Vector error correction modelling of Nigerian agricultural supply response

Undue taxing of the agriculture sector could constitute a disincentive to agricultural production in most low-income African countries where agriculture is being taxed for industrial development. There is an argument that the high level of taxation of agriculture in favour of industrialization is in part due to the underestimation of the supply response of the agricultural sector. This study tests the theoretical hypotheses that only price, non-price and natural disincentives respectively pose problems for agricultural growth. Johansen’s approach to co-integration analysis was employed to test these hypotheses using the time-series data from the Central Bank of Nigeria (CBN) statistical database. The long-run price elasticity of supply is 0.13 and capital shift supply 18 per cent. The implication of this is that much more in-depth research is needed to identify those factors that affect supply and to describe the effect of factors that shift supply in response to price incentives. This could provide valuable information for government in the use of appropriate policy measures and variables.