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PROJECT TOPIC AND MATERIAL ON EXCHANGE RATE VOLATILITY AND AGRICULTURAL SECTOR PERFORMANCE IN NIGERIA: AN ECONOMETRIC ANALYSIS (1980 – 2017)
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- Name: EXCHANGE RATE VOLATILITY AND AGRICULTURAL SECTOR PERFORMANCE IN NIGERIA: AN ECONOMETRIC ANALYSIS (1980 – 2017)
- Type: PDF and MS Word (DOC)
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The study focused on the exchange rate volatility on Agricultural sector performance in Nigeria from the period of 1980-2017. Secondary data were collected from the publications of Central Bank of Nigeria (CBN): Statistical Bulletin, Economic. Using Mundell-Fleming model, Johansen co-integration test, error-correction mechanism and estimated using the Ordinary Least Squares Regression. Results showed that exchange rate volatility affect agricultural sector performance both positively and negatively in Nigeria; The study shows the key principle of ensuring a true federal structure, with each of the federating units being fiscally viable as to be able to fund its recurrent expenditures, and provide some basic infrastructure on its own without recourse to the centre. Another recommendation made in this study is the need to consolidate the current unviable entities called states that helplessly depend on federal oil revenue even to pay the salaries of clerks into fiscally and economically viable regions. The emphasis is to orchestrate a new politics that is aimed at cake-baking rather than cake sharing, one which aims to mobilize the creative energies of Nigerians and their endowed resources to unleash one of the economic miracles of the 21st Century.
- Background of the Study
Agriculture is providing employment for the major segment of the work force and also constituting the main stay of the rural community. The proportion of the Gross domestic product holds between 30-40 present (Monye-Emina, Anthony.I).
Exchange rate has been found to have great effect on all sectors of the Nigerian economy. The agricultural sector is not left out as it is also a part of the economy. This is to say that exchange rate influences not only the outcomes of the agricultural sector performance but also the activities of the sector. For there to be a better understanding of the effects of exchange rate on the overall agricultural performance, it is important for us to establish what exchange rate is and how volatility is established. Exchange rate is said to reflect the ratio at which one domestic currency (naira) can be exchanged for another country’s currency (dollar), while exchange rate is said to depreciate if the amount of domestic currency required to buy a foreign currency increases and exchange rate is also said to appreciates if the amount of domestic currency required to buy a foreign currency reduces. The response of agricultural supply to price movement has been the subject of long and vigorous discussions.
In view of the poor performance of the agricultural sector in recent years and the impact of most of the economic reforms on agricultural supply in Nigeria, following the fluctuations of the naira in 1986, a policy induced by the structural adjustment programme (SAP), the subject of exchange rate fluctuations has become a topical issue in Nigeria. The cardinal objective of SAP was to effectively alter and restructure the consumption pattern and production patterns of the economy as well as eliminating price distortions and heavy dependence on oil exports and imports of consumer goods. Most commentary points to the fact that these or most reforms are showing desired outcomes while others think otherwise.
In recent times, the country’s exchange reserve has dropped due to the turmoil in the global commodity market witnessed in the second half of the 2014 due to the fall in the oil prices from $114 per barrel recorded in June 2014, to $38.0 per barrel by December 2015. The prices further fell in 2016 to $32.6 per barrel. Growth in the Nigerian economy has been noted to be significantly be lesser recent years compared to previous years. Therefore, it is no surprise that growth in the third quarter of 2015 was 2.84 percent slightly higher than in the second quarter but still well below the average growth rate of 5.32 achieved between 2011 and 2014 (NBS report, from 2010 to 2015). This led to the beginning of reform in the agricultural sector by the federal government to boost the economy by focusing on this sector as it is another means of international trade outside crude oil (FMARD, 2016).
It is therefore established that exchange rate depreciation has a hazardous effect on the general economy as it affects all sectors of the economy. The agricultural sector is not left out as exchange rate depreciation has led to the increase in prices of agricultural trade flow over the years as agricultural products sold in foreign currency has not amounted to any significant amount in domestic currency, thereby reducing the productivity of the sector as most of the implement used to facilitate the production of agricultural products are imported such as fertilizer, tractors and other farm implements used for production.
- Statement of the Problem.
Exchange rate volatility since the beginning of floating exchange regimes has raised concerns particularly on the impact on the agricultural sector. Volatility is a major constraint on the development of the economy, making planning more problematic and investment more risky (Ngene, 2010). Nigeria as a developing country is facing two key gaps in agriculture today: an inability to meet domestic food requirements and the inability to export at quality levels required for market success (FMARD, 2016) due to the country’s reliance on foreign goods and products due to heavy dependence on crude oil export. Most agricultural products that the country formally produce such as rice, oil palm, and so on are now been imported as focus left the crude oil and industrialization. The low level of competitiveness provided little room for agricultural sector in Nigeria to compete internationally with foreign agricultural produce (victor E. Et al, 2013). This implies that there is low productivity in the agricultural sector due to exchange rate volatility which reduces income and generates unemployment since the agricultural sector generates country’s employment and meets domestic food requirements.
- Research Objectives
This study seeks:
- to determine the impact of exchange rate on the agricultural sector in Nigeria;
- to examine the possible remedies to enhance agricultural productivity.
- Research Questions
Consequently, upon the above problems, we can pose the following questions.
- What is the relationship between exchange rate and the agricultural sector?
- What are the effects of exchange rate volatility on the whole agricultural performance?
H₀₁: Exchange rate volatility has no significant effect on the Nigerian agricultural commodities.
H₀₂: Exchange rate volatility has no long-run effect on Nigeria agricultural commodities.
1.6 Justification of Study
This study is important given the resent instability in exchange rate and also the recent agricultural sector performance. Due to the frequent increase in exchange rate volatility; this study will help nation’s planners in their development plan. The outcome of this study is to understand the dynamics of exchange rate volatility and how it affects agricultural sector performance. Andby this understanding, it will make it easy for formulated and easily applicable in the agricultural sector which also affects the overall economy growth and development.
- Scope and Coverage of Study
This study examines the relationship and effects of exchange rate volatility and the agricultural sector performance on the Nigerian economy within 37 years ranging from 1970-2017.
- Limitations of Previous Study.
Most studies failed to show what mechanism should be postulated and adopted to maintain exchange rate and its effect on the agricultural sector. These studies also failed to show the effects of exchange rate volatility on the agricultural sector over the long run.
- Organisation of Study
This chapter is divided into 6(six) chapters.Chapter 1; Which is the general Introduction which consists of the research background, problem statement, study objectives, research question and hypothesis, justification and finally, the organisation of study.Chapter 2;This focuses on the Nigerian agricultural sector and exchange rate trends, specifically contains both an overview of theNigerian agricultural sector performance over the years and the exchange rate development.Chapter 3;This chapter views the theoretical literature, the empirical literature, limitations of previous studies and the theoretical frame work.Chapter 4;This chapter bases on the research techniques, model specification, estimation procedure, evaluation methods and data sources collection.Chapter 5;This chapter deals on empirical result analysis which comprises of the presentation of model result, statistical test of significance, econometric diagnostic testing, evaluation of working hypothesis and reported results implications.Chapter 6;This chapter contains the summary and conclusion which is framed into summary of findings, policy recommendation, study limitations and further research.
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