an assessment of The effect of Government Expenditure on Agriculture and Agricultural Output in Nigeria
Abstract:
The present study evaluated the impact of government expenditure on agriculture on agricultural sector output in Nigeria for the period 1981-2018with time series data obtained from the Central Bank of Nigeria Statistical Bulletin and Annual Reports. Agricultural value added was specified as a function of labour force, capital expenditure, recurrent expenditure, agricultural loans, average annual rainfall, interest rate and economic reforms. The Augmented Dickey-Fuller unit root test used to test for stationarity of the data reveals that the time series data were stationary at I(0) and I(1). Bound test cointegration indicates a long run relationship in the model. The result of the ARDL model technique analysis reveals that capital expenditure is positively related to agricultural output and it is also statistically significant at 5 % in the current year (P(t) = 0.0080). It was understood that the impact of capital expenditure on agricultural output begins to weaken after one year (P(t) = 0.0815). However, recurrent expenditure has a negative and insignificant impact on agricultural output (P(t) = 0.6657). The study recommends that governments at all levels should intensify and increase expenditure on capital items in Agriculture sector. Procurement of capital expenditure by government should be effectively monitored. This will ensure that the right and durable equipment are procured. With respect to recurrent expenditure which negates output in the agricultural output, there is need for reorganization of overhead expenditures in the sector. Close monitoring and cut of overhead spending in the agricultural should be instituted in all government agencies related to agriculture in Nigeria. Keywords: Government expenditure, ARDL, Bound test, Agricultural sector Output
- INTRODUCTION
Government involvement in economic activities could be traced to the emergence of the Keynesian school of thought in the early 1930s. The introduction of fiscal policy as a tool of macroeconomic management brought about the use of public expenditure to achieve stability in the economy. Fiscal policy refers to the use of government spending and tax policies to influence economic conditions especially macroeconomic conditions, including aggregate demand for goods and services, employment, inflation, and economic growth. It involves government’s use of its expenditure and revenue plans to achieve desirable effects while avoiding those effects that are not desirable on a nation’s output, production, and employment levels. The role of agriculture in the development of any economy can never be over emphasized. Agriculture provides food for the citizens, raw materials for the industries, employment, and income for the farmers, enhances society’s well-being. Prior to the discovery of crude oil in Nigeria and even before the civil war in the late 1960s, the Nigerian economy was predominantly agricultural. The revenue from crude oil was so huge that political leaders began to shift emphasis from agriculture to mining and quarrying. In spite of the neglect of the agriculture sector, agriculture still remains the mainstay of the Nigerian economy; directly, in terms of volume of employment opportunities it offers, as the sector provides for a significant proportion of the country’s employed labor force; and indirectly, through the important linkages it provides with the rest of the economy (Udoh, 2011). Government can directly influence activities in the agricultural sector directly and indirectly using both the capital expenditure and recurrent expenditure. Capital expenditure involves expenditure on the building of feeder roads in rural areas, silos, tractors and other equipment for farmers, resulting in increased output wellbeing of lives of people in those areas. Provision of loan facilities, subsidizing of farm input and financial support to farmers would make the agricultural sector more attractive and raising entrepreneurship in agribusiness, thereby leading to positive externalities to other sectors of the economy. Over the years, the trend of agricultural output has been on the increase over the last four decades. Average annual agricultural output between the years 1981-1991 was N54.86. Between the years 1992-2002, agricultural output in Nigeria has risen to N1321.84 in agricultural output. The average figure for agricultural value added between 2003 and 2018 was N13,972.92 (CBN Annual Reports various issues). However, despite this increases in Agricultural output, the problem of food insecurity and poverty continue to bemoan Nigerians. The United Nations World Poverty Clock (2018) reported that 46 percent of Nigerians live in extreme poverty. By July 2020, this figure has increased to 50 percent. This poor outcome has been attributed to erratic and inefficient public expenditure on agriculture. The trend of government expenditure in agriculture has been erratic and fluctuating over the past three decades. between 1981 and 1990, average capital expenditure by the federal government on agriculture was N0.938 billion. This trend increased to N6.103 billion between 1991 to 2000. Average capital expenditure on agriculture for the period 2001 to 2010 was N 71.14. The figure for average capital expenditure for the period 2011 to 2018 was N72.06 (CBN Annual Reports 2018). A look at these average figures depicts an increasing trend when one looks at it from decade to decade. However, when the figures are viewed on annual basis, the trend becomes erratic and fluctuating. This same trend is also observable