Pa ge 1 Pa ge 20 American Journal of Arts and Human Science (AJAHS) Government Expenditure and Agricultural Sector Output in Nigeria Utitofon Morgan Ukpong1*, Akpabio Uduak1, Ekere S A1, Akpan E O1 Volume 1 Issue 4, Year 2022 ISSN: 2832-451X (Online) DOI: https://doi.org/10.54536/ajahs.v1i4.682 https://journals.e-palli.com/home/index.php/ajahs Article Information ABSTRACT Received: September 28, 2022 Accepted: December 01, 2022 Published: December 12, 2022 The purpose of this study is to determine how government spending affects the output of the agricultural sector in Nigeria. This study deals with Nigeria’s government spending and agricultural sector output (1990-2020). Data for the study was sourced through the Central Bank of Nigeria (CBN) statistical bulletin 2020 as a secondary means. This study adopted the Ordinary Least Square (OLS) multiple regression method to analyze the data. Real gross domestic product was used as the dependent variable. At the same time, government expenditure on administration, government expenditure on social and community services, and government expenditure on economic services formed the independent variables. From the findings, it was discovered that the variables were positively insignificant to agricultural sector output at a 5% level of significance. Therefore, we conclude that government expenditure does not affect the agricultural sector output in Nigeria. Hence, it was recommended that the federal government of Nigeria through the Central Bank, should strengthen the banking sector to ensure an improved and efficient credit flow to the agricultural sectors because of its strategic importance in stimulating the growth and development of an economy. Keywords Agricultural Output, Agricultural Sector, Government Spending, Nigeria 1 Department of Banking and Finance, Akwa Ibom State Polytechnic, Ikot Osurua, Nigeria * Corresponding author’s e-mail: morgansoul87@gmail.com INTRODUCTION The role of agriculture in developing any economy can never be over-emphasized. Agriculture provides food for the citizens, raw materials for the industries, employment, and income for the farmers, and enhances society’s well- being (Edeh et al., 2020). Agriculture is the science or practice of farming, including the cultivation of the soil for growing crops and the rearing of animals to provide food, raw materials, and other products. Simply, it is the science and art of cultivating plants and livestock. Before the discovery of crude oil in Nigeria and even before the civil war in the late 1960s, the Nigerian economy was predominantly agricultural. The revenue from crude oil was so huge that political leaders began to shift emphasis from agriculture to mining and quarrying. Despite the neglect of the agriculture sector, agriculture remains the mainstay of the Nigerian economy; directly in terms of the volume of employment opportunities it offers, as the sector provides for a significant proportion of the country’s employed labor force; and indirectly, through the essential linkages, it provides with the rest of the economy (Udoh, 2011). Government can directly influence activities in the agricultural sector, using both capital expenditure and recurrent expenditure directly and indirectly. Capital expenditure involves spending on the building of feeder roads in rural areas, silos, tractors, and other equipment for farmers, resulting in increased output and well-being of people in those areas. Provision of loan facilities, subsidizing farm inputs, and financial support to farmers would make the agricultural sector more attractive and raise entrepreneurship in agricultural business, thereby leading to positive external effects on other sectors of the economy. Over the years, the trend of agricultural output has been on the increase over the last four decades. The average annual agricultural output between the years 1981-1991 was N54.86. Between the years 1992-2002, agricultural output in Nigeria has risen to N1321.84 in agricultural output. The average figure for agricultural value added between 2003 and 2018 was N13,972.92 billion (CBN, 2018).However, despite these increases in Agricultural output, the problem of food insecurity and poverty continue to bemoan Nigerians. The United Nations World Poverty Clock (2018) reported that 46 percent of Nigerians live in extreme poverty. By July 2020, this figure has increased to 50 percent. This poor outcome has been attributed to erratic and inefficient public expenditure on agriculture. The trend of government expenditure on agriculture has been erratic and fluctuating over the past three decades; between 1981 and 1990, the