Agricultural Credit Guarantee Scheme Fund (ACGSF) and Agricultural Performance in Nigeria: A Threshold Regression Analysis

Abstract

[enter Abstract Body]Credit financing deficit is one of the key challenges to vibrant agricultural performance in Nigeria. Thus, the Nigerian government in 1977 introduced the agricultural credit guarantee scheme fund (ACGSF) to encourage banks to increase and sustain lending to agriculture. Although several empirical studies have examined the linear effect of ACGSF on agricultural performance, empirical studies are yet to examine its effects on agricultural performance at different values. Hence, this study seeks to fill the gap. Data for the study covered 1981 to 2019 and were analysed using summary statistics, augmented Dickey-Fuller test and threshold regression. Agricultural performance was proxied with real agriculture Gross Domestic Product as a percentage of total real GDP. The estimated threshold values are 68399.7 (₦’ Thousand) and 1059993 (₦’ Thousand). The regression results show that below 68399.7 (₦’ Thousand), ACGSF has a significant positive effect on agricultural performance and a negative effect beyond 1059993 (₦’ Thousand). The real exchange rate has a significant positive effect on agricultural performance while the real interest rate has an insignificant effect. The study concludes that there is an inverted U-shaped relationship between ACGSF and agricultural performance in Nigeria. The paper recommends that the Central Bank of Nigeria should increase the proportion of commercial banks’ credit to agriculture that is guaranteed and reduce the requirements of the scheme to increase the inclusiveness of smallholder farmers that dominate the Nigerian agricultural sector.

Keywords: Agricultural credit; Agricultural performance; Threshold; Nigeria

JEL Classification: [comma separated]Q10; Q14; Q18