate goods (Chenery and Strout1966, McKinnon, 1964). Exports allow poor countries with narrow domestic markets to benefit from economies of scale (Helpman and Krugman, 1985). In addition, exports lead to improved efficiency in resource allocation and, in particular, improved capital utilization owing to competition in world markets (Balassa, 1978).The export of the primary product also has effects on the rest of the economy through reducing unemployment and underemployment, inducing a higher rate of domestic saving and investment, attracting an inflow of factor inputs into the expanding export sector, and establish links with other sectors of the economy (Meier, 1995).
Empirical review on agricultural export
The contribution of agricultural exports to economic growth of the selected 62 less developed countries was done by using panel data for the period 1974 to 1995.The study used the two theoretical models in the analysis, the first model based on agricultural production function, including agricultural and non- agricultural exports as inputs. The second model was dual economy model, that is, agricultural and non- agricultural where each sector was sub divided into export and non- export sector. The results of the study highlighted the role of agricultural exports in economic growth. The study suggested that the export promotion policies should be balanced (Dawson, 2005).
The empirical analysis of agricultural exports and economic growth in Nigeria was done by different Authors. Oluwanseunet al.(2013) studied the existence of long run relationship between agricultural exports and economic growth by using time series data from 1980 to 2010.The study made use of unit root tests and Johansen maximum likelihood test of co-integration and discovered that, the long run equilibrium relationship exists between agricultural exports and economic growth and the relationship is elastic in nature meaning that a unit increase in agricultural exports would bring a more than proportionate increase in the Real Gross Domestic Product in Nigeria. Ekiranet al.(2014) also examined the relationship between agricultural export and economic growth by using a multivariate Johansen co-integration analysis for the period covering 1980 to 2012 and found that, agricultural exports are long run determinants of economic expansion. The study recommended that the government of Nigeria should direct efforts to improve agricultural exports in the process of economic growth in the country. Currently another empirical analysis of agricultural exports and economic growth in Nigeria was done by Victor (2015) using time series data from 1970 to 2012.The variables used in the study were gross domestic product as the endogenous variables measuring economic growth as a function of real exchange rate, real agricultural exports, index of trade openness and inflation rate as the exogenous variables. The study used economic techniques of Augmented Dickey-fuller (ADF) Unit root test, Johansen co-integration test and error correction method (ECM) for empirical analysis. The findings of the study showed that agricultural export has contributed positively to the Nigerian economy. Based on the findings, the study recommended that, the government reform agenda should be systematic and sustained irrespective of the professional background of the successive president of the country and that; Agricultural production should be more desired than other sectors that are exhaustive in nature.
CHAPTER THREE
METHODOLOGY
Methods of data collection
This study is mainly based on secondary yearly export data on selected commodities and for other control variables mentioned in the model from Central Statistical Agency (CSA), Central Bank of Nigeria (CBN), Ministry of Finance and Economic Development (MoFED), Nigerian Revenue and Customs Authority (NRCA) and various publications of International Monetary Fund (IMF) and World Bank (WB) covering the period from 1973 to 2013.
Model specification
Various economic growth theory have been discussed in this study under theoretical frame work, such as Classical growth theory which assumes non-economic factors of production like population growth, political instability ,the security of private property and the role of law and institutions in addition to economic factors of production land ,labor, capital and technology. Endogenous growth theory depends on the implication that, policies which embrace openness, competition, change and innovation will promote growth and conversely, policies which have the effect of restricting or slowing change by protecting or favoring particular existing industries or firms are likely over time to slow growth to the disadvantages of the communities. This theory use the simple production function Y=AK where Y is output, A is technological progress and K is capital and assumes non-diminishing return to capital which criticized by different Authors. This study used the Solow-Swan production function, an economic model of long-run economic growth set within the framework of neoclassical economics as a base to develop the economic growth model for this study. This model attempts to explain long-run economic growth by looking at capital accumulation, labor and technological progress and due to its particularly attractive mathematical characteristics, Solow-Swan shows to be a convenient starting point for various extensions.
CHAPTER FOUR
RESULTS AND DISCUSSIONS
This chapter presents the results of the trends and impact of agricultural exports on economic growth in Nigeria from the period 1973 to 2013.It is composed of three main sections. Section one gives the trends. Section two gives a brief interpretation of statistical analysis before providing the compressive econometric analysis for each objective. Section three presents the results of econometric analysis (Unit roots, Co-integration, Error correction method and Granger-causality test) for each objective used to test the causal linkage between GDP and agricultural exports.
