An Empirical Analysis Of The Relationship Between Foreign Direct Investment And The Agricultural Sector Of Nigeria

Ongoing efforts of the current government of the Federal Republic of Nigeria to, through its transformation agenda, diversify the economy and significantly reduce Nigeria’s overreliance on oil and ultimately become one of the top twenty economies of the world by the year2020places agriculture as the main driver to achieve this transformation. The agenda proposes to return the agricultural sector, which prior to the discovery of oil in the70’s was the stronghold of Nigeria’s economy, to its place of dominance as the leading sector in Nigeria by encouraging investments and increased private sector participation.Successive governments have seemingly failed in their attempts to revive the sector, not only because of their lack of political will or inability to set the right policies and machineries in motion nor the lack of implementation of the few existing right policies but also, largely due to the low level of involvement of the private sector.A large proportion of foreign direct investment (FDI) that Nigeria attracts goes into the extractive (oil and gas) and services sectors (e.g. telecommunications) as against the agricultural sector which is the bastion of its economy. This might suggest the reason why many FDI studies in Nigeria have evaluated its impact on oil sector or the entire economy as a whole. Only a few FDI studies that assessed the impact of FDI on the agricultural sector of Nigeria exist, these studies however, also suffer a flaw; they examined FDI-Agricultural sector relationship with FDI that flowed into the entire economy and not FDI that was specifically obtained in the agricultural sector.This study sought to investigate this prevalent gap in empirical analysis of FDI-Agricultural sector relationship in Nigeria by using one of the most recent and advanced econometric technique known as vector auto regression. This was achieved by evaluating and forecasting the impact of FDI in the agricultural sector from1980-2007, specifically its impact on agricultural output and labor in a Vector Auto Regression (VAR) environment.Data used in this study was obtained from Central Bank of Nigeria (CBN) statistical bulletin (2009). Results from the analysis revealed that FDI in the period under review had no significant impact on agricultural output while it had a significant positive influence on labor force (employment generation). In addition, results of the forecast estimates show that the current volume of FDI would not significantly affect agricultural output but will have significant positive impact on labor. Recommendation from the conclusion of this research is for an increase in the volume of FDI. Furthermore, the government and other stakeholders are implored to seek FDI that will introduce improved technology into the agricultural sector even if the opportunity cost of a reduction in labor may have to be paid.