The impact of agricultural growth on economy growth essay

This paper investigates the contribution of agricultural sector and petroleum sector to the economic growth and development (GAP) of the Nigerian economy between 1960 and 2010 through the application of Augmented Deceitfully technique in testing the unit root property of the series; after which Chow breakpoint test was conducted to test the presence of structural change or break in the economy. The results of unit root suggest that all the variables in the model are stationary and the results of Chow breakpoint test suggest that there is no structural change or break in the period under review.The results also revealed that agricultural sector is contributing higher than the petroleum sector, though they both possessed a positive impact on economic growth and development of the economy. A good performance of an economy in terms of per capita growth may therefore be attributed to a wallpapered agricultural sector capital. A major policy implication of this result is that concerted effort be made by policy makers to increase the level of productivity of agricultural sector in Nigeria by improving expenditure on the sector so as to boost the growth of the economy.Since the agricultural sector is the major contributor to GAP in Nigeria which is capable of changing social indicators of the economy, policies aimed at adequate financing of agricultural sector by government in order to boast its output, may result into a way forward.

Government evolves policies toward diversifying the economy and encouraged the campaign for improvements in the non-oil sectors of the economy especially agricultural. Keywords: Contribution of Agriculture, Petroleum and GAP growth and the Nigerian economy 1.Introduction Agriculture and petroleum sectors are the key sectors in the Nigerian economy. These sectors are the ‘brain box’ of the Nigerian economy.

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Agricultural sector is vital source of raw materials needed for the agro allied industries, especially Beverages Company, food and exports. It was the cornerstone of the economy in the asses and early asses. Nigeria was heavily dependent on agriculture, which was the sector accounting for more than 40 percent of the Pre-1 973 GAP.It was the major source of funds for implementing the first development plan, 1962-1968. Within a decade up to 1983 however, agricultural output in Nigeria declined to 1. 9 percent and export fell to 7. 9 percent.

Agricultural imports as a share of the total imports rose from 3 percent in the late 1 9605 to 7 percent in the early asses. Insignia’s unfavorable agricultural development resulted from the loss of competitiveness among farm exports as the real values of the Nigerian Naira appreciated substantially from 1970 to 1 972 and from 1 982 to 1983.According to the Central Bank of Nigeria report, “export-oriented agriculture declined from 42 per cent of the total export in 1970 to less than 3 per cent in 1985. ” 758 Amine Muar and Anon Abdullah Suburbia The sector has suffered from years of mismanagement, and inconsistency in the government policies and the era of huge oil revenues has also contributed in the neglect of the agricultural sector.

Major agricultural products are Cassava, corn, millet, cocoa, palm oil, groundnuts, rice, rubber, sorghum, yam, and livestock production.The sector still accounts for over 26. Percent of GAP and two thirds of employments. Nigerian is no longer a major exporter of cocoa, cotton, groundnuts, rubber and palm oil. The continuous decline in the agricultural sector despite huge investments in the sector, which among others include the establishment of River basins and Rural Development Authorities, the Agricultural Development programmer, ADAPT, (funded jointly by the World Bank and the federating Units in ore than 20 Agricultural Research Institutes.Over the years, especially in the early asses and late asses, modest programmer were evolved: the Bassoon’s Operation Feed the Nation (VON), Shari’s Green revolution, and most recently, Bassoon’s agricultural programmer in 2004-2005, prominent was the cassava projects and much attention given to the sector. During the 2007, president Year Ado’s 7 point agenda also places emphasis on Food security.

Despite all these, agriculture has failed to keep pace with Insignia’s rapid population growth.Nigeria once exporter of food, now relies on imports to sustain its growing population. Change in the structure of the Nigerian export composition was not until 1970 with the new ‘entrant oil.

The Petroleum sector brought about fundamental changes in the Nigerian economy. Increased dependence on the oil sector had brought mixed feelings by the Nigerian government when it became the ‘life line’ of the economy due to increase dependence such that all sectors of the economy suffered the showplaces.. According to Marino a former NAP Managing Director, “….

Overspent economic policies seemed to be dominated by the mentality that money is not our problem” (Marino, 984, p 23) had brought crisis in the Nigeria economy Over the years due to continuous dependence on the sector- for instance the crisis in 1 985 brought economic emergency measures that culminated to the SAP year in 1986, to the most recent adjustments due to a drastic fall in the oil price in the 2009 budget. According to OPEC report of trends in global demand it showed that: The financial crisis dominated market sentiment as the economic slowdown dented petroleum demand growth. Pig. 1) These are the trends in the sector that have plagued all sectors Of the Nigerian economy for many years. Policies aimed at diversifying the economy re yielding slow progress, especially the million sector. 2. Theoretical and Conceptual Review Agriculture Agriculture involves the cultivation of land, raising and rearing of animals, for the purpose of production of food for man, feed for animals and raw materials for industries. It involves forestry, fishing, processing and marketing of these agricultural products.

