UNIVERSITY OF NIGERIA

NSUKKA

DEPARTMENT OF ECONOMICS

THE ROLE OF AGRICULTURE IN ECONOMIC GROWTH: THE

NIGERIAN EXPERIENCE.

AN M.SC. PROJECT PROPOSAL S,UBMITTEDTO THE

DEPARTMENT OF ECONOMICS'

UNIVERSITY OF NIGERIA
NSUKKA

OGUCHI, CHINWEUBA BENJAMIN .

PG/M.SC/06/42027

SUPERVISOR: PROF. F.E. ONAH

JULY, 2008.
 CHAPTER ONE

1.0 : INTRODUCTION

1.1 : BACKGROUND INFORMATION

The modern world has transformed into one global village, thanks to advancement
in science and technology (STM). The implication is that, events in one part of the
world have some effects on some, if not all other parts of the global community.
This is why for nearly half a century, the primary focus of the world has been on
ways to accelerate the growth rate of national incomes. Beefing up the growth rate
of national incomes, is an issue that bothers on economic growth. Hence,
economists and politicians from all nations, rich and poor, capitalist, socialist and
mixed, have worshipped at the shrine of economic growth.
Economic growth is perhaps, one concept that has not lent itself to easy definition.
This development notwithstanding, Schumpeter (2005), defines it as, "a gradual
and steady change in the long-run which comes by a gradual increase in the rate of
savings and population". The gross domestic product is a major growth
. (economic) indicator. This presupposes that all sectors of an economy make their
inputs to the economic growth of the economy. Agriculture certainly is one such
sector.
Agriculture in the context of the Nigerian economy, is tied with various sectors
and is essential for generating broad-based growth necessary for development. It is
fundamental to the sustenance of life and is the bedrock of economic growth,
especially in the provision of adequate and nutritious food so vital for human
development and raw materials for industry.
Economic history provides us with ample evidence that an agricultural revolution
is a fundamental pre-condition. for economic growth, especially in developing
countries (Woolf and Jones, 1969; Oluwasanmi, 1966; Eicher and Witt, 1964).
The agricultural sector has the potential to be the industrial and economic
springboard from which a country's growth can take off. The Brazilian experience
is a striking example of how agriculture can advance beyond its primary function
of supplying food and fibre. Through its different spheres of activities at both
macro and micro levels, the agricultural sector is strategically positioned to have a
high multiplier effect on any nation's quest for socio-economic and industrial
growth. It is undisputable that a sustained agricultural growth has been highly
instrumental to the rapid rural transformation, the empowerment of peasants and
alleviation of abject poverty in countries like Brazil,Malaysia,China, etc.
Interestingly, the Nigerian economy, like that of Brazil during the first decade
after independence, could reasonably be described as agrarian because agriculture
served as the engine of growth of the over-all economy (Ogen, 2003).

1.2: STATEMENT OF THE PROBLEM

From the standpoint of occupational distribution and contribution to the GDP,
agriculture was the leading sector up to the sixties. During this period, Nigeria was
the world's largest producer of cocoa, largest exporter of palm kernel, largest
producer and exporter of palm oil. Nigeria was also a leading exporter of other
commodities such as cotton, groundnut, rubber and hides and skin (Alkali, 1971).
The agricultural sector contributed over 60% of the GDP in the 1960s and despite
the reliance of Nigerian peasant farmers on traditional tools and indigenous
farming methods, these farmers produced 70% of Nigeria's exports and 95% of its
food needs (Lawal, 1997). However, the agricultural sector suffered neglect during
the hey-days of the oil boom in the 1970s. Since then, Nigeria has been witnessing
extreme poverty and insufficiency of basic food items. Historically, the roots of
the crisis in the Nigerian economy lie in the neglect of agriculture and the
increased dependence on a mono-cultural economy based on oil. The agricultural
sector now accounts for less than 5% of Nigeria's GDP (Olagbaju and Falola
1966).
 Agriculture's contribution to GDP in selected countries with DFID
presence for the period 2000-2004

