Government Fiscal Policy and Agricultural Sector Outputs in Nigeria: Evidence from Fully Modified Ordinary Least Square (FMOLS)

Abstract

The agricultural sector is an important sector of any economy as it plays a vital role from various points of view like, share in GDP, employment and foreign exchange earnings. Despite Nigeria’s rich agricultural and resource endowment, as well as the pre and post oil boom experiences she has witnessed, the Nigerian agricultural sector has failed to blossom as it is expected to; and Less than 50% of the country’s cultivable agricultural land is under cultivation. The study thus examines Government fiscal policy and Agricultural sector outputs in Nigeria between 1995 and 2014 using Fully Modified Ordinary Least Square (FMOLS) regression method. Findings from the study showed that over the years, the government has almost been the sole provider of financial and other recurrent resources to support agriculture. Value added tax (VAT) was however found to have influenced the growth of value of agricultural outputs   positively and significantly. It shows that the amount of VAT imposed on agricultural outputs has improved the growth of the agricultural produce.  However, government capital allocation and expenditure to agriculture is relatively low and that actual expenditure falls short of budgeting expenditure and the rate of under spending is usually higher for agriculture than for other economic sectors. More so, a large proportion of the funds allocated to agriculture do not go directly to farmers. The federal Government thus needs to take a holistic appraisal of agricultural programmes and schemes, with a view to streamlining them to meet the dynamics of times, for the benefits of the Nigerian citizenry. More funding has to be captured in the annual budget so as to boost the performance of the agricultural sector.