Essentially, it is composed of crop production, livestock, forestry, and fishing. The role of agriculture in reforming both the social and economic framework of an economy cannot be over-emphasized. It is a source of food and raw materials for the industrial sector. It is also essential for the expansion of employment opportunity, for reduction of poverty and improvement of income contribution, for speeding up industrialization and easing the pressure on balance of payment (Unknown, 1981).In effect, it has been the main source of gainful employment, which the nation can feed its teeming population, a regenerative source of foreign exchange earnings, a means of providing the nation’s industries with local raw materials and as a reliable source of government revenue. However, since independence, the role of agriculture in the economy has been on the onward trend especially its contribution to Gross Domestic Product (GAP). It shares to GAP fell from 39. 9 percent in 1970/71 to 20.

0 percent (based on constant prices) in 1988.This situation has partly due to the emergence of oil as an important commodity and partly to the poor performance of the sector. This contrasted position by 1 963/64 year when agriculture contributed as much as 61. 50 percent to the GAP. 759 An Empirical Analysis of the Contribution of Agriculture and Petroleum Sector to the Growth and Development of the Nigerian Economy from 1960-2010 Central reason for formulating economic policies are to regulate the aerogramme of the economy; the optimum use of resources and achieving stability in the overall linkages in the sectors of the economy, are the desired paths of any economy.Most of the literature relating to the Nigerian economy seems to always trace the structural changes in the economy resulting from changes in export revenue to the near neglect of vital sectors like the agricultural and the industrial sectors.

This has always been attributed to trends in government policy making. It is important to measure the contribution of these sectors (Agriculture and Petroleum) because what we are measuring is the overpayment’s role as direct economic agent in the formulation Of policies that affects the pace of the economy.Changes in the structure of the Nigerian economy had brought with it business cycle-like description.

Some of these periods were severe especially the years culminating to SAP years, a period where the economy could be described to be in a mild recession. This period defined critical aspects of many sectors like the industrial, agricultural and changed the social welfare function of individuals in Nigeria. The economy depended on a volatile oil sector.According to Graham(1978), “where imports are of developmental tauter, such as capital goods and fertilizers, and are not domestically substitutable, a short fall in export earnings will tend to exert an adverse infill ounce on development and growth of an economy’ Croakier (1994) showed that Nigeria had caught the pandemic of the Dutch Disease because in the peak of the oil boom, it experienced heavy dependence on the imports due to rise in exports over the years.Rise in government pratfalls became punch- holes for government expenditure and further made worst government investments for the provision of public good. Reynolds (1975) opined that agricultural development can promote economic voltmeter of the underdeveloped countries in distinct ways: By witnessing the supply of food available for domestic consumption and referring the labor needed for industrial development.

By enlarging the site of the domestic market for the manufacturing sector. Iii) By increasing the supply Of domestic savings and By providing the foreign exchange earned by agricultural exports. In their contributions, Melanoma and Rogues (1979) were of the views that most developing countries’ agriculture has been assigned an important role in national development. To them, agriculture has been seen as a means of educing dependence on certain importance, containing food price increases, earning foreign exchange, absorbing many new entrants to the labor market and increasing farm income at times of severe unemployment and rural poverty.Johnson (1970), agreed with the above views that the appraisal of the agriculture’s contributions or role in the national economy can be made using the primary criteria namely: the proportion of the population engaged in agriculture, the share of agriculture in the Gross Domestic Product, the proportion of the nation’s responses devoted or employed in agricultural reduction and finally, the contribution of the agricultural sector to foreign trade.Thus, in attempting to assess the importance of the agricultural sector in the Nigerian economy, our focus is to examine the contributions of the sector to food supply, employment, and source for raw materials to the industrial sector, (generally the Gross Domestic product) and export earning and Balance of payment. This is important especially as Nigeria makes proposals in the vision 2020 to become one of the 20 industrialized nations.

It must in its preference place priorities on vitals sectors of the economy because these re the spring board for the realization of Nigerian vision. 60 Am inn Muar and Anon Abdullah Suburbia According to Anyhow J. C (1999) the bulk of the Nigerian population lives in the rural areas where their major occupation is agriculture. Statistics has shown that over 60% of the Nigerian population engage in agricultural activities, that is to say agriculture is the major employer of labor in Nigeria but the sector has been experiencing neglect since the advent of petroleum in asses. This lead to high level of unemployment, abject poverty and wide spread income inequality that hampered the growth and development of this country. According to Proof.Dudley seer there are basically three indicators of development in a country namely:unemployment, poverty and income inequality. To him if these three things are not reducing rather increasing a country is considered underdeveloped, this is the Nigerian situation.

