The Role of Commercial Banks on Agricultural Development in Nigeria: (1980-2015) – Hac - Consistent Covariance OLS Estimation Method

Abstract

This study examined the role of commercial banks on agricultural development in Nigeria for the period 1980 to 2015 using time series data obtained from the statistical bulletin and annual reports of the Central Bank of Nigeria, 2015. Augmented Dickey-Fuller unit root test and the Newey-West, HAC ordinary least square method were employed as analytical tools in the study. Real agricultural gross domestic product, the proxy for economic development, was explained by commercial bank loans to the agricultural sector, real interest rate, government recurrent expenditure on agriculture and government capital expenditure on economic services. Regression results showed that commercial bank loans to agriculture had a positive but insignificant impact on real agricultural gross domestic product while real interest rate and government recurrent expenditure on agriculture had significant negative impact on real agricultural product. The value of the coefficient of determination (R2) of 0.98 showed that the exogenous variables in the regression equation explain over 98% of the systematic variations in real agricultural gross domestic product. The study concluded that the insignificant positive impact of commercial bank loans on agricultural development may have been due to the small portion of total bank credit received by the agricultural sector. It was therefore recommended that commercial banks should be encouraged to recognize the importance of the agricultural sector and grant more loans to agriculture. The government on its own part should pass an act of parliament mandating commercial banks to grant more loans to farmers without unnecessary prerequisites and at low interest rate, while government expenditure on agriculture should be increased and its utilization highly monitored.