Trivariate Analysis of the Flow of Loan-Able Funds to Agricultural Sector in Nigeria

Abstract: The study investigates the effects of financial sector reforms on the flow of loanable funds from commercial banks to agricultural sector in Nigeria. Secondary data was collected from Central Bank of Nigeria covering the period from 1970-2009 and analyzed using trivariate Granger causality approach which is more reliable than the bivariate model. The result reveals that financial sector was not a major contributing factor in the disbursement of funds. This further highlights the fact that financial institutions like the commercial banks have always found an alternative portfolio investment more lucrative than lending to the agricultural sector. The study also revealed that there were no causal (directional) relationship between financial sector reforms and the flow of loanable funds in Nigeria. This provides a clue to the characterization of what may be obtainable in most developing countries with fragile financial sector and open economies. It therefore recommended that financial sector should be motivated to supply the funds needed for this activity while the government should provide the enabling environment conducive for farming as a business through concessionary interest rates, tax free and import duty concessions with strong macroeconomic policies targeted to bring meaningful growth in the agricultural and financial sector. These financial and fiscal incentives when provided would encourage investments and output growth in the agricultural sector of the country.