average capital expenditure by the Federal Government on agriculture was N0.938 billion. This trend increased to N6.103 billion between 1991 and 2000. The average capital expenditure on agriculture for the period 2001 to 2010 was N 71.14 billion. The average capital expenditure figure from 2011 to 2018 was N72.06 billion (CBN, 2018). On the other hand, government expenditure arose in Nigeria as a result of the inability of the private sector to effectively provide certain resources for the masses at a subsidized or reduced price and without any incidents of Monopoly. Agricultural holdings are generally small and scattered. Agriculture provided 41% of Nigeria’s total gross domestic product (GDP) in 1999. This percentage represented a decrease of 24.7% from its contribution of 65.7% to the GDP in 1957. The decrease continued because as economic development occurs, the relative size of the agricultural sector usually decreases. The decline in agricultural production in Nigeria began with the advent https://doi.org/10.54536/ajahs.v1i4.682 https://journals.e-palli.com/home/index.php/ajahs Pa ge 21 https://journals.e-palli.com/home/index.php/ajahs Am. J. Arts Hum. Sci. 1(4) 20-26, 2022 of the petroleum boom in the early 1970s (Eze, 2010). The boom in the oil sector brought about a distortion of the labor market. The distortion, in turn, produced adverse effects on the production levels of both food and cash crops. Governments had paid farmers low prices over the years on food for the domestic market to satisfy urban demands for cheap basic food products. This policy, in turn, progressively made agriculture unattractive and enhanced the lure of the cities for farm workers. Collectively, these developments worsened the low productivity both per unit of land and per worker due to several factors: inadequate technology, acts of nature such as drought, poor transportation and infrastructure, and trade restrictions. Although the government had taken several measures to facilitate the flow of credit to agriculture, administrative delays often cause credit to reach many farmers after the planting seasons hence providing an opportunity for loan diversion to unproductive activities and leading to eventual poor repayment. It is not surprising, therefore, that the problem of insufficient supply of agricultural inputs such as fertilizer, agricultural chemicals, and improved seeds has continued to slow down the total agricultural output as measured by the aggregate index of production, which declined in the pre-SAP era. For example, the high rate of total output decline recorded was -15.0, -6.1, -5.5, -0.2, and -1.5 percent for the years 1975 to 1979, respectively. The production also dropped by -0.5 percentage points from 1982 to 1983 (Ukpong et al., 1993). Also, in 1970, the production of significant export crops such as cocoa, rubber, and groundnuts fell by 43%, 65% a 64% and respectively (Olomola, 1998). Despite decades of public sector contribution to agriculture, there was evidence of unstable or fluctuating trends in the sector’s output. Based on the forgoing relationship between Government Expenditure and the Agricultural sector, a study such as this is necessary. This study, therefore, was designed to investigate the effect of government capital expenditure on the agricultural sector output of the Nigerian economy. LITERATURE REVIEW Relationship between Government Expenditure and Agricultural sector Output in Nigeria. This literature review is classified into three categories based on conceptual, theoretical, and empirical reviews. Conceptual Review Government spending refers to money spent by the public sector on the acquisition of goods and provision of services such as education, healthcare, social protection, and defense (Okeke, 2002). Government spending is financed primarily through two sources - Tax collections by the government, which could be Direct or Indirect taxes, and Government borrowing (borrowing money from its citizens or borrowing money from foreigners) Public spending enables governments to produce goods and services or purchase goods and services needed to fulfill the government’s economic objectives. Government spending could be current or capital spending. Current spending is for the short term and includes expenditure on wages and raw materials, while Capital spending is for the long term and does not need to be renewed each year. Theoretical Review Musgrave Theory of Public Expenditure Growth (1997) Hagemann, (2021) citing Musgrave. (2007) argued that what matters most for government spending is how effective it is. If the so-called “productive” category of government