Interrogating the Asymmetric Impact of Exchange Rate on Agricultural Output in Nigeria

Abstract

The agricultural sector is vital to the Nigerian economy. It serves several functions including food supply for the populace, a source of income for a sizable section of the domestic labour force, a supplier of raw materials for industrial production, and provision of foreign exchange revenues to the economy. However, due to the country’s abundance of natural resources like crude oil, the agriculture sector is vulnerable to the fluctuations in the exchange rate caused by international financial markets. This analysis looked at how changes in the value of the naira relative to dollar affects agricultural production. In order to contribute to the current body of literature for the time period between 1981 and 2021, this study employed the Dutch Disease Syndrome theoretical framework through the use of the non-linear autoregressive distributed lag (NARDL) method for Nigeria. This research shows that while the long-term effect of the exchange rate on agricultural output in Nigeria is symmetrical, the short-term effect is asymmetrical. However, in more specific terms, the symmetrical effect of the exchange rate in the long run revealed that exchange rate appreciation increased real agricultural GDP by approximately 8.8 percent compared to exchange rate depreciation which had only increased real agricultural GDP by 0.11 percent. Consequently, since exchange rate exerted positive impact on agricultural production in the long run, it is suggested that the Nigerian government explores the increased competitiveness of the agricultural sector in its economic diversification efforts. In other words, the agricultural sector could provide an avenue to expand the revenue base of the government, but for a more beneficial effect on the agricultural sector in particular and the economy in general, more focus should be placed on policies that would enhance appreciation of the Naira such as reducing imports of agricultural inputs and produce.