The Impact of Exchange Rate Changes on Disaggregated Agricultural Output in Nigeria: A Two-Stage-Least-Squares Approach

Agriculture was the mainstay of the Nigerian economy prior to independence and immediately after. Agriculture however, has suffered persistent decline since the 1970s with the exchange rate policy being implicated in the misfortune of this sector. Earlier studies on the effect of exchange rate on agricultural output focussed on aggregate output and ignored the possibility of differences in the response of components of agricultural output. Besides, the fact that there may be a possibility of reverse causality between the exchange rate and agricultural output has been ignored in earlier studies. This study attempts to fill these gaps, by investigating the effect of the exchange rate changes on the components of agricultural output using the two-stage-least-squares techniques for the period between 1970 and 2008. The obtained result indicates that there are differences in the way the output of different sub-sectors responds to the exchange rate changes. While the exchange rate changes have negative effects on crop and fishery output, they have positive effects on livestock and forestry. The fact that the real exchange rate has differential effect on the output of the agricultural sub-sectors indicates the need for policy to be put in place to mitigate the adverse consequences of the exchange rate depreciation on crop and fishery output.