Credit rationing by deposit money banks and implication on agricultural output in Nigeria

Abstract

The study examined the effects of credit rationing by deposit money banks on the performance of agriculture in Nigeria using secondary data  between 1981 and 2016 obtained from the CBN Statistical bulletin. The study applied both Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root test to determine the order of integration of each variable, Johansen cointegration and Vector Error Correction Model (VECM) were employed to determine if there is a long run, the short-run relationship between credit rationing and agricultural output. The result showed that all the variables were integrated of order one. The results revealed that credit rationed for fishery has a short-run significant impact on agricultural output while credit rationed for cash crops, food crops, and livestock do not have a significant short-run impact on agricultural output. The findings further revealed that credit rationed for cash crops and livestock farming significantly decline agricultural output to the tune of 26.48% and 75.87% in the long run while credit rationed for food crops and fishery significantly result in 43.52% and 41.89% rise in agricultural output in the long run. Therefore, the study recommends the establishment of special financial institutional to give unconditional loans to farmers, raise credit rationing for food crop production above the current ceiling, and emphasis should be on exchange rate liberalization policy that will shift consumption from imported agricultural produce to local agricultural produce. These measures will promote farmers’ access to funding which will invariably translate  to a rise in agricultural output.

Keywords: Credit, Rationing, Money Deposit Bank, Agriculture, Output, Nigeria