Cocoa export growth and long-run export drivers in Nigeria: A vector error correction model approach

Abstract

The dwindling oil fortune experienced in many natural resource-dependent economies with mounting external debt makes  diversification through cash crop export an imperative alternative budget financing, especially in the long run. This study examined cocoa  export growth and longrun drivers in Nigeria. Secondary data between 1981 and 2020 were obtained from the Food and Agriculture Organisation and the Central Bank of Nigeria. A Vector Error Correction Model (VECM) and the compound growth model were  used. The Augmented Dickey-Fuller test for stationarity was also applied. Findings showed that cocoa export earnings had a higher  growth rate than the output and export volume. In the long run, cocoa output, total cocoa earnings, and prime lending rate had a  positive and statistically significant (p<0.01) impact on total cocoa export quantity. In addition, the exchange rate and crop implicit price  deflator showed a negative and statistically significant (p<0.01) effect on total cocoa export quantity. Also, there was bidirectional causality among the variables in the systems equations, implying that the values of financial factors can be used to predict cocoa output.  Our results suggest that cocoa exports could reduce Nigeria's budget deficit. To enhance the contribution of cocoa to national budget  financing, we recommend fiscal policies capable of increasing cocoa output and export earnings. In addition to this, we advocate for  monetary policies that will promote special lending rates for cocoa producers and exporters, ensure flexible exchange rates, and check  inflation.