Banking Sector Reforms and Agricultural Sector Performance in Nigeria
Authors:
Yekeen Oku Abdul-Maliq¹, Jude Igyo Ali², Henry Yua³*
¹Department of Banking and Finance, University of Abuja, Abuja, Nigeria
²Benue State Internal Revenue Service, Makurdi, Nigeria
³Department of Banking and Finance, Nigerian Army College of Environmental Science and Technology, Makurdi, Nigeria
*Corresponding author: Henry Yua
Citation:
Yekeen Oku Abdul-Maliq, Jude Igyo Ali, Henry Yua. “Banking Sector Reforms and Agricultural Sector Performance in Nigeria.” Journal of Business and Economic Development, vol. 6, no. 3, 2021, pp. 176-183. doi: 10.11648/j.jbed.20210603.17
Abstract
This paper examines the effect of banking sector reforms on the growth of agricultural output in Nigeria from 1986 to 2019. The study specifically aims to determine the impact of aggregate bank credit to the agricultural sector (ABCAS), driven by banking sector reforms, alongside other reform variables, on the growth of agricultural output. Utilizing 34 years of annual time series data from the National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN) databases, the study employs Two-Stage Least Squares (2SLS) technique, Breusch–Godfrey LM test for autocorrelation, and the ARCH test to assess both short- and long-run relationships among ABCAS, deposit money banks’ lending rate (DMBLDR), interest rate spread (IRS), and agricultural sector output (ASOP). Hypotheses are tested at a 5% level of significance. Results indicate that 96% of the variation in the dependent variable is explained by the independent variables, as evidenced by the Adjusted R². The analysis reveals that ABCAS and the real effective exchange rate (REER) have positive and significant impacts on agricultural output growth, with coefficients of 29.01 and 33.10 respectively. The study advocates for a banking system structure that prioritizes agricultural financing, focusing on agro-business to foster agricultural value-chain creation and enhancement, preferably targeting the export of finished agro-allied products.
Keywords: Aggregate Bank Credit, Agricultural Sector, Agricultural Sector Output, Interest Rate Spread, Reform
Introduction
The financial-growth nexus debate has garnered significant attention in both academia and among policymakers for decades. This has driven continuous reforms in the banking sectors globally, including Nigeria. The theoretical and conceptual foundation linking banking sector reforms to economic growth can be traced back to the works of Beck, Demirgüç-Kunt, and Levine; Bagehot; and Schumpeter, who emphasize the critical role of the banking sector in providing necessary capital for economic activities, particularly the real sector, which is considered the engine of economic growth.
In response to these insights, the Nigerian government has initiated numerous banking reforms since the mid-1980s aimed at enhancing banking service efficiency, promoting investment, and ensuring efficient resource allocation. The agricultural sector’s importance in economic growth has long been recognized worldwide. In Nigeria, the agricultural sector was the mainstay of the economy during the pre- and immediate post-colonial periods. However, as posited by the structural change theory of economic growth, nations must transition from agrarian to industrial societies over time. This transition necessitates significant capital in the form of domestic and foreign direct investments. A robust, efficient, and dynamic financial/banking system is a prerequisite for this transition.
Banking system reforms in Nigeria have aimed to ‘open up’ the financial floodgates to the economy, especially the agricultural sector. The Nigerian banking sector has undergone numerous reforms, with the first half-century of banking in Nigeria described as a continuum of reforms. These reforms aim to establish a formidable banking system that facilitates the free flow and efficient allocation of scarce financial resources, attracting the much-needed finance for the development of the agricultural sector and the broader economy.
Banking-Sector-Reforms-and-Agricultural-Sector