spending is not effective, it can have a negative impact on growth. The direction of this theory correlates with this work in that it emphasizes the importance of effective government spending in impacting economic growth, which is also the focus of this work. The Wagner’s Law This theory made three postulations, and one of them is that; the rise in public expenditure will lead to a more than proportional increase in national income and will thus result in a relative expansion of the public sector. This theory correlates with the focus of this study in that; this study also emphasizes the need for public expenditure to increase the output of the agricultural sector, with this output used to refer to agriculture’s contribution to national income. Wagner’s law. (2022). The Theory of Maximum Social Advantage The principle here is derived from the principle of equal- marginal utility. The law states that ceteris paribus, a rational individual will distribute his money income on two or more goods, say expenditure and income, such that the marginal utility of the last money spent on either of those goods is the same, meaning that public expenditure leads to economic growth when expenditure and taxation are carried out in a way that the benefits derived from expenditure equal the sacrifice imposed by taxation. Ngerebo (2009). This correlates with this study because it could be translated to mean that the ratio of government expenditure on agriculture to agriculture’s contribution to national income should be the same, but data shows that this ratio is much uninformed. Bowen’s Model of Public Expenditure An important point for this model is that social goods are not equally available to all. According to Bowen, since social goods are consumed by all the individuals in the state, they should all contribute to these social goods. He also mentioned that different individuals enjoy these social goods in different capacities so they are expected to contribute different amounts. UKEssays (2018). Therefore, the government should produce a number of social goods equal to the marginal cost of supplying that good to be equal to the marginal utilities received by the state. It can be explained by saying that the government should allocate resources to sectors based on the income http://https://journals.e-palli.com/home/index.php/ajahs Pa ge 22 https://journals.e-palli.com/home/index.php/ajahs Am. J. Arts Hum. Sci. 1(4) 20-26, 2022 derived from such sectors. This theory correlates with this study by explaining why the government should allocate resources based on how important the sector is to the national GDP, as contained in the problems of this study. The Keynesian Theory on Government Expenditure Keynesians believe that because prices are somewhat rigid, fluctuations in any component of spending consumption, investment, or government expenditures cause output to change. If government spending increases, for example, and all other spending components remain constant, then the output will increase. Keynesians regard public expenditure as an exogenous factor that can be utilized as a policy instrument to enhance output. UKEssays. (2018). Empirical Review Studies have shown the effect of government expenditure on long-term economic growth through spending in the agricultural sector. Ewubare & Eyitope (2017) identified the effects of government spending on the agricultural sector in Nigeria. They used the analysis’s ordinary least squares of multiple regressions, the Johansson co- integration techniques, and the error correction model. The results showed that the coefficient of determination is 0.9468, and the coefficient of the ECM appeared with a negative sign and was statistically significant. The lag two and three forms of the explanatory variable, GEA, were positive and statistically significant. Based on the above findings, the study recommends an increase in funding for the agricultural sector in Nigeria. FAO (2016) reported that in terms of capital allocation to agriculture in Nigeria, it averaged 4.74 percent from 1985-1999. However, from 2000-2005, it rose to 7.00 percent, and 10 percent from 20010-2015; though revealing an increase, but still falls short of the Food and Agricultural Organization (FAO) recommendation that 25 percent of the government capital budget be assigned to the agricultural development capital budget. Francis (2015) examined the impact of the Federal Government’s expenditure on the agricultural sector. He used a Simple regression to analyze the data, which indicated the impact of agricultural expenditure on its output from 1991 to 2011. The R2 was 1%, indicating a