Impact of Monetary policy on the Nigeria’s Agricultural export growth: A dynamic model approach

Abstract

The ultimate objective of any fiscal policy is to entrench financial stability and stimulate economic growth. Major economic sectors (agriculture, manufacturing and industrial) are found to have responded drastically to changes that occur in financial policy. The volume of agricultural output is significantly affected by price movements, which display curiously large variation across crop, regions and time period. Even, commercial interest rate, exchange rate and world prices of agricultural commodities might also seriously influence the seasonal output when such crops are pushed forward for invoked international trade. The paper describes the major monetary regimes that have been implemented in the last three decades and its influence on agricultural outputs. The data used in this work was extracted from CBN Statistical Bulletin, annual reports, and National Bureau of Statistics(NBS) abstract of Statistics publications. In the paper, a dynamic regression model was constructed to estimate the real sector Nigeria’ s agricultural export volume in response to monetary policy by the financial regulator (i.e. CBN). The study revealed that exchange rate volatility has a negative effect on agricultural exports, while price volatility has a positive effect on the volume of agricultural trade. Thus, the more volatile the exchange rate changes the lower the income earnings of farmers, which subsequently also leads to a decline in output production and reduction in export trade.