Petroleum Modern activities in mining have involved crude petroleum and associated gas production in which foreign owned oil companies are partners (and local prospectors from 1990). The development of the petroleum (oil) industry in the county began in the first decade of this century. It started with exploration activities by the German Bitumen Corporation.In 1937, an oil prospecting license was granted to shell Diary Exploration Parties. In 1955, Mobil Exploration Nigeria Incorporated obtained concession over the whole of the former northern region of the country.

This company carried out some geological work, drilled three deep wells in the former western region and abandoned the concession in 1 961. In 1 958, the company started production. In 1961 , the Federal Government of Nigeria issued ten oil prospecting licenses on the continental shelf to five companies.

Each license covered an area of 2,560 square kilometers and was subject to the payment of IN m.With these generous concessions, full-scale on-shore and off-shore oil exploration began. Oil was found in commercial quantities at Lobbied in Niger Delta. Further discoveries at Foam and Boom established the country as an oil-producing nation. By April 1 967, oil from Nigeria had reached 2 million barrels per day.

Mining sector is the prior sector in Nigeria since late asses with the discovery of oil in commercial quantity in some part of the country. The mining sector has been the mainstay Of the Nigerian economy especially petroleum. Petroleum sector is the major contributor to GAP over the years as indicated y the current statistic.At average petroleum is contributing almost 40% to GAP, in 1990 its contributed 37. 46, 48. 19 in 2000 but its contribution decrease to 29. 62% in 2009.

The falling nature of this sector is attributed partly to the crisis in the Niger Delta region and partly due the overwhelming emphasis given to agriculture with the current global food crisis and the need for the country to diversify its export base. With the discovery of crude oil in commercial quantity in the early asses the contribution of agricultural sector has been on the decline due partly because of the neglect of the sector as ell inadequate agricultural policies. . Empirical Review Kookier (2011) investigate the contribution of agricultural sector on the Nigerian economic development and reveal that foreign direct investment on agriculture contribute the most (56.

43), this means that for every unit of change in FED on agriculture there is a corresponding change of 56. 43 unit in GAP in Nigeria. Salesman and Amine (2010) conducted research on the contribution of agriculture, petroleum and manufacturing sector of the Nigerian economy and found out that agricultural sector is contributing higher than both petroleum and manufacturing sectors.The paper reveals hat agriculture is contributing 1. 7978 units to GAP while petroleum is contributing 1. 14 units to GAP which is less than the contribution of agriculture. Awe and Jay (2009) conducted research on the diversification of the 761 Nigerian revenue base for economic development reveals that the RE for agricultural revenue was significant when the log of revenue from agriculture was tested on the revenue from agriculture. About 60 percent of the movement could be explained in the relationship.

The findings from the study further revealed that dynamic relationship exists between the revenue from the non-oil sector economic development. Keep and John (2012) revealed that the contribution of agriculture to GAP, which was 63 percent in 1 960, declined to 34 percent in 1 988, not because the industrial sector increased its share but due to neglect of agriculture sector. It was therefore not surprising that by 1 975, the economy had become a net importer of basic food items. The apparent increase in industry and manufacturing from 1 978 to 1988, was due to activities in the mining sub-sector, especially petroleum.

Muhammad and (2006) conducted study on production of agriculture in Nigeria and revealed that the negative coefficient of the value (-0. 7) of the food imports indicates that as food import increases, domestic agricultural production decreases. This might be due to the fact that food importation exposes the local farmers to unfair competition by foreign producers who usually take advantage of economies of scale in production due to their access to better production technology.

The positive coefficient (286. 91 ) of the GAP growth rate indicates that increase in the GAP also moves domestic agricultural production in the same direction.This shows that increased domestic economic activity has the impact of increasing the domestic agricultural production. This may be due to the fact that most economic activity in the country is related to agriculture. The result also shows that population increases has been a major contribution to domestic agricultural production in Nigeria with the coefficient (18424. 73). This may be due to the fact that majority of the populace are engaged in agriculture, meaning more hand on the farm as population increases.

The coefficient of consumer price index was positive (8. 49). This shows that as consumer price increases domestic agricultural production also increases’, meaning that domestic agricultural production is costively related to increase in consumer prices. This may be due to the fact that increase in price stimulates supply on the farmer’s side leading to more production of food.

More agro-processing activities must therefore be embarked upon in order that farmers may be able to dispose of their produce at fairly reasonable prices. The result Of the coefficient (0. 4) of government expenditure was positive, that is domestic agricultural production is positively related to increase in government expenditure, meaning that as government expends more on agriculture, domestic agricultural production also increases. The reason why it was not significant might be due to the fact that government has not been investing so much on agriculture over the years. 4. Data and Method of Analysis Data The data used for this paper/study are basically time series data covering 1960- 201 0, that is fifty-one(51 ) years.

