The Impact of Monetary Policy on Agricultural Output in Nigeria

Topics: Monetary policy, Central bank, Inflation Pages: 35 (12527 words) Published: May 18, 2013
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The significance of agriculture in bringing about economic growth and development of a nation cannot be underestimated, the reason why a nation possesses sustainable food security, is because it produces enough food to feed her citizens and even export these goods to other needy countries thereby generating foreign exchange which in turn increases the national income in the long-run. The agricultural sector serves all other sectors in the economy especially the industrial sector. The problem facing the Nigerian agricultural economy is inadequate capital and credit for start-up, investment and expansion. Monetary policy through its influence on the financial sector of the economy plays a major role in making credit available to the agricultural sector. Monetary policy refers to the combination of measures designed to regulate the value, supply and cost of money in an economy. It can be described as the art of controlling the direction and movement of credit facilities in pursuance of stable price and economy growth in an economy (CBN, 1992). Monetary policy in the Nigerian context refers to the actions of the Central Bank of Nigeria to regulate the money supply which could be through discretional monetary policy instruments such as the open market operation (OMO), discount rate, reserve requirement, moral suasion, direct control of banking system credit, and direct regulation of interest rate (Iyoha, 2002). The Central Bank of Nigeria (CBN) derives its mandate from the CBN Act of 1958. Section one of the CBN Decree No. 24 of 1991, stipulates that the principal objects of the Bank shall be to issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency, promote monetary stability and a sound financial system in Nigeria, and act as banker and financial adviser to the Federal Government (CBN, 2006). Therefore the central bank is the principal monetary authority. Agriculture in the context of the economy is tied with the various sectors and is essential for generating broad based growth necessary for development. Agriculture is fundamental to the sustenance of life and is the bedrock of economic development, especially in the provision of adequate and nutritious food vital for human development, the sector is a catalyst and major source of raw materials for the industrial sector and provides most of the staple food consumed by the 120 million Nigerians. Although developments in the oil sector have dominated Nigeria's economic scene since the mid-1970s, the country remains basically agricultural. More than 70 percent of its population depends on agriculture, which contributes roughly 25 percent of GDP and 60 percent of non-oil exports. Monetary policy facilitates the establishment of agricultural businesses through availability of credit and finance for start-up, investments, and expansion. The CBN controls the availability of credit through monetary policy instruments. These instruments affect agricultural output through agricultural banks and other financial institutions. Therefore, in our study of agricultural output monetary policy is a very important factor. 1.2 Statement Of The Problem

Before the rapid rise in oil export revenue, Nigeria was a major exporter of agricultural produce, especially cocoa, groundnuts, cotton, palm oil, palm kernel, and rubber. Since then however both the volume and the range of agricultural exports has declined sharply and agricultural imports have increased dramatically. In addition, Nigeria no longer produces sufficient food for the country's large and rapidly growing population. The average annual rate of real output growth for food crops fell to about 2 percent a year during the 1970s. Between 1970 and 1975, however, the output of export crops dropped 17percent, the food import bill rose more than 10-fold in 1970-1980. Low agricultural output has a...

References: Afolabi.L (1998).Monetary Economics. Lagos: Perry Barr Limited.
Asfaha .T and Jooste .A (2007), “The Effect of Monetary Changes on Relative Agricultural Prices.” South Africa: Agrekon Vol. 46, No 4.
Bakucs .L, Bojnec .Š and Fertő I. (2007). “Monetary Impacts and Overshooting of Agricultural Prices in a Transition Economy The Case Of Slovenia.” Slovenia: Institute of Economics, Hungarian Academy of Sciences.
Bardhan.P and Mookherjee.D.(2006). “Decentralisation and Accountability in Infrastructure Delivery in Developing.”Oxford: Blackwell Publishing Royal Economic Society, the Economic Journal, 116
Damilola D
Devadoss .S and Meyers.W (1986). “Monetary policies, Interest rates, and U.S Agriculture: An Economic Simulation Analysis.” Working paper 86-WP 5.
Frankel .J and Hardouvelis .G (1983). “Commodity prices, Overshooting, Money Surprises, and Fed. Credibility.” NBER Working Paper no. 1121
Gockel.A and Akoena.S (2002)
Gujarati D.N (2004) Basic Econometrics, 4th edition. McGraw-hill/Irwin Companies.
Jinghan M.L (2005). The Economics of Development and Planning, 38th Revised edition. India: Vinda Publications
Kuttner.K and Mosser.P (2002), “The Monetary Transmission Mechanism: Some Answers and Further Questions.”U.S: FRBNY Economic Policy Review.
Kwanashie .M, Ajilima .I, and Garba .A(1998) “The Nigerian economy: Response of Agriculture to Adjustment Policies.” Nairobi:African Economic Research Consortium, Research Paper 78.
Levine, Ross (1997). “Financial Development and Economic Growth: Views and Agenda.” Journal of Economic Literature, 35, 688-726.
Manyong.V, Ikpi.A, Olayemi. J, Yusuf. S, Omonona. R, and Idachaba. F (2005). “Agriculture In Nigeria: Identifying Opportunities for Increased Commercialization and Investment.” Ibadan: International Institute of Tropical Agriculture.
Obasi .U.(2007) “Relative Price Variability and Inflation: Evidence from the Agricultural Sector in Nigeria.” Nairobi:African Economic Research Consortium, Research Paper 171 .
Our Planet (2006). Nairobi: The magazine of the United Nations Environment Programme (UNEP) and the International Bank of Reconstruction and Development/World Bank.
Oyejide.A(1986), “The Effect of Trade and Exchange Rate Policies on Agriculture in Nigeria.” Ibadan: International Food Policy Research Institute Research Report 55.
Patrick, H.T. (1966). “Financial Development and Economic Growth in Underdeveloped Countries.” U.S: The University of Chicago Press retrieved from http://www.jstor.org/stable/1152568 on 5th April, 2009.
Schumpeter .J (1912) “The Theory of Economic Development.”Cambridge, Massachusetts: Harvard University Press..
Thompson (2008), “Future Oriented Approach. ”Abuja: Central Bank of Nigeria Publications.
Todaro.M and Smith.S (2003).Economic Development 8th Edition. India: Pearson Education.
Uchendu.O(2007), “Inflation Targeting." A paper presented at the inflation targeting workshop holding at CBN Abeokuta.
Woo. S(1986). “Economic Development and Cultural Change.”The University of Chicago Press.Retrieved from http://www.jstor.org/stable/1153854 on 3rd April, 2009.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Impact of Monetary Policy on Inflation in Nigeria Essay
  • Monetary Policy as an Output Stabilizer Essay
  • Impact of Monetary Policy on Nigeria Commercial Banks Essay
  • Monetary Policy and Its Impact on the Recession Essay
  • Impact of monetary policy on the Nigeria economy Essay
  • Monetary Policy of Bangladesh and Its Impact on Economy Essay
  • The Federal Reserve and Monetary Policy Essay
  • Essay about Monetary Policy in Nigeria 1980- 2008

Become a StudyMode Member

Sign Up - It's Free