Impact of Fiscal Policy on the Growth of Agricultural Sector in Nigeria, 1981-2013

Abstract

Most industrialized countries over the years have passed through the agrarian era. In fact, the industrial sector takes its roots from the agricultural sector. In a developing nation, government fiscal responsibility is very central to all facets of development including agriculture. The study thus seeks to examine the impact of fiscal policy on the growth of agricultural sector in Nigeria between 1981 and 2013 using Error Correction Model (ECM). Unit root tests were conducted on each of the variables to avoid spurious regression results. Stationary variables were subsequently used for the analysis. The co-integration results showed that long run equilibrium relationship exists among the variables. The findings from the study revealed that custom and excise duties (CED) though statistically significant, relates negatively with volume of agricultural outputs (VAO). It shows that the amount of tax imposed on agricultural exports has not improved its productions and thus has a dampening multiplier effects on its growth. Value added tax (VAT) was however found to have influenced the growth of VAO positively and significantly. It shows that the amount of VAT imposed on agricultural outputs has improved the growth of the agricultural produce. The total government expenditures on agricultural sector were found to have negatively influenced agricultural growth in Nigeria. It showed that the amount of government expenditures towards the growth of the sector has not been favorable. Government capital allocation and expenditure to agriculture is relatively low and the actual expenditure falls short of budgeting expenditure. The rate of under spending was found to have been higher for agriculture than for any other economic sectors as large proportion of the funds allocated to agriculture has not gone directly to farmers. Suggestive from the analysis therefore is that Government should increase her budgetary allocation to this sector in a consistent manner because of its importance to the national economy, hoping that with proper monitoring of fund, it would contribute more significantly to the economy of the country. Customs and excise duties on agricultural exports should be stream-lined and more incentives should be given to rural farmers since they covered the larger population in agricultural sector.

Keywords: Agriculture Outputs, Customs and Excise Duties, Expenditures, Fiscal Policy, Value Added Tax


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