Analysis of Interest Rate Volatility on the Real Sector in Nigeria: The Case Study of Agricultural Sector

Interest rate has been recognized as an essential tool for the sustainability of real sector across many countries in which agricultural sector is one of the prominent sectors in every economy. In Nigeria however, finance has remained a major challenge of the agricultural production for the procurement of inputs, such as seeds, implements and fertilizers over the years. All efforts channeled to this sector with anticipated result on agricultural productivity have not boosted the performances of the real sector. This study examined the effect of interest rate on agricultural output in Nigeria using stationary, co-integration test, Granger Causality test and ordinary least square approach. The study applied time series data from Central Bank of Nigeria, Statistical Bulletin and National Bureau of Statistics which spanned from 1980-2014. The unit root test employed showed that the variables were stationary in the short run and co-integration test confirmed a long run relationship between the variables. The empirical result revealed negative relationship between interest rate and agricultural output in the model. Furth ermore, bank credit to agricultural sector, population growth rate, government expenditure on education and infrastructural facilities used as other control variables have positive effect on agricultural output. Finally, Granger Causality test confirmed both uni and bi-directional relationship in the long run. The study therefore concluded that agricultural output was significantly influenced by dynamic variables such as interest rate, bank credit to agricultural sector, population growth rate, government expenditure on education and infrastructural facilities on road in Nigeria during the study period.