weak relationship between the variables as a result of inadequate funding. He recommended that government should reinforce its budgetary allocations to the agricultural sector, ensure proper release of funds, monitor agricultural inputs distribution to farmers, and create commodity markets. The study carried out by Yusuf (2013) on the effectiveness of government annual budgetary allocation to agriculture and the role of monetary policy instruments in the growth of agricultural GDP in Nigeria. They used the OLS technique, which shows that the Agricultural Credit Guarantee Scheme Fund, the previous year’s GDP, and the Consumer Price Index contributed positively to the growth of agricultural GDP. Other variables of interest, like the interest rate, exchange rate, and government expenditure on agriculture, contributed negatively to agricultural GDP growth. Therefore, the study recommended that the government increase its spending on the agricultural sector, monitor the allocated funds, and provide the necessary infrastructural facilities like good road networks, electricity, health, and water for the rural populace. Analyzing the relationship between Nigeria’s government expenditure on the agricultural sector and its contribution to economic growth, Ihugba, (2013) employed the Engle-Granger two-step modeling (EGM) procedure to co-integration based on unrestricted Error Correction Model and Pairwise Granger Causality tests. They found that agricultural contribution to GDP (Gross Domestic Product) and total government expenditure on agriculture are co-integrated. The speed of adjustment to equilibrium was 88% within a year when the variables wandered away from their equilibrium values. Based on the result of granger causality, the paper concludes that a very weak causality exists between the two variables used in this study and that any reduction in government expenditure on agriculture would negatively affect economic growth in Nigeria. METHODOLOGY The study relied on past data from secondary sources - Central Bank of Nigeria Statistical Bulletin, 2020. The variables of concern include; Agricultural output (AO), Government expenditure on administration (GEA), Government expenditure on social & community services (GES), and Government expenditure on economic services (GEE) for the periods 1990 – 2020. The quasi- experimental research design was adopted in the study. A modification was made to the econometric model based on the results. The study adopted the Ordinary Least Square (OLS) regression method to analyze the data collected. The ordinary least square (OLS) method is adopted due to its properties of being BLUE (Blest, Linear, Unbiased Estimators). Model Specification The functional model of the study is thus; AO = F (GEA, GES, GEE) Where: AO = Agricultural Output GEA= Government expenditure on administration GES = Government expenditure on social and community services GEE = Government expenditure on economic services The equation model is presented as follows: AO= β0 + β1GEAt + β2GESt + β3GEEt + µt Where; a0 = constant term, b1, b2, b3 = coefficients of explanatory variables, GEA, GES and GEE are explanatory variables, µt = error term. Other Econometric Tests The coefficient of determination (R) and the Adjusted R̅2 This explains the degree of relationship that exists http://https://journals.e-palli.com/home/index.php/ajahs Pa ge 23 https://journals.e-palli.com/home/index.php/ajahs Am. J. Arts Hum. Sci. 1(4) 20-26, 2022 between the dependent variable and the independent variables. It shows how adequate, significant, and reliable a model is. It is also known as a test for goodness of fit. T-test The T-test is also known as the individual test. Based on the formulated hypotheses, the T-test would individually test how the government expenditure variables individually affect the agricultural sector output in Nigeria. The decision of the individual test is drawn based on the values of the table values and the calculated values at a certain significant level, say 5%. F-test This test is known as the joint test. It involves testing whether the explanatory variables jointly affect the dependent variable significantly or not. It is done using the Analysis of Variance (ANOVA). DESCRIPTIVE RESULTS The data for the variables needed for the analysis of the multiple regression models is presented in Table 1 below. Table 1: Array of variables data from 1990 to 2019 YEARS RGDP (N Billion) GEA (N Billion) GES (N Billion) GEE (N Billion) 1990 19305.63 6.54 3.4 1.61 1991 19199.06 6.95 2.68 1.3 1992 19620.19 8.68 1.34 3.08 1993 19927.99 30.57 14.66 7.75 1994 19979.12 20.54 10.09 3.91 1995 20353.2 