Trends of agricultural exports in Nigeria
Agriculture is the most important sector in the Nigerian economy. It generates about 86 percent of the export earnings (CSA, 2007).At present, the country’s leading agricultural exports products include coffee, oil seeds, cocoa beans, livestock products (leather, live animals and meat), fruits, vegetables and flowers. From these; coffee, Oil seeds and pulse are the major source of export revenue of the country.
CHAPTER FIVE
CONCLUSSION AND POLICY RECOMMENDATIONS
This chapter provides the conclusions of the study and some policy recommendations which need to be applied in order to increase the agricultural exports efficiency level. A section for suggestions for further study is also given.
Conclusions
The main objective of this study was to empirically determine the contribution and impact of agricultural export on economic growth of Nigeria using annual data for the period 1973 to 2013. Descriptive and time series techniques were used to determine the trends of agricultural exports and to evaluate the impact of agricultural exports on economic growth (GDP) respectively. These are Unit root tests (ADF and PP tests), a co-integration test
(Johansen’s procedure and Engle and Granger) to know the existence of long-run relationships between economic growth and agricultural exports, Error correction method and Granger-causality tests, the Breusch-Pagan-Godfrey Heteroskedasticity test, the BreuschGodfrey Serial Correlation LM Test and Ramsey RESET test of misspecification was used to test for appropriateness of the estimations in order to avoid any spurious regression.
The results of the unit roots test indicated that all the variables are stationary in first differences-I (1), therefore, I(1) series were adopted to test for co-integration and causality between real GDP and agricultural exports. The co-integration tests results showed that the long-run relationships exist between the GDP and agricultural exports and in its set up, error correction method estimates the long-run relationship between economic growth and agricultural export as well as fluctuation in the short-run.
Agricultural exports trends in Nigeria have shown increasing patterns over time.The results of the long run showed a positive and significant association between coffee export and economic growth. Equally a positive and significant effect is found between Oil seeds export and economic growth in Nigeria and a positive but insignificant relationship is found between pulse export and economic growth. As concerns the control variables, Labor force has a positive and significant impact on economic growth. It is equally revealed that real exchange rate has a positive and significant effect on real GDP.The result of error correction mechanism shows the fair speed of adjustment for the short run disequilibrium which is 57 percent and the corresponding short run coefficient of the variables revealed the positive and significant relationship between coffee export, Oil seeds export, whereas negative and insignificant relation between pulse export and economic growth was observed. The fairly speed of adjustment could be related to the emphasis given to the export growth and expansion policies by government and other favourable conditions.
Finally, Granger causality of coffee and Oil seeds exports and economic growth is bidirectional running in both directions.Whereas uni-directional causality was suggested between cocoa beans export and economic growth since the coefficients are not statistically significant in cocoa beans regressions. The results are indicating a need to promote value added agricultural export expansion policies in order to achieve high economic growth.
Recommendations
The immediate policy recommendation that emerges from this study is that the government in power should attempt to diversify and promote exports in order to fully exploit the benefits of the sector and promote economic growth.
To increase the impact of coffee export on economic growth, a concerted effort should be directed toward productive channels of coffee in the economy so as to enhance sustainable economic growth through increased coffee export. Modern production technologies of coffee must be quickly introduced to upgrade the traditional methods currently used and Encouraging large commercial farms through providing new potential land and enforcing the implementation of different export incentives given for the exporters. Government should emphasize towards value addition than exporting raw coffee since the relationship with economic growth is inelastic.
The impact of Oil seeds export on economic growth of Nigeria will increase if the government concentrates towards the productive channels and value addition to the product to increase the export effect on economic growth. Since the impact of this product is inelastic to economic growth, the government should emphasize on facilitating the ground for value addition on Oil seeds rather than exporting raw product and emphasize towards awareness creation on how to adequately prevent the adulteration of seeds.
Although pulse exports indicated insignificant effect on economic growth of Nigeria, a concerted effort should be directed toward productive channels of cocoa beans to fulfill the high domestic consumption and promising international demand of the crop. The government should concentrate on the area of encouraging large farms and create awareness on fertilizer and pesticides use by farmers since they neglected the use of fertilizer for pulse production unknowingly to increase output.
With the bidirectional relationship between economic growth and coffee and Oil seeds exports, the government should increase the growth of non-exportable goods and services to increase the economic growth which contributes towards agricultural export growth. The findings also suggest that there is a need to promote value added agricultural export expansion policies in order to achieve high economic growth.
Generally, the government of Nigeria should improve resources and development investment in agricultural research and extension services in order to improve the use of genetic materials and purchase inputs.
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