Country Value added as % Country Value added as %

of GDP of GDY
Ethiopia 42.33 Nigeria 31.18
1 Ghana 1 36.00 I Sierra Leone 1 52-40
1
I
1 36.70 I Sudan
I I
Malawi
I I
1 39.19
I
p a 1 41.87 1 Tanzania 1 44.66
Congo democratic. 57.88
Republic
Source: World Bank (2005)
DFID: The department for International Development -- An NGO.
The table above clearly shows the great disparity in the agricultural value added as
percentage of GDP with reference to Nigeria as compared to other countries
named above. Such disparity indicates the presence of an economic problem.
Previous studies on Agriculture and Nigeria's economic growth applied a general
equilibrium model (GTAP) which was based on the assumption of constant returns
to scale among others. Constant returns to scale is not a known feature of
agricultural productivity (Land) and therefore, constitutes a gap in research that
yearns for urgent attention. This study will adopt a methodology that will ensure
the total captivity of productivity on land --- constant, increasing or decreasing
returns to scale. This certainly, will close the gap created by earlier investigations.
1.3: RESEARCH QUESTIONS
a) What are the effects of the neglect of agriculture on Nigeria's economic
growth?
b) What factors determine the dwindling contribution of agriculture to
Nigeria's economic growth?

1.4: OBJECTIVES OF THE STUDY

The objectives of this study include:
. a) To determine the effects of the neglect of agriculture on Nigeria's economic
growth.
b) To identify the factors responsible for the dwindling contribution of
agriculture to Nigeria's economic growth.

1.5: HYPOTHESES OF THE STUDY

Based on the objectives outlined above, the study will be guided by the
following hypotheses:
a) The neglect of the agricultural sector has no effect on Nigeria's
economic growth.
b) Dwindling agricultural productivity does not affect Nigeria's
economic growth.

1.6: POLICY RELEVANCE

The significance of this study is rooted in the fact that:
a) Policy-makers will be sensitized on the need to accord agriculture, its
rightfbl place in the scheme of things.
b) It will beef up the existing pool of knowledge on the role of agriculture in
economic growth.
 c) Researchers will be better equipped to grappled with problems associated
with agriculture and economic growth.
d) The findings would go a long way in providing vital information that will
guide government functionaries and policy-makers in formulating effective
macro-economic polices which can provide the leeway to economic
growth.

1.7: SCOPE OF THE STUDY

The country-specific study covers the period 1970 to 2005. The choice of
the period is informed by availability of data. The data will be gleaned from the
bulletin of the Central Bank of Nigeria.
 CHAPTER TWO
2.0: LITERATURE REVIEW
This chapter reviews some relevant literature and is organized under the
following subheadings:
2.1 Theoretical framework
2.2 Theoretical literature
2.2.1 Agriculture and economic growth
2.2.2 Agriculture and poverty reduction
2.2.3 Agriculture, GDP, employment
generation and rural-urban drift.
2.2.4 The agricultural sector and growth
of the Nigerian economy
2.2.5 Summary of theoretical literature
2.3 Empirical literature
2.3.1 Summary of empirical literature
2.4 Summary of literature reviewlgrand summary
'2.5 Limitations/motivation for further studies

