Chapter to the Gross Domestic Product and was

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Chapter One

Background of the Study

Economic growth is central to the development of any nation.
It aids the attainment of various macroeconomic objectives such as reduction in
poverty, reduced unemployment, improved public services, and reduced debt to
GDP ratios amongst others.

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Several studies have shown that agriculture plays a vital
role in the stimulation of the economy to achieve growth. According to Wilson
(2002), the contribution of agriculture (used in a wide sense to include crop
farming, livestock farming, forestry, fish farming and wide life) has been
acknowledged at least since the time of Ricardo in his principles of political

The Agricultural sector of Nigeria represents one of the
most effective avenues for poverty alleviation, food security and ensuring
economic stability in Nigeria. It also has the prospect of creating employment
opportunities as well as creating sectorial linkages to the non-agricultural
sectors such as industry, manufacturing and service sectors. This agrees with
studies carried out on the importance of agriculture in an economy. For
instance, the World Bank identified agriculture as an important stimulant of
the economy. Thus, according to the World Bank president Robert B. Zoellick,
Agriculture is a strong option for spurring growth, overcoming poverty and
enhancing food security. Therefore, agricultural productivity is vital for
stimulating growth in other parts of the economy (World Bank report 2008).

According to Okowa (1996), Agriculture remains the central economic
activity of most developing countries. This is true in the case of Nigeria as
Agriculture remains the dominant sector of especially the rural areas where
small holders account for about 80 percent of all farm holdings. Agriculture
was the mainstay of the Nigerian economy in the 1960’s and contributed
significantly to the Gross Domestic Product and was also the main source of
export earnings for the country. The sector according to CBN (2010) in the
1960’s contributed 85 percent of Nigeria’s foreign exchange earnings, 90
percent employment generation and about 80 percent to Gross Domestic Product

During the period before the discovery of oil in the 1970’s,
Nigeria was known as one of the world’s leading producer and exporter of
Agricultural commodities such as groundnut, palm kernel etc. Today, countries
such as Malaysia for instance has overtaken Nigeria in the production and
export of palm oil. This is due to the neglect suffered by the sector after the
discovery of oil.

The agricultural sector ever since has undergone different
phases under different administrations by the use of policies and programs.
Consequently, several programs such as Operation Feed the Nation (OFN) launched
by Obasanjo in 1976, the Green Revolution Program of Shagari (1980), the River
Basin Development Authorities (RDBA’s), National Accelerated Food Production
Project (NAFPP), National Empowerment Employment Development Strategy (NEEDS) etc.
and the establishment of the Bank of Agriculture were implemented with the
major aims of attaining food security, increase production and productivity,
generate employment and income and expand exports and reduce food imports
thereby freeing resources for critical infrastructure development and delivery
of social services.

Despite the different policies and programs, the
agricultural sector in Nigeria is still facing a number of problems which have
made the development of the sector difficult.

As demonstrated in other economies, the development of the
agricultural sector will go a long way in bringing about economic growth and
development in the long run.


Statement of the Problem

Studies shows that in the mid 1970’s, Nigeria spent a meagre
N113 million, which was the return from oil export to import agricultural
products. Today, according to studies, between N8 billion is spent annually to
import foods into the country. This suggests that the country has failed to
harness its oil earnings in the exploitation of the agricultural sector to
improve its productivity just like the UAE which used its oil earnings to
improve the other sectors of their economy. Consequently, the structure and methods
of farming have remained the same over the years since independence. Thus
creating an economy that is dependent on external economies for virtually all
of its food needs, thereby denying the economy sectorial linkages to other
sectors like industries and manufacturing which would have otherwise been created.
The resultant effect of the neglect is manifested in the areas of rising rural
poverty level as well as unemployment and rising food import.

Indeed, one of the constraints to the development of the
real sector in Nigeria has been linked to lack of funding by especially the
financial sector. According to CBN data (2011), agricultural sector funding is
about 2 percent of total lending by banks. This lack of funding of the
agricultural sector by the banking sector is

 generally built on
the belief that agricultural sector is less lucrative and does not yield quick
returns on investment compared to the oil and gas sectors which enjoys much
funding from the financial sector. ”This limits investment in agriculture by
both farmers and agro enterprises; it also demonstrates that the barrier to
lending is not due to a lack of liquidity in the banking sectors but rather a
lack of willingness to expand lending to agriculture” (World bank, 2015).

