Impact of Monetary Policy on Agricultural Performance in Nigeria
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Date
2022-12
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Lead City University
Abstract
Over the last years, access to cheap and affordable credit for the purchase of land and necessary machinery towards the development of farm produce, services, production technologies and marketing strategies have been one of the major challenges facing many farmers in the developing countries like Nigeria. Yet, deposit money banks are often reluctant to lend money to farmers for agricultural enterprises, development and expansion due to the lack of credit facilities and collateral. As a result, this study investigates the asymmetric effect of monetary policy on agricultural performance for the periods of 1981-2021. The non-linear ARDL estimator showed that low monetary
policy rate ensures a greater performance in the agriculture sector in the long run. A positive change in monetary policy rate and lending rate influences short run agricultural performance. Also, a high liquidity ratio significantly influences short run
agricultural output, whereas its long run impact was not significant. This means that financial bank solvency affects their ability to provide financial assistance which ultimately influenced short run agricultural output. Further, for both positive and negative changes in deposit money bank credit to agriculture, they have a negative influence on short run agricultural performance. According to the study's shocks analysis, agricultural performance responds to 44.35%, 32.64%, 18.78%, and 4.32% of total shocks in monetary policy rate, liquidity ratio, lending interest rate, and deposit money bank credit to agriculture from 23.79% of monetary policy shocks. The study recommends an expansionary but non-inflationary monetary policy to improve value addition to the agricultural sector of the Nigerian economy. This should be performed by ensuring low and affordable lending interest rates for farmers employed in tandem with government spending in the agricultural sector as an effective way of improving its performance.
Keywords: Monetary policy rate, lending rate, financial credit, liquidity, agriculture
output, asymmetric analysis, Nigeria
Word Counts: 286