28.76 13.82 5.92 1996 21177.92 46.55 15.99 4.75 1997 21789.1 56.18 22.06 6.2 1998 22332.87 50.68 21.44 11.57 1999 22449.41 183.64 71.37 87.08 2000 23688.28 144.53 84.79 28.59 2001 25267.54 180.8 79.63 53.01 2002 28957.71 266.61 152.19 52.95 2003 31709.45 307.97 102.61 96.07 2004 35020.55 306.77 134.39 58.78 2005 37474.95 434.67 151.65 64.31 2006 35020.55 522.2 194.17 79.69 2007 39995.5 626.36 256.67 179.07 2008 42922.41 731.02 332.93 313.75 2009 46012.52 714.42 354.19 423.61 2010 54612.26 1117.44 550.9 562.75 2011 57511.01 1262.4 785.44 310.5 2012 59929.89 1159.4 790.06 230.1 2013 63218.72 1111.82 844.07 291.23 2014 67152.79 992.84 774.77 266.4 2015 69023.93 1228.99 807.59 275.36 2016 67931.24 1277 775.55 255.78 2017 68490.98 1324.3 931.68 334.89 2018 69799.94 1584.06 1083.73 372.55 2019 71367.83 2105.2 1393.56 479.03 2020 69322.78 1503,9 998.42 276.52 Source: Central Bank of Nigeria Statistical Bulletin, 2020 Figure 1: The graphical presentation of the variables http://https://journals.e-palli.com/home/index.php/ajahs Pa ge 24 https://journals.e-palli.com/home/index.php/ajahs Am. J. Arts Hum. Sci. 1(4) 20-26, 2022 Data Estimations The coefficient of Government expenditure on the administration and agricultural sector indicates that a 1% increase in Government expenditure on the administration and agricultural sector increases Nigeria’s real gross domestic product by 13.75. Table 2: Descriptive Statistics Mean Std. Deviation N RGDP 40985.9781 19896.54085 31 GEA 623.9287 597.06438 31 GES 379.2206 411.06668 31 GEE 165.7455 164.90280 31 Table 3: Correlations RGDP GEA GES GEE Pearson Correlation RGDP 1.000 .966 .963 .850 GEA .966 1.000 .984 .880 GES .963 .984 1.000 .828 GEE .850 .880 .828 1.000 Sig. (1-tailed) RGDP . .000 .000 .000 GEA .000 . .000 .000 GES .000 .000 . .000 GEE .000 .000 .000 . N RGDP 31 31 31 31 GEA 31 31 31 31 GES 31 31 31 31 GEE 31 31 31 31 Table 4: Variables Entered/Removed Model Variables Entered Variables Removed Method 1 GEE, GES, GEAb . Enter a. Dependent Variable: RGDP b. All requested variables were entered. Table 5: Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate Change Statistics Durbin- WatsonR Square Change F Change df1 df2 Sig. F Change 1 969a .939 .932 5177.30052 .939 138.689 3 27 .000 1.511 a. Predictors: (Constant), GEE, GES, GEA b. Dependent Variable: RGDP Table 6: ANOVA Model Sum of Squares Df Mean Square F Sig. Regression 11152450233.572 3 3717483411.191 138.689 .000b Residual 723719897.385 27 26804440.644 Total 11876170130.956 30 a. Dependent Variable: RGDP b. Predictors: (Constant), GEE, GES, GEA Table 7: Coefficientsa Model Unstandardized Coefficients Standardized Coefficients T Sig. 95.0% Confidence Interval for B Collinearity Statistics B Std. Error Beta Lower Bound Upper Bound Tolerance VIF (Constant) 21786.727 1472.658 14.794 .000 18765.081 24808.373 GEA 13.940 11.812 .418 1.180 .248 -10.297 38.176 .018 55.669 GES 23.467 14.536 .485 1.614 .118 -6.360 53.293 .025 39.963 GEE 9.670 13.529 .080 .715 .481 -18.088 37.429 .180 5.570 A 1% increase in Government expenditure on social and community services increases the real gross domestic product of Nigeria by 23.56. Finally, a 1% increase in Government expenditure on economic services increases the real gross domestic product of Nigeria by 10.02. http://https://journals.e-palli.com/home/index.php/ajahs Pa ge 25 https://journals.e-palli.com/home/index.php/ajahs Am. J. Arts Hum. Sci. 1(4) 20-26, 2022 Table 8: Collinearity Diagnostics Model Dimension Eigenvalue Condition Index Variance Proportions (Constant) GEA GES GEE 1 3.500 1.000 .02 .00 .00 .01 2 .399 2.960 .80 .00 .00 .01 3 .096 6.044 .02 .01 .04 .62 4 .005 26.074 .16 .99 .96 .36 a. Dependent Variable: RGDP Table 9: Residuals Statistics Minimum Maximum Mean Std. Deviation N Predicted Value 21959.0703 88467.1953 40985.9781 19280.77647 31 Residual -17099.36523 10768.72070 .00000 4911.61853 31 Std. Predicted Value -.987 2.463 .000 1.000 31 Std. Residual -3.303 2.080 .000 .949 31 a. Dependent Variable: RGDP Source: SPSS Output 2022. DISCUSSION Co-efficient of Determination R2 The 0.932 adjusted Co-efficient of Determination is an indication that our explanatory variables explained 93% of the total variation in our dependent variable. This implies that the model is plausible and a good fit. The results, on a general note, showed a significant relationship among the variables on agricultural sector output over the years studied. If the government cannot expand within its immediate operational environment, the business sector will not grow. Deposits will be limited, and this will hinder the ability of the government to generate income. Government