Furthermore, most studies agrees that the poor performance
of the agricultural sector in Nigeria to a very large extent depends on the
discovery of oil. However, Aja (2017) opines that the collapse of the
agricultural sector is not just because of the discovery of oil but also on the
structure of fiscal federalism. According to him, the military created the
federation accounts, abolished derivation, thereby taking the share of state’s
export proceeds from 100 percent to 0 percent. Thus according to him, there
remains no incentive for state government to encourage agriculture.

A variant of the above assertion is the land reforms through
the land use decree. The land use decree was intended to reform the land tenure
system which was believed to be an obstacle to the development of agriculture,
thus, transferring the control of all land in state government’s hands to be
held in trust for the federal government (Wilson 2002).

Ironically, despite the intended goals and objectives of the
various policies and programs in the agricultural sector, the country is still
bedeviled with poor agricultural practices, majority of farmers (more than
65percent still use crude methods  and
tools for farming), over 85 percent of the farmers have no access to  agricultural extension services and lacks
necessary agricultural facilities that increase productivity, infrastructural
development has not progressed to meet the current challenges, access to credit
and markets has remained a recurring problem.

This study therefore seeks to examine the impact of
agricultural development on economic growth in Nigeria.


Objectives of the Study

At the end of this study, we should be able to ascertain the
various impacts agricultural development has on the economic growth of Nigeria.
To achieve this aim, the study wishes to target the following specific

Identify the problems of agricultural
development in Nigeria.

Examine various policies and programs on agricultural
development in Nigeria.

Identify the role of agriculture in poverty
reduction in Nigeria.

Identify the sectorial linkages of the
agricultural sector to other sectors of the economy like manufacturing,
industries and service sectors.

Identify the roles of both public and private
sectors in agricultural development.

Identify the strategies needed to enhance
economic growth through the use of agriculture.

Make recommendations on problems identified as
well as proffer solutions towards improving agricultural development in


1.4 Research Hypothesis

H1: There is no significant relationship between
Agricultural Development and Gross Domestic Product (GDP).


1.5   Scope of the Study

study focuses on the impact of Agricultural development on the Gross Domestic
Product (GDP) as a measure of economic growth for the period 1960 – 2015. This
period is considered because it captures the behavioral trend of the
agricultural sector since independence.


Significance of the Study

The importance of the study of agricultural development and
economic growth cannot be over emphasized. It is on this basis that this study
examines the impact of agricultural development on economic growth in Nigeria
for the period 1960 – 2015. This period is considered because it captures behavioral
trend of the selected variables from where objective conclusions can be drawn.

While the importance of the variables were drawn from the
study objectives to verify some propositions from existing literature, the
method of study considered is imperative due to its unique properties and
prevalent use in modern research.

Therefore, the findings of this study will be of great
benefits to policy makers and government authorities. The study will also serve
as reference for students as well as add to existing literatures on
agricultural development and economic growth in Nigeria.


Organization of the Study

This study comprises of five chapters. Chapter one is a
general introduction to the study. Chapter two majors on literature review
while chapter three deals with the method of study. The focus of chapter four
centers on data presentation and analysis as well as discussion of findings.
Chapter five which concludes the study presents the summary, findings and
recommendations of the study.
























This chapter focuses on reviewing of related literature. Its
primary function is to provide better insights into the underlying theories and
previous researches on the subject matter. Hence, this chapter will set out to
give the review of various theories and consequently give the literature review
and concepts relevant to this study.

2.1 Review of Theoretical Literature

2.1.1 The Classical Growth Theory

The classical theory of economic growth centers on the interrelationship
between labour, capital and land, with technological progress identified as the
key driver of economic growth. The classicals believed that output of land is
enough to sustain labour used in making it available to the market. Thus, the
marginal product of labour is capable of creating surplus which the unproductive
labour can utilize.

Adam Smith, regarded as the foremost classical economist
argued that if markets were large enough to foster division of labour, growth
could maintain itself. This is because it would raise both income of workers
and profits of capitalists thereby leading to further expansion of markets and
capital accumulation. Thus, the agents of growth according to Smith are
farmers, producers and businessmen.

Furthermore, David Ricardo, a contemporary of Adam Smith
modified Smith’s model by including the concept of diminishing returns which
helped to explain how growth slowed down. His model was based on the fixed
supply of land and the ever increasing population. According to Ricardo, as
additional units of labour were added to fixed amount of land, marginal output
of each successive worker will begin to decline at some point. When this
happens, marginal output becomes negative and total output falls.  Wilson (2002) opines that Ricardo, in his Principles
of Political Economy viewed the problem of diminishing returns in agriculture
as crucial because he believed that a limitation on the growth of agricultural
output sets the ceiling or upper limit to the growth of the non-agricultural
sector and to the capital formation for economic expansion.

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