Financial development and agricultural performance in Nigeria: what role do institutions play?

Abstract

Purpose The centrality of agricultural sector to the economy, particularly in developing countries, has drawn the attention of researchers to critically examine different factors determining the performance of the sector. Given that massive investment is required to ensure maximum productivity in the sector, one of the factors identified is the issue of financing. However, financing agricultural sector in a poor institutional environment can be depressing. In the light of this, the purpose of this paper is to examine the nexus between financial development and agricultural performance in Nigeria with a view to investigating the role of institutions. Design/methodology/approach The study employed annual data spanning the period from 1981 to 2016. Three indicators of financial development and five institutional variables were used. Besides, for robust analysis, the study also computed an aggregate measure of financial development and institutions using principal component method. Autoregressive distributed lag method of estimation was used to examine the short-run and long-run effects of financial development on agricultural performance in Nigeria. Findings The findings showed that financial development has a positive impact on agricultural performance in Nigeria. However, this positive impact is being undermined by institutional variables. Originality/value To the best of the authors’ knowledge, this is the only study that examines the mediating role of institutional factors such as the rule of law, control of corruption, etc., in the financial development–agricultural performance nexus in Nigeria.

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