The Impact of Monetary Policy on Agricultural Output in Nigeria
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The significance of agriculture in bringing about economic growth and development of a nation cannot be underestimated, the reason why a nation possesses sustainable food security, is because it produces enough food to feed her citizens and even export these goods to other needy countries thereby generating foreign exchange which in turn increases the national income in the long-run. The agricultural sector serves all other sectors in the economy especially the industrial sector. The problem facing the Nigerian agricultural economy is inadequate capital and credit for start-up, investment and expansion. Monetary policy through its influence on the financial sector of the economy plays a major role in making credit available to the agricultural sector.
Monetary policy refers to the combination of measures designed to regulate the value, supply and cost of money in an economy. It can be described as the art of controlling the direction and movement of credit facilities in pursuance of stable price and economy growth in an economy (CBN, 1992). Monetary policy in the Nigerian context refers to the actions of the Central Bank of Nigeria to regulate the money supply which could be through discretional monetary policy instruments such as the open market operation (OMO), discount rate, reserve requirement, moral suasion, direct control of banking system credit, and direct regulation of interest rate (Iyoha, 2002). The Central Bank of Nigeria (CBN) derives its mandate from the CBN Act of 1958. Section one of the CBN Decree No. 24 of 1991, stipulates that the principal objects of the Bank shall be to issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency, promote monetary stability and a sound financial system in Nigeria, and act as banker and financial adviser to the Federal Government (CBN, 2006). Therefore the central bank is the
INTRODUCTION
1.1 Background of the Study
The significance of agriculture in bringing about economic growth and development of a nation cannot be underestimated, the reason why a nation possesses sustainable food security, is because it produces enough food to feed her citizens and even export these goods to other needy countries thereby generating foreign exchange which in turn increases the national income in the long-run. The agricultural sector serves all other sectors in the economy especially the industrial sector. The problem facing the Nigerian agricultural economy is inadequate capital and credit for start-up, investment and expansion. Monetary policy through its influence on the financial sector of the economy plays a major role in making credit available to the agricultural sector.
Monetary policy refers to the combination of measures designed to regulate the value, supply and cost of money in an economy. It can be described as the art of controlling the direction and movement of credit facilities in pursuance of stable price and economy growth in an economy (CBN, 1992). Monetary policy in the Nigerian context refers to the actions of the Central Bank of Nigeria to regulate the money supply which could be through discretional monetary policy instruments such as the open market operation (OMO), discount rate, reserve requirement, moral suasion, direct control of banking system credit, and direct regulation of interest rate (Iyoha, 2002). The Central Bank of Nigeria (CBN) derives its mandate from the CBN Act of 1958. Section one of the CBN Decree No. 24 of 1991, stipulates that the principal objects of the Bank shall be to issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency, promote monetary stability and a sound financial system in Nigeria, and act as banker and financial adviser to the Federal Government (CBN, 2006). Therefore the central bank is the
References: Afolabi.L (1998).Monetary Economics. Lagos: Perry Barr Limited. Asfaha .T and Jooste .A (2007), “The Effect of Monetary Changes on Relative Agricultural Prices.” South Africa: Agrekon Vol. 46, No 4. Bakucs .L, Bojnec .Š and Fertő I. (2007). “Monetary Impacts and Overshooting of Agricultural Prices in a Transition Economy The Case Of Slovenia.” Slovenia: Institute of Economics, Hungarian Academy of Sciences. Bardhan.P and Mookherjee.D.(2006). “Decentralisation and Accountability in Infrastructure Delivery in Developing.”Oxford: Blackwell Publishing Royal Economic Society, the Economic Journal, 116 Damilola D Devadoss .S and Meyers.W (1986). “Monetary policies, Interest rates, and U.S Agriculture: An Economic Simulation Analysis.” Working paper 86-WP 5. Frankel .J and Hardouvelis .G (1983). “Commodity prices, Overshooting, Money Surprises, and Fed. Credibility.” NBER Working Paper no. 1121 Gockel.A and Akoena.S (2002) Gujarati D.N (2004) Basic Econometrics, 4th edition. McGraw-hill/Irwin Companies. Jinghan M.L (2005). The Economics of Development and Planning, 38th Revised edition. India: Vinda Publications Kuttner.K and Mosser.P (2002), “The Monetary Transmission Mechanism: Some Answers and Further Questions.”U.S: FRBNY Economic Policy Review. Kwanashie .M, Ajilima .I, and Garba .A(1998) “The Nigerian economy: Response of Agriculture to Adjustment Policies.” Nairobi:African Economic Research Consortium, Research Paper 78. Levine, Ross (1997). “Financial Development and Economic Growth: Views and Agenda.” Journal of Economic Literature, 35, 688-726. Manyong.V, Ikpi.A, Olayemi. J, Yusuf. S, Omonona. R, and Idachaba. F (2005). “Agriculture In Nigeria: Identifying Opportunities for Increased Commercialization and Investment.” Ibadan: International Institute of Tropical Agriculture. Obasi .U.(2007) “Relative Price Variability and Inflation: Evidence from the Agricultural Sector in Nigeria.” Nairobi:African Economic Research Consortium, Research Paper 171 . Our Planet (2006). Nairobi: The magazine of the United Nations Environment Programme (UNEP) and the International Bank of Reconstruction and Development/World Bank. Oyejide.A(1986), “The Effect of Trade and Exchange Rate Policies on Agriculture in Nigeria.” Ibadan: International Food Policy Research Institute Research Report 55. Patrick, H.T. (1966). “Financial Development and Economic Growth in Underdeveloped Countries.” U.S: The University of Chicago Press retrieved from http://www.jstor.org/stable/1152568 on 5th April, 2009. Schumpeter .J (1912) “The Theory of Economic Development.”Cambridge, Massachusetts: Harvard University Press.. Thompson (2008), “Future Oriented Approach. ”Abuja: Central Bank of Nigeria Publications. Todaro.M and Smith.S (2003).Economic Development 8th Edition. India: Pearson Education. Uchendu.O(2007), “Inflation Targeting." A paper presented at the inflation targeting workshop holding at CBN Abeokuta. Woo. S(1986). “Economic Development and Cultural Change.”The University of Chicago Press.Retrieved from http://www.jstor.org/stable/1153854 on 3rd April, 2009.