Does Agricultural Sector Matter for the Growth of an Oil Dependent Economy? – Empirical Evidence from Nigeria

The Nigerian economy is largely mono-cultural with oil being the main stay of the economy. The agricultural sector, though being the highest employer of labour and major constituent of the rural economy has continued to receive less attention from the government over time. Viewing this, the study employed the Vector Error Correction Model (VECM) to examine the role of agricultural sector in the growth of an oil dominated economy by utilizing annual data series for the period from 1981 to 2015. The Augmented Dickey Fuller (ADF) test for unit root shows all variables to be integrated of order one while Johansen Cointegration Trace and Max Eigen-Value tests confirm the presence of long-run relationship among the variables. VECM result shows agricultural sector as having a significant positive impact on economic growth of Nigeria. Oil sector was also found to exert positive effect on economic growth. Short-run causality result showed the presence of significant causality, running from agricultural sector to growth. Short-run causality running from oil sector to growth was found to be insignificant. The innovation accounting tool of Impulse Response Function (IRF) indicates that the response of economic growth to both agricultural and oil sector shock is positive, however, the response of growth to shocks in oil sector is higher than that of the agricultural sector shocks. Forecast Error Variance Decomposition (FEVD) plot also shows both sectors as having impact on growth, but the impact of oil sector was also found to be higher. The study concluded that although the oil sector was found to exert higher impact on the economy than the agricultural sector, the role of agricultural sector cannot be underplayed considering the fact that over-reliance on oil exposes the economy to risk of external shocks in the oil market and also the determination of many nations to shift focus to clean energy has the tendency of negatively affecting predominantly oil dependent economies. The study recommended the need for the government to focus more on the agricultural sector as a diversification drive for the economy considering its enormous potentials as well as its role in stabilizing the rural economy, food security, revenue drive and high employment potentials.