IMPACT OF AGRICULTURAL DEVELOPMENT ON THE ECONOMIC GROWTH AND DEVELOPMENT OF NIGERIA

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CHAPTER TWO

LITERATURE REVIEW

Theoretical Literatures

Classical  theorists  led  by  Arthur  Levis’  in  1950s viewed economic development as a growth process of relocating factors of production, especially labor from an agricultural sector characterized by low productivity and the use of traditional technology to a modern industrial sector with higher productivity. The continuation of agriculture to development was passive. Agriculture acted more as a source of food and labor than a source of growth (Levis 1954).

Although passive, agricultural development was seen as necessary for successful economic transformation for two reasons:

1. To ensure the supply of food and prevent rising food princes and real wages from undermining industrial development and
2. To utilize land as an additional “Free” source of growth that would not compete with resources for industrial growth. Levis (1954)

The Solow-Swan neoclassical growth theory and its extensions is a popularly adopted framework for analyzing the process of economic growth and development. Assuming a constant-return-to-scale aggregate production functions expressed as:

(1).      Yt = Kt Lt Bt

Where:

Y,K.L and B represent real GDP per capital, real gross capital, labor and the Hicks-neutral productivity term, respectively. The contribution of agriculture to aggregate economic growth could be modeled via its effects on total factor productivity or as an intermediate input in the industrial production sector (Timmer, 1995: Ruttan 2000). Early development theories viewed agriculture as an important source of resources to finance the development of the industrial sector. Thus, agricultural production growth serves as an engine of growth for the overall economy.

Hwa (1988) argues that agriculture is an engine of growth and added agriculture to the standard solow-swan growth equation as a measure of linkages between the rural and industrial sector of the economy. Similarly, we also include additional determinants of growth (experts and inflation rate) that have been found to be robust in explaining aggregate productivity growth (Hwa 1988; Barro and lee, 1994). Thus, B in equation (1) is assumed to be a function of agriculture (A), exports (X) and inflation (P), a proxy for other macroeconomic factors.

1. B = f (At, Xt, Pt) = A X P Next, substituting (2) into (1) yields the following:

1. Yt  = K t = L t = A t = X t = PYt

Taking natural logs of equation (3) and including an error term yield:

(4)        In Yt =      Inkt +     InLt +    InAt +    InXt +  In Pt +    t

According to the export-led growth literature, exports growth is a measure of outward orientation and could also serve as a proxy for internationally competitive cost structure. Export expansion can be a catalyst for output growth both directly, as a component of aggregate output, as well as indirectly through efficient resource allocation, greater capacity utilization, exploitation of economies of scale and stimulation of technological improvement due to foreign market competition (Helpman and Krugman 1985; Awokus 2008). Also, higher level of investment (gross capital formation) should stimulate growth while agricultural productivity is expected to have a positive effect on aggregate economic growth. Similar to Hwa (1988), export expansion is expected to have a positive effect on growth while macroeconomic instability, captured by high inflation rates, should have a negative effect on economic growth.

It has been observed by researchers Chidi, Marc, (4, 10) that countries at the early stages of development depend almost fully on agricultural growth for employment, foreign exchange, government revenue and food supply to the teemed population. In this sense, agricultural growth is the key impetus to the growth of underdeveloped and developing countries. (Enoma Anthony 2010, Business and Economic Journal, Volume 2010).

2.1.1 Agricultural Linkages and Economic Growth and Development

Hayami and Ruthan (1985) revealed that agricultural productivity growth requires fostering the linkages between the agricultural and non- agricultural sectors.

According to Adelman (1984), because of the strong growth linkage effects, agricultural development can lead to a wider economic growth in many countries even open economics during the early stages of industrialization.

Carvantes – Godoy and J. Dewbree (2010) are also of the view that agricultural development plays a vital role in poverty reduction and economic transformation. Agricultural growth reduces poverty through direct impacts on farm incomes and employment while indirect impacts are through linkages.

The importance of intersectional linkage in the growth process had already been widely recognized.

Hirschman (1958) was one of the theorists to emphasize linkage effect in the growth process although his analysis focused mainly on the backward and forward linkages created by investment in industrial sectors.

2.1.2 Problems Associated with Agricultural Development

The place of agriculture in Nigeria’s economy has remained critical even the decades since her political independence. As documented by Anyanwu (1997) agricultural sector played a dominant role in the generating of large proportion of the nation’s Gross National Product (GNP) in the 1960s. She asserted that agriculture accounted for over 42 percent of commodity export earnings and about 74 percent of total government revenue within the period under review. Corroborating with the above is Obadan (2000), when he observed that the production of the agricultural products from independence to the early 1970s accounted for 96.4 percent of total export earning while non-oil product accounted for 97.3 percent of total exportation.

However, this situation changed drastically the beginning of the 1970s. Agricultural output started to decline rapidly at a time which not only coincided with the end of Nigeria civil war, but also with the period of oil Boom of 1970s and severe drought of 1977 (UK Pong, 1991).

Nigeria     once     a      major      exporter     of      certain      food commodities such as cassava, groundnut, palm oil and palm kernel, etc. now is a major importer of food commodities.

From the year 2001 to 2007, Nigeria imported a total of 160, 209.10 in 2001 and the importation had been within this range until it was increased to 290, 650.89 in 2007 worth of food and live animals. (CBN Annual Report and Statement of Accounts 2007).

Idachaba (2004), argued that the dwindling agricultural production in Nigeria is a confirmation of the 

unattractiveness of agriculture as a result of low returns and compensation being paid to farmers which tend to discourage increased production.

In other words, food marketing by farmers mostly in the immediate post-harvest period usually involves a lot of costs and in Nigeria these costs are so high that lowering the costs through efficient marketing system may be as important as increasing agricultural production (Ahumed and Rustagi, 1987)

As Reardon et al (1998) pointed out, the main agricultural environment associated problems relate to population pressure on natural resources and this includes:

1. Soil erosion and loss of fertility as small holders seek to intensify production by adding labor to existing agricultural land without corresponding increase in capital (chemical, organic inputs, land conservation and infrastructure).

2. Loss of biodiversity and the damage of natural ecosystems as small holders seek to enhance agriculture production by clearing forests and expanding into fragile ecosystems.

According to P.A Okuneye (2010), some major problems confronting Nigeria agriculture are poor infrastructural facilities such as poor feeder roads and road network, storage facilities, rural electrification, etc. poor manpower development, socio cultural factor like the land tenure system, poor government/regulatory policies. Poor state of agricultural development can lead to a situation of deficit food supply and higher demand for food which consequently leads to higher food importation to supplement domestic food production.