2.1: THEORETICAL FRAMEWORK

Rostow's stages of economic growth.
In his historical approach to the process of economic growth, professor
, W.W. Rostow, distinguishes five stages of economic growth:
1. The traditional society;
2. The pre-conditions for take-off;
3. The take-off;
4. The drive to maturity; and
5. The age of high mass-consumption.
The take-off:
According to Rostow, the take-off is the 'great watershed' in the life of a
society "when growth becomes its normal condition. Forces of modernization
contend against the habits and institutions. The value and interest of the traditional
society make a decisive breakthrough; and compound interest gets built into the
society's structure". By the phrase compound interest, Rostow implies 'that
growth normally proceeds by geometric progression, such as a savings account if
interest is left to compound with principal'. In separate example, Rostow defines
the take-off "as an industrial revolution, tied directly to radical changes in the
methods of production, having their decisive consequence over a relatively short
period of time."
The take-off: period is supposed to be short lasting for about two decades.
Conditions for take-off: the requirements for take-off are the following three
related but necessary conditions:
1. "A rise in the rate of productive investment from, say, 5 percent or less to
over 10 percent of national income or net national product;
2. The development of one or more substantial manufacturing sectors with a
high rate of growth;
3. The existence of quick emergence of a political, social and institutional
framework which exploits the impulses to expansion of the modern sector
and gives to growth, an outgoing character".

2.2: THEORETICAL LITERATURE:

2.2.1: Agriculture And Economic Growth
Development economists in general and agricultural economists in particular, have
focused on how agriculture can best contribute to overall economic growth and
modernization. Many early analysts (Fei and Ranis, 1961; Jogenson, 1961 ;
Hirschman, 1958; Scitovsky, 1954; Lewis, 1954; Rosenstein- Rodan, 1943), have
highlighted agriculture because of its abundance of resources and its ability to
transfer surpluses to the more important industrial sector. The conventional
approach to the roles of agriculture in economic growth concentrated on
agriculture's important market-mediated linkages:
1. Providing labour for an urbanized industrial work force;
**
11. Providing food for expanding populations with higher incomes;
iii. Supplying savings for investment in industry;
iv. Enlarging markets for industrial output;
v. Providing export earnings to pay for imported capital goods; and
vi. Producing primary materials for agro-processing industries ('Timer,
2002; Delgado et al, 1994; Ravis et al., 1990; Johnston and Mellor,
1961).
Rapid agricultural productivity growth is a pre-requisite for the market-mediated
linkages to be mutually beneficial. Productivity growth that resulted from
agricultural RaD has had an enormous impact on food supplies and food prices
and consequent beneficial impacts on food security and poverty reduction (Hazel1
and Haggblade, 1993; Binswanger, 1980; Hayami and Merdt, 1977; I'instrup-
'Anderson, 1976).
Alston et al., 1995, posit that "Because a relatively high proportion of any income
gain made by the poor is spent on food, the income effects of research-induced
supply shifts, can have major nutritional implications, particularly if those shifts
result from technologies aimed at the poorest producers".
Agricultural productivity growth also triggers the generation of non-market
mediated linkages between the agricultural sector and the rest of the economy.
These include the indirect contributions of a vibrant agricultural sector to: food
security and poverty alleviations; safety net and buffer role; and the supply of
environmental services (FAO, 2004a). While agriculture's direct private
contributions to farm households are tangible, easy indirect benefits tend to be
over looked in assessing rates of returns. Ignoring the whole range of economic
 and social contributions of agriculture underestimates the returns to investment in
the sector (Valdes and Foster, 2005).
Some empirical evidence exist on the positive relationship between agricultural
' growth and economic growth (Valdes and Foster, 2005). The transformation of
agriculture from its traditional subsistence roots induced by technical change, to a
modernizing and eventually industrialized agricultural sector, is a phenomenon
observed across the developing world.
Concluding, it is clear that agricultural growth has played a historically important
role in the process of economic development. Evidence from industrialized
countries as well as countries that are rapidly developing today indicate that
agriculture was the engine that contributed to growth in the non-agricultural
sectors and to over-all economic well being. Economic growth originating in
agriculture can have a particularly strong impact in reducing poverty and hunger.
Increasing employment and incomes in agriculture stimulates demand for non-
agricultural goods and services, thereby providing a boost to non-farm rural
incomes as well.

