Journal of Research in Economics and International Finance (JREIF) (ISSN: 2315-5671)
Vol. 5(2) pp. 034 - 040, July, 2016
Copyright © 2016 International Research Journals


Full Length Research Paper

What role do banks play in diversifying the economic base from monolithic structure to agriculture? Parsimonious Error-Correction Model Approach

Ogunlana Olarewaju Fatai* and Samad Arogundade Lawal

Department of Economics, Faculty of Social Sciences, Lagos State University, PMB 0001, LASU Post Office, Lagos, Nigeria
Corresponding author address: ogunlanaolarewajufatai@yahoo.com; 2348080550795

ABSTRACT

This paper aims to investigate the significance of banks credit on the performance of agricultural production in Nigeria using time series data for the period 1970 to 2015.  Estimated results, which are based on the Johansen multivariate co-integration method and Parsimonious Error Correction Model of the Ordinary Least Squares Methodology reveals inconsistency with economic theory with different levels of statistical significance in the model established. Co-integration test result indicated a long run relationship between agriculture output, banks credit, interest rate and demand deposits. The parsimonious error-correction model indicated that banks credit, interest rate and demand deposits affected agriculture output negatively. The policy framework guiding the sector needs to be sharpened and carefully regimented towards stimulating agricultural production for sustained growth and development. This study calls for diversification of the economic base from oil to non-oil, particularly agriculture production.

Keywords: Banks, Agriculture, Interest rate, Bank deposit  

JEL Classification: G21, Q18