The data were sourced from Central Bank Nigeria (CB) Statistical Bulletin. Method of analysis The research work makes use of the econometric procedure in estimating the relationship between the variables. The ordinary Least Square (OILS) technique will be employed in obtaining the numerical estimates of the efficient of the equation, Augmented Dick-Fuller test of stationary would be adopted after which Chow break point and Chow forecast test would be used to test for structural change in the economy.The OILS method is chosen because it possesses some optimal properties; its computational procedure is fairly simple and it is also an essential component of most Other estimation techniques. 762 In demonstrating the application of ordinary least square method, the multiple linear regression analysis was used with the GAP, Agriculture and petroleum, as the relevant variables. The dependent variable is GAP while the Agricultural output and petroleum output are the independent variables. Justification for the selection of these methods was that the data was a time series data and all time series data exhibit a random walk.Models specification This paper employed the model of Cob-Douglas production function with constant returns to scale as: GAP = CRABBING PETROLEUM Where GAP is defined as gross domestic product (output), a is the total factor productivity; AGRIC is the contribution of agriculture to GAP ; PETROL is the contribution of petroleum to GAP; Bal and 82 are the constant elasticity efficient of agriculture and petroleum respectively.

The logarithmic conversion of the equation above yields the structural form of production function as: Logged = Logo + Bal Allegoric + Bolometer + Logo (2) Where Logged Log of Gross Domestic Product.Logo = BOO is the intercept. Logical Log Of contribution Of agricultural sector to GAP. Electro Log of the contribution of petroleum sector to GAP. Logo = Log of white noise error term which is assume to be 1. P = white noise error term.

Hypotheses HO: Agricultural sector is not the major contributor to GAP of the Nigerian economy relative to petroleum sector. HI: Agricultural sector is the major contributor to GAP of the Nigerian Priori Expectation: O, Bal O. 5. Results and Discussion Table 2 in the appendix contains multivariate regression results of growth model.The results indicate that both the coefficient of agriculture and petroleum sector are statistically significant at 1 percent level as indicated by the probability value 0. 0000. This implies that a percent change in the output of agriculture and petroleum will increase GAP by 215. 29 and 79.

25 respectively which is consistence to the theoretical expectation and found to be positive. The intercept is found to be statistically insignificant an inconsistent with the theoretical expectation and found to be negative (I. E. BOO

The results also revealed that agriculture is contributing higher than petroleum to GDP over the years under review despite the neglect of the sector since the advent of il in the early 1970’s. The R2 0. 9993 implies that 99. 93 percent of total variance in GDP is explained by the regression equation or by the two sectors put together.Coincidentally, the goodness of fit of the regression remained high after adjusting for the degrees of freedom as indicated by the adjusted RE (RE = 0. 9993 or 99. 93%).

Fascistic 36800. 46, which is the measure of the joint significance of the explanatory variables, is found to be statistically significant at 1 percent as indicated by the corresponding probability value (0. 000000). The Durbin-Watson statistic 2. 982 implies absence of autocorrelation in the model, the 763 Durbin-Watson statistic 2. 3982 in table 2 is higher than RE 0.

993 this indicate that the model is unconscious and therefore can produce meaningful results. Table 3 in the appendix: Chow Breakpoint Test reveals that there is no structural break in the Nigerian economy for the period under review. The null hypothesis of no structural break is accepted with low Fascistic value 0. 1235 and a corresponding high probability value 0. 9929. Table 4, 5 and 6 in the appendix contained the unit root test results.

The results revealed that all he variables of the model are found to be stationary at both 1 percent, 5 percent, and 10 percent level.GAP and contribution of agriculture (ALLEGORIC) are both stationary at second difference (d(2)), while the contribution of petroleum is stationary at first difference (d(l which is indicated by UDF results at all levels greater than the critical values in absolute term. 6.

Concluding Remark This paper investigates the impact of contribution of agricultural sector and petroleum sector on the economic growth and development (GAP) in Nigeria through the application of Augmented Deceitfully technique in testing the nit root property of the series and Chow breakpoint test in testing the presence of structural change or break in the economy.The results of unit root suggest that all the variables in the model are stationary and the results Of Chow breakpoint test suggest that there is no structural change or break in the period under review. The results also revealed that agricultural sector is contributing higher than the petroleum sector, though they both possessed a positive impact on economic growth and development of the economy.

A good performance of an economy in terms of per capita growth may Hereford be attributed to a well-developed agricultural sector capital.A major policy implication of this result is that concerted effort should be made by policy makers to increase the level of productivity of agricultural sector in Nigeria by improving expenditure on the sector so as to boost the growth of the economy. Since the agricultural sector is the major contributor to GAP in Nigeria which is capable of changing social indicators of the economy, policies aimed at adequate financing of agricultural sector by government in order to boast its output, may result into a way forward.

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