2.2.2 Agriculture And Poverty Reduction.

Agriculture's contribution to poverty reduction is sometimes thought to be small,
because its relative economic importance usually falls when low income countries
successfully develop. This view is misleading. Strong agricultural growth,
particularly increased productivity, has been a feature of countries that have
successfully reduced poverty. Evidence consistently shows that agricultural
growth is highly effective in reducing poverty.
Gallup (1997), reports that every 1% increase in per capita agricultural output
leads to a 1.61% increase in the incomes of the poorest 20% of the population.
Thirtle (2001), concludes from a major cross- country analysis that, on the
average, every 1% increase in agricultural yield reduces the number of people
living on less than US$ 1 a day by 0.83%. Smith & Hadda (2002) are of the view
 that rapid increase in agricultural output, brought about by increasing land and
labour productivity, have made food cheaper, benefiting both the urban and rural
poor, who spend much of their income on food. Bangladesh provides an excellent
example. Between 1980 and 2000, the real wholesale price of rice in Dhaka's
markets fell from 20 to 11 in Taka per kg, bringing major benefits to poor
consumers.
Nugent (2000), supports the above view by stating that poor households typically
spend 5040% of their income on food including many poor farmers.
FAOSTAT (2004), posits that, with the right conditions, increasing agricultural
productivity has increased the incomes of both small and large farmers and
generated employment opportunities. These increases in income are particularly
important because the proportion of people mainly dependent on agriculture for
their income remains high, ranging from 45% in East and south East Asia, to
52.2% in south Asia and 63.5% in Sub Saharan African.
Lele and Aganval (1989); Lipton and Longhurst (1989), opine that a large body of
evidence shows that higher agricultural productivity in Asia, consistently raised
'farmers' incomes despite declining market prices resulting from increased output.
A survey in the 90s in India concluded that the average real income of small
, farmers rose by 90% (Dev. 1998). Haggblade (et-al., 2004), believe that,
Agriculture's historical importance to poverty reduction goes far beyond its impact
on agriculture-based livelihoods. Where agriculture has grown rapidly, higher
rural incomes and cheaper food have increased the demand for goods and services
produced outside agriculture.
The strong linkages or "multipliers" between growth in agriculture and that in the
wider economy have allowed poor countries to diversifjr their economies to
sectors where growth is generally faster and labour productivity and wages are
higher.
2.2.3 Agricultnre, GDP, Employment Generation and
Rural-Urban Migration
A DFID policy paper on the role of agriculture on economic growth and poverty
reduction (2005), explains that, agriculture accounts for a significant proportion of
GDP in countries where the agency works. Over time, the "structural
transformation" of poor countries' economies away from dependence on
agriculture lies at the heart of sustained poverty reduction. This relationship is
greatest when countries are least developed. At this early stage of growth,
agriculture typically accounts for a large share of total employment. Also, food
.represents a major part of poor people's spending. As the non-farm sector
develops, and economies become progressively less dependent on agriculture, the
relationship becomes less important eventually, but remains significant in some
parts of these economies where the non- farm sector is least developed.
Hazel1 and Ramasamy (1991), reveal that increased agricultural productivity has
also created employment opportunities on farms, although this did not necessarily
result in higher wages.
Mellor (2001a), supports the above view through cross-country studies which
estimate that for every 1% increase in agricultural output, farm employment is
increased by between 0.3 and 0.6%.
Kydd et a1 (2004), explains that the development of non-farm opportunities will be
uneven between regions and over time. To es.cape poverty, people may have to
leave their home areas, either for the season or permanently. Some times they may
even return to agriculture if growth in the non-farm sector stalls (for eg, in
Indonesia, during the financial crisis of the 90s). People may also combine
agriculture and non-farm work.
 2.2.4 The Agricultural Sector And Growth Of The Nigerian Economy
Jones and Woolf, 1969; Oluwasanmi, 1966; Eicher and Witt, 1964, believe that
the agricultural sector has the potential to be the industrial and economic
springboard from which a country's development can take off.
Stewarte, 2001, is of the view that more often than not, agricultural activities are
usually concentrated in the less developed rural areas where there is a critical need
for rural transformation, redistribution, poverty alleviation and socio-economic
development.
Humbert, 2001, posits that the agricultural sector has the potential to shape the
landscape, provide environmental benefits such as land conservation, guarantee
the sustainable management of renewable natural resources, preserve biodiversity,
and contribute to the viability of many rural areas. It is undebatable that a
sustained agricultural growth has been highly instrumental to Brazil's rapid rural
transformation, the empowerment of Brazilian peasants and the alleviation of
abject poverty.
Ogen, 2003: Interestingly, the Nigerian economy, like that of Brazil, during the
' first decade after independence could reasonably be described as an agricultur~1
economy because agriculture served ,as the engine of growth of the overall
economy. From the standpoint of occupational distribution and contribution to
GDP, agriculture was the leading sector.
Alkali, 1997, writes that Nigeria in the 60's was the world's second largest
producer of cocoa, largest exporter of palm kernel and largest producer and
exporter of palm oil. The sector contributed over 60 percent of the GDP despite
the reliance of Nigerian peasant farmers on traditional tools.
Lawal, 1997, explains that these farmers produced 70 percent of Nigeria's exports
and 95 percent of its food needs.
Olagbaju and Falola (1996)' are of the view that the agricultural sector now
accounts for less than 5 percent of Nigeria's GDP.
 2.2.5: Summary of Theoretical Literature
A cursory look at the theoretical literature reveals that beyond the supply of food
and fibre, agriculture has provided important market-mediated linkages by
providing labour for an urbanized industrial workforce, enlarging markets for
industrial output and providing export earnings to pay for imported capital goods.
I There is also a lot of evidence to buttress the fact that apart from being a major
contributor to the GDP in the sixties the sector has facilitated the growth of the
Nigerian economy by enhancing poverty alleviation, employment and income
generation, as well as a reduction in rural-urban migration.

