Agricultural Sector Linkage with Other Sectors of the Economy: Evidence from Nigeria

Abstract

Economic resource planners have continued to harness proven empirical link amongst various sectors of the economy for effective policy formulation and implementation of successful growth and development strategies. The Agricultural sector is one of the sectors that have consistently contributed to other sectors of the economy in terms of provision of raw materials, food and employment to the growing population; however, the need to understand the forward and backward linkages between the agricultural sector output and other sectors’ output has prompted this study. This paper investigates the causal link between the Agricultural sector output and Industry, Construction, Trade and Services sectors output using quarterly times series data extracted from the annual statistical bulletin of the Central Bank of Nigeria from the first quarter 2010 to the fourth quarter 2018. The study departs from the traditional static Leontief Input-Output approach by employing dynamic modern techniques like the Granger Causality, Vector Autoregression, Impulse Response and Variance Decomposition analyses. The results indicate the existence of bi-directional causal chain effect linkages between agricultural sector output, services, construction and trade outputs while a unidirectional causal linkage is found running from industrial sector output to agriculture. All the sectors drive agricultural sector output and agriculture stimulates other sectors except the industrial sector. In specific terms, it takes approximately two to four quarters for most sectors to respond to the impact of shocks emanating from the other sectors the economy. For the agricultural sector to play its pivot role as the driver of other sectors the study suggests that should be remodeled in such a way that its outputs meet industrial sector requirement.