IMPACT OF FISCAL POLICY ON AGRICULTURAL SECTOR PERFORMANCE IN NIGERIA: EVIDENCE FROM 1990–2023
Miracle unekwuojo Oguche , Omofa Moses Niyi Gbenga and Mathew keyi, PhD
Volume 14 Issue 2
Abstract
This study empirically examines the impact of fiscal policy on agricultural sector performance in Nigeria from 1990 to 2023. Using a Vector Error Correction Model (VECM) framework, the analysis investigates how government capital expenditure, recurrent expenditure, taxation, and subsidies influence agricultural output. The study employs annual time series data from the Central Bank of Nigeria and World Bank Development Indicators. Results from the cointegration analysis confirm the existence of long-run equilibrium relationships among the variables. The VECM long-run estimates reveal that government capital expenditure (coefficient = 0.482), recurrent expenditure (coefficient = 0.295), and agricultural subsidies (coefficient = 0.367) exert statistically significant positive effects on agricultural output, while agricultural-related taxes (coefficient = −0.214) have a significant negative effect. The impulse response function analysis demonstrates that agricultural output responds positively to shocks in government expenditure and subsidies but negatively to tax shocks. Variance decomposition results indicate that government capital expenditure accounts for the largest proportion of variations in agricultural output over time. The study concludes that expansionary fiscal policies, particularly increased capital investment and targeted subsidies, are critical for enhancing agricultural productivity in Nigeria, while excessive taxation undermines sectoral performance. The findings recommend increased government investment in agricultural infrastructure, sustained subsidy programmes, and tax reforms that reduce the burden on farmers. Keywords: Fiscal Policy, Agricultural Sector, VECM, Cointegration, Impulse Response
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