Impact of agricultural financing on agricultural output: the role of commercial banks

Abstract

The study investigates the impact of agricultural financing by commercial banks on agricultural output in Nigeria. Agricultural sector contribution to GDP was used to define agricultural output, while the agricultural financing was defined by commercial bank credit to the agricultural sector. The study employed real interest rate and inflation rate as control variables. The time span under study was 40 years which dated from 1981-2020 using annual secondary data, Data on agricultural output and commercial bank agricultural financing, were obtained from the Nigerian central bank annual statistical bulletin(CBN) whereas interest rate and inflation rate were obtained from united nation conference on trade and development (UNCTAD). The Autoregressive Distribution Lag (ARDL) was adopted due to its efficiency, robustness and dynamic nature in time series analysis. It was discovered the explanatory variables under study only have a long run relationship with the explained variable. Specifically, commercial bank agricultural financing rate has a positive and substantial impact on agricultural output whereas real interest rate and inflation rate have a negative and insignificant relationship with agricultural output in the long run. The study recommends that reliable sources of agricultural financing should be developed and policies aimed at boosting allocation of credit to agricultural sector should be created and implemented correctly so as to increase agricultural output.