when examining the trend of recurrent expenditure during the period under study. For example, annual recurrent expenditure on agriculture between 1981 and 1998 was below N2billon. However, the incoming civilian administration increased the figure for recurrent expenditure on agriculture to N59.32billion in the year 1999. By the next three years of 2000, 2001 and 2002, recurrent expenditure on agriculture fell to N6.34, N7.06, and N9.99 respectively. Between 2004 and 2011, average annual recurrent spending on agriculture rose to N29.40. Afterwards, the trend began to decline by 2012 and began rising again to N36.30, N50.26 and N53.99 for by 2016, 2017 and 2018 respectively (CBN Annual Reports 2018). From the research point of view, few studies attempted to consider breaking down government expenditure into capital and recurrent to determine their individual impact on agricultural output (Zirra & Ezie 2017) but failed to examine the long run relationship and impact of both capital and recurrent expenditures on agricultural output. This is a gap which the present study intends to explore. Another lacuna observed in previous indigenous studies is the inability of previous models in this area of study to take economic reforms (Structural Adjustment Program SAP) that occurred during the period of this study into consideration. It is the belief of the researcher that the failure to consider the effect of the economic reform while modeling the impact of government expenditure on agricultural output will lead to results that do not reflect the realities of the time involved in the study. The present study accommodates these realities in its modeling. Therefore, the objective of this is to examine the impact of federal government’s expenditure on agriculture on agricultural sector output in Nigeria for the period 1981-2018. The introductory part of this study is followed by the review of literature as presented in the second section. The methodology, along with the model specification and the estimation techniques are presented in the third section. The results of the regression analysis are presented and discussed in the fourth section, while the conclusion and recommendation are presented in the final section
II. LITERATURE REVIEW
2.1 Conceptual Literature
Agriculture is the art and science of crop and livestock production. In its broadest sense, agriculture comprises the entire range of technologies associated with the production of useful products from plants and animals, including soil cultivation, crop and livestock management, and the activities of processing and marketing. The term agro-business has been coined to include all the technologies that relates to the total inputs and outputs of the farming sector. In this light, agriculture encompasses the whole range of economic activities involved in manufacturing and distributing the industrial inputs used in farming: the farm production of crops, animals and animal products, the processing of their materials into finished products and the provision of products at a time and place demanded by consumers. Agriculture was the key development that led to the rise of human civilization, with the husbandry of domesticated animals and plants (i.e., crops) creating food surpluses that enabled the development of more densely populated and stratified societies (Ogen, 2003). Conceptually, agriculture is the production of food, feed, fiber and other goods by the systematic growing and harvesting of plants and animals. It is the science of making use of the land to raise plants and animals. It is the simplification of natures’ food webs and the rechanneling of energy for human planting and animal consumption (Olorunfemi, 2008). Public expenditure is a core instrument of governance used to promote economic growth which is an essential ingredient for sustainable development. The role of government expenditure is very vital in every economy irrespective of the economic system in place. Government expenditure includes all expenses incurred by the government for the maintenance of itself and provision of public goods, services and works needed to foster or promote economic growth and improve the welfare of people in the society. Government (public) expenditures are generally categorized into expenditures on administration, defense, internal securities, health, education, foreign affairs, etc. and has both capital and recurrent components (Aigheyisi, 2013). Government expenditure is a major component of national income as seen in the expenditure approach to measuring national income: (Y = C+I+G +(X – M)). This implies that government expenditure is a key determinant of the size of the economy and of economic growth. However, it can be used to expand the economy or deflate it. It could significantly boost aggregate output, especially in developing countries where there are massive market failures and poverty traps, and it could also have adverse consequences such as unintended inflation and boom-bust cycles (Wang and Wen, 2013). The effectiveness of government expenditure in expanding the economy and fostering rapid economic growth depends on whether it is productive or unproductive. All things being equal, productive government expenditure would have positive effect on the economy, while unproductive expenditure would have the reverse effect (Aigheyisi, 2013). Government expenditure is categorized into capital or recurrent. Capital expenditure refers to the amount spent in the acquisition of fixed (productive) assets (whose useful life extends beyond the accounting or fiscal year), as well as expenditure incurred in the upgrade/improvement of existing
