Relative Impact of Financial Sector Reforms on Agricultural and Manufacturing Sector Growth in Nigeria

Relative Impact of Financial Sector Reforms on Agricultural and Manufacturing Sector Growth in Nigeria.

ABSTRACT  

The investigates the relative of financial sector on agricultural and manufacturing sector in Nigeria. To guide the study, the Least Square technique was adopted and Eviews 8.0 econometric software was utilized for the analysis.

A time series quarterly data sourced from Central Bank of Nigeria Statistical Bulletin 2009 and 2013 and covered the period 1970-2013 was used for the analysis.

After carrying out the necessary pre-and post-diagnostic tests, the result shows that gross fixed capital formation and credit to private sector ratio to GDP have a positive but insignificant relationship with agricultural and manufacturing sector output.

While real interest rate, manufacturing capacity utilization, and financial sector reform dummy were positive and significant, interest rate spread, real exchange, average annual rainfall, and money supply ratio to GDP displayed a negative relationship with agricultural and manufacturing sector output.

Upon comparison of the impact of key financial indicators on agricultural and manufacturing sector output, the result revealed that the impact of real interest rate and financial sector profitability index (SINR) in the pre-and post-financial sector reform was significant in each sector.

In contrast, while the impact of the real exchange rate does not significantly influence agricultural sector output, it subsequently became significant in the model for manufacturing sector output. 

INTRODUCTION  

The financial sector is central to any economy of the world, and the ripples of the sector’s downturn are usually felt in all other sectors of the economy. Lin, Sun, and Jiang (2009) hinted that the structure of the financial sector reveals the nature of the productive activities in such an economy.

It is therefore not surprising that Nigeria like most developing economies has adopted various forms of policy and institutional reforms since independence to ensure that the sector remains in good health.

The success story is not the same everywhere though, while some countries have been successful in eliminating underlying distortions and restructuring their financial sectors at the beginning of the new millennium, in some cases financial sectors remain underdeveloped (Dileep, Rambabu, & Bhisma, 2007).

Financial sector reforms, especially a comprehensive one, would be a turnaround approach to cope up with the threats of global competitiveness in carrying out the financial services.

The country has witnessed a wave of reform in the financial sector. It is pertinent to point out at this juncture that the financial sector is comprised of banks and non-bank financial institutions (money and capital markets) along with another financial system that supports them.

As the financial reform phenomena advances, so do the understandings of its advance. Financial reform as Gencalo (2011) puts it “is a multifaceted phenomenon”. According to Ebong (2006), they are deliberate policy responses to correct perceived or impending financial crises and subsequent failure.

In other words, the different interventions of the federal government through the central bank of Nigeria and other financial institutions regulators to enable the financial sector and the economy to recover from an actual or impending disaster is what is here referred to as financial reform.

On the expectations of financial reforms, Edirisuriya (2008) reported that financial sector reforms are expected to promote a more efficient allocation of resources and ensure that financial intermediation occurs as efficiently as possible.

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