spending on administration The coefficient of government expenditure on administration implies that there is an insignificant relationship between government expenditure on administration and gross domestic product as against our apriori expectation. This deviation from expected could result from expenditures spent on consumables and, outside the Nigerian economy by political office holders, in addition to the fact that most of the recorded misappropriation cases were witnessed in this sector. However, this relationship implies that if the reduction in political office holders’ salaries, as has been announced by some of them, is done with all circumspection, it will likely spur the economy’s growth. Spending on economic services Government expenditure on economic services has a coefficient with probability, implying an insignificant positive relationship between expenditures on economic services and gross domestic product. This supports our apriori expectation since; theoretically, an increase in government expenditure will lead to an increase in economic growth, holding other variables constant. Spending on social and community services The coefficient of government expenditure on social and community services indicates a positive relationship between government expenditure on social and community services and gross domestic product, which supports our expectation. Holding other variables constant, a percentage increase in government expenditure on social and community services will bring about an increase in gross domestic product. This is explained by the fact that increases in government spending on productive services will increase the output of the nation following theory; interestingly, it was found to be statistically significant, as evidenced by the probability values. CONCLUSION AND SUMMARY Recommendations The following recommendations are put forward: 1. Through the central bank of Nigeria (CBN), the federal government of Nigeria should strengthen the banking sector to ensure an improved and efficient credit flow to the activity sectors because of its strategic importance in stimulating the growth and development of an economy. 2. The federal government of Nigeria, through the CBN, should ensure the stability of the Nigerian financial system by initiating credit policies and programs that would enhance the growth, operation, and quality of banks in Nigeria. 3. Deposit money Banks should focus not just on the effects of credit on money creation. But as well the interplay between the money market and capital market. This is to avoid a mismatch of liability and assets. Furthermore, the capital market provides more long-term funds than Deposit Money Bank (DMB) funds. 4. Deposit money Banks need to enhance credit allocation to real estate and construction because of its importance in the economy as it relates to the welfare of an average Nigerian. 5. Given that the private sector forms the real sector of any economy, adequate attention should be given to it to enhance the welfare of an average Nigerian and adequately stimulate and sustain the development of the Nigerian economy. http://https://journals.e-palli.com/home/index.php/ajahs Pa ge 26 https://journals.e-palli.com/home/index.php/ajahs Am. J. Arts Hum. Sci. 1(4) 20-26, 2022 Limitations of the Study This study is limited to investigate government expenditure on economic growth between the years 1990 - 2019. The main constrain faced by the researcher was difficulty in accessing data that will aid the empirical investigation of the study. One of such data is related to deficit financing. Despite all these hitches and setbacks mentioned above, this work will be completed within the speculated frame Importance of the Studies The importance of the studies is several to the global community and researchers in several ways. To the global community, the studies can serve as yardstick in policy making that will positively affect Nigeria. To the researchers, it can serve as our contribution to the body of knowledge and information gathering for those who research on the similar topic. Suggestions for Further Studies The researcher believes there is need for further studies in the following areas; 1. The impact of sectorial allocation of banks’ credit on economic development using other variables like infrastructure or standard of living as proxy for economic development other than GDP as used in this study. 2. The impact of sectorial allocation of banks’ credit on economic development in Nigeria. 3. Banks’ credit to Manufacturing sector and economic development in Nigeria. 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