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TOPIC : MONETARY POLICY AND AGRICULTURAL DEVELOPMENT IN NIGERIA (1970 - 2010)
OF THE STUDY
If left unchecked to allocate themselves freely in an
economy, money and credit flows, volume, cost and direction
are very unlikely to achieve some specific macro-economic
policy objectives, which can change from time to time,
depending on the economic fortunes of a particular country.
To achieve balanced and steady economic growth and development,
and to instil some sanity into a country’s financial
system, the need for monetary policy becomes inevitable.
Monetary policy then can be viewed as measures designed
to regulate and control the volume, cost and direction
of money and credit in an economy. Monetary policy influence
the volume and direction of purchasing power in an economy
and is an instrument of market intervention to achieve
rationality stipulated objectives which otherwise be
impossible of attainment at least in terms of volume,
speed and direction (Anyanwu, 1996).
Monetary policy in the economy is made up of six components
or different policies dealing with the volume of or
quantity of, money i.e. the supply of money and credit,
its price, the rate of interest and its allocation (Afolabi,
1991). It also includes policies on balance of payments
on the exchange rates and on external reserve management.
In other words, monetary policy that limits itself merely
to establishing and controlling the quantity of money
or its price or indeed omits or excludes any of the
six components is not complete and cannot be effective.
Money or credit is an indispensable and inevitable variable
in any economy that it cuts across every sector - agricultural,
industrial, commerce and so on. It is money or credit
that forms the basis of monetary policy; therefore monetary
policy can be defined as a tool of effective changes
in the cost of, volume of, and direction of flow of
credit in an economy. Put in another way, monetary policy
is any conscious action undertaken by the monetary authorities
to change the quantity, availability or cost of money.
This implies that monetary policy is a policy employed
by the Central Bank to control money supply as an instrument
for achieving certain objectives of economic policy
which often encompasses price stability through improved
has been used in diversified ways to aid the development
of the agricultural sector in Nigeria. To start with,
interest rate structure has been employed principally
to direct ‘cheap’ credit to specific sectors
such as agricultural sector. This was done by consistently
stipulating relatively lower interest rates for loans
and advances of the sector. It should be noted however,
that the shares of agriculture in the total loans and
advances of commercial and merchant banks are still
Furthermore, as parts of the efforts of the monetary
authorities to alleviate the burden of loan repayment
of agricultural loans by farmers, the grace periods
for the repayment was evolved in 1984. The grace period
for loans granted to small-scale peasant farmers and
producers of seasonal cash crops; like groundnuts was
fixed at one year, four years for loans to livestock
farmers and those engaged in the production of crops
with relatively long gestation periods for example rubber,
palm trees and cocoa. For medium and large scale mechanized
farming, the grace period was five (5) years.
Despite the efforts of government in boosting agricultural
production, the sector seems not to be witnessing significant
development. To be able arrive at a logical conclusion;
this study shall examine the effectiveness of CBN’s
monetary policy by examining empirically investigating
its impact on agricultural development in the country.
OF THE PROBLEM
Of recent, the agricultural sector in Nigeria has not
been able to fulfill its traditional role of feeding
the population, meeting the raw materials needs of industries,
as well as providing substantial export earnings for
the economy. Indeed, the contribution of the sector
to gross domestic product (GDP) has been falling, not
necessarily because a strong industrial sector is displacing
agriculture but as a result of low productivity. The
largely subsistence agricultural sector has failed to
keep up with rapid population growth.
Nigeria is Africa’s most populous country and
the country, once a large net exporter of food, now
imports food. Emerging problems which constrained the
full realization of the potentials in the agricultural
sector include: inadequacies in the supply and delivery
of farm inputs, shortage of working capital, low level
of technology, diseases and pest infestation, poor post-harvest
processing and shortage, technology, environment hazards,
labour and land use constraints. Most of these problems
could be solve with the appropriate monetary policy.
The need to correct the existing structural distortions
in Nigerian agricultural sector and put the economy
on the path of sustainable growth is therefore compelling.
This raises the question of what monetary policy to
adopt to develop the agricultural sector in order to
realize the potentials of the sector. This is the main
thrust of this study.
OF THE STUDY
The broad objective of this study is to assess the effectiveness
of the monetary policies in terms of its promotion of
agricultural development in Nigeria. However, the following
specific objectives would also be achieved.
(i) To examine the trend and structure of monetary policy
(ii) To evaluate the performance of the agricultural
sector in Nigeria over the years.
(iii) To empirically investigate the impact of the monetary
policy on agricultural development in Nigeria;
(iv) To make recommendations on how to boost the performance
of the agricultural sector through appropriate monetary
This research shall be guided by the following research
(i) What has been the trend and structure of monetary
policy in Nigeria over the years?
(ii) What has been the performance of Nigerian agricultural
sector over the years?
(iii) How do the monetary policy instruments affect
agricultural sector in Nigeria?
The hypotheses to be tested in the course of this research
work are stated below:
H0 - That monetary policy instruments do not affect
agricultural output in Nigeria.
H1 - That monetary policy instruments affect agricultural
output in Nigeria.
H0 - That monetary policy instruments do not affect
index of agricultural production in Nigeria.
H1 - That monetary policy instruments affect index of
agricultural production in Nigeria.
OF THE STUDY
This study is significance in the following ways:
1. It would provide an objective view of the effectiveness
of Nigerian monetary policy in terms of its promotion
of agricultural development;
2. The study would also provide an econometric basis
upon which to examine the effect of monetary policy
on agricultural development in Nigeria;
3. Lastly, it would provide policy recommendations to
policy-makers on ways to make the Nigerian agricultural
sector vibrant through the monetary policy.
AND DELIMITATION OF THE STUDY
The economy is a large component with lot of diverse
and sometimes complex parts. However, this study will
only focus on some macroeconomic variables such as the
monetary policy and agricultural productivity. This
study will cover all the facets that make up the monetary
policy, but shall empirically investigate the effect
of the major ones. The empirical investigation of the
impact of the monetary policy on the agricultural development
in Nigeria shall be restricted to the period between
1970 and 2010.
This study shall contain five chapters. The first chapter
shall contain the background of the study, the statement
of the research problem, the objectives of the study,
the research questions etc that would guide the study.
Chapter two summarises the opinions of different authors
on the subject matter. Chapter three states the methodology
adopted in the study. Chapter four focuses on the presentation
and interpretation of the regression results. The last
chapter, which is chapter five, presents the summary
of the findings, conclusion and appropriate recommendations.
(i) Open Market Operation (OMO):
This is the buying and selling of government securities
by a central bank, such as the Central Bank of Nigeria,
in order to control the money supply.
(ii) Expansionary Monetary policy:
Expansionary monetary policy is when the Central bank
is using its tools to stimulate the economy. This usually
means lowering the cash ratio to increase the money
supply. The opposite is contractionary monetary policy
(iii) Moral Suasion:
This is an application of pressure, but not force, by
an authority (such as the Central Bank) to get financial
institutions to adhere to a policy.
Afolabi, L (1991), Monetary Economics: Heinemann Educational
Books (Nigeria) PLC.
Anyanwu J. C.
(1996), Monetary Economics: Theory, Policy and Institutions.
Hybrid publishers limited.
O. and Osinubi, T. S. (2006). “Monetary Policy
and Macroeconomic Instability in Nigeria: A Rational
Expectation Approach”. Journal of Social Science,
- Ten Thousand Naira (Non-Negotiable)
Regression Data and Results are included
policy, monetary policy instruments, agricultural development
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