2.3: EMPIRICAL LITERATURE

Tsigas, M and Ehui, S, in a general equilibrium analysis, applied a general
equilibrium model (GTAL) based on common assumptions as perfect competition,
constant returns to scale, and no change in the economy-wide employment of
resources. Each regional economy was made up of several economic agents as
follows:
' a. On the demand side of the model, a utility-maximizing household
purchases commodities (for private and government use) and it saves part
of its income, which consists of returns to primary factors and net tax
collections.
b. On the production side of the model, cost-minimizing producers employ
primary factor services and intermediate inputs to supply commodities.
The analysis was based on data consisting of 19 regions and 31
sectors/commodities. Nigeria and 12 other economies cover sub-saharan Africa;
other economics are North America, the European Union, Japan, Indonesia, Rest
of Asia and the-rest-of the world (ROW). Twelve sectors cover primary
agriculture; nine sectors cover processed foods; the rest of natural resource
industries, manufactures, and services are covered with ten sectors.
They ran series of simulations to assess the impact of productivity improvements
and policy changes on Nigeria's growth. In particular, they simulated:
Sector-specific Hicks-neutral technical change (augmenting the returns to
all productive factors equally);
Factor-biased technological change (e.g. land-specific productivity
improvements vs capital-specific productivity improvements);
Improvements in domestic and foreign trade transportation; and
Trade liberalization by Nigeria
Their findings were as follows:
a. A percentage technological progress in the oil sector gives large welfare
benefits in dollar terms, $142.72 million. No other sector in Nigeria gives
larger welfare gains.
b. When compared to Indonesia, Zimbabwe and Uganda, comparable
investments would yield higher returns in some agricultural sectors than in
oil.
c. Technological improvements related to unskilled labor produce, by far, the
highest returns in Agriculture: cattle, other livestock, fruits and vegetables
have the highest returns. In manufacture, the highest returns are obtained
from technological improvements related to capital.
d. International transportation improvements lower the cost of both Nigerian
exports and imports.

2.3.1: Summary of Empirical Literature

The study revealed a lot of interest in modernizing Nigerian agriculture. However,
it went on to underscore the insufficiency of knowledge about the growth potential
of agriculture. In the course of applying general equilibrium model to estimate
growth potential of agriculture in Nigeria, Tsigas et.al found that a few agricultural
sectors may outperform several manufacturing sectors.
 It needs be noted, that while pervious studies on the role of Agriculture in
Nigeria's economic growth used Cobb Douglas production function, this study
will use simple multiple regression model to capture its objectives.

2.4: SUMMARY OF LITERATURE REVIEWIGRAND SUMMARY

' Sustained growth in an economy requires the continuous improvement in total
factor productivity (TFP) and this requires public expenditures for infrastructure
and human capital developments. At the very early stages, the economy needs an
..engine of growth.
While in the now developed countries, it appears that the major stimulus to early
growth was industrial innovations accompanied but not led by agricultural
innovations, there have been some developing countries in the recent past, notably
India, China and Taiwan, where growth was led by agricultural broad-based
productivity changes. In these countries, it seems that the major source of the
demand for the increased product of the agricultural sector was domestic, as there
'
were substantial levels of initial poverty. Hence, improved agricultural incomes
directly led to increases in the domestic demand for the larger quantities of food
produced domestically.
The situation may well be different in many of the developing countries, such as
those in many parts of Africa, in the sense that the cost per beneficiary of
agricultural productivity improvement may be high because of low farm
population densities. This not withstanding, the bulk of evidence lends credence to
the fact that agriculture had constituted the much-needed springboard to the
growth and eventual development of many economies.
 2.5: LIMITATIONS1 MOTIVATION FOR FURTHER STUDIES
The bulk of literature reviewed, indicate that the views and empirical findings of
different economists vary overtime. For a more acceptable and consensus result,
more studies need to be conducted in countries with different economic
cliinates/conditions. Against this backdrop, there is the need to carry out further
studies in Africa and other less developed countries.
Different case studies and different methodologies tend to produce different
results. Also, most of the studies use cross-section data on countries that may be
diverse, raising the possibility that the empirical findings could be distorted by
heterogeneity biases affecting both agricultural growth rate and the over-all
, economic growth.
 CHAPTER THREE
3.0: METHODOLOGY
3.1: THE MODEL
This study we shall employ the multiple regression model.
The goal of multiple regression is to produce a model in the form of a linear
equation that identifies the best combination of independent variables like FST,
ROPS, LVST, FISHN on GDP and also OEXP, CPT, LBA, ACGSF, PFP and
PEX on the ASGDP to optionally predict the criterion variables. Its computational
.,procedure conforms to the ordinary least squares solution; the solution or model
describes a line for which the sum of the squared differences before the predicted
and actual values of the criterion variable is minimal. Akintola (2002) used OLS
multiple regression to analyze the relationship between the specific explanatory
variables and the value of food imports. Ademola and Falusi (2003) improved on
Akintola (2000) and also took a consideration on foreign exchange constraint in
estimating their food import demand for rice in Nigeria as canvassed by the
proponent of the import exchange
3.2: MODEL SPECIFICATIONS
Economic theory on factors militating against the robustness of agricultural
production in Nigeria lists certain factors. The most prominent among them will
be used in the analysis and these are specified as follows:
Functional specification
1. GDP = f (FST, CROPS, LVST, FISHN) ... (la)
2. ASGDP = f (OEXP, CPI, LBA, ACGSF, PFP, PEX) ...(2a)
Econometric model specification
1. GDP = Bo + BIFST +B2CROP+B3LVST+ B4FlSHN+pi...(lb)
2. ASGDP =ao+ a20CEXP + a2CPI + a3BUDT + a4ACGSF + PFP + PEX + Vi
...(2b)
 Where:
GDP = Gross Domestic Product - dependent variable (1)

FST = Fishery

CROP = CROP production

LVST = Livestock Production
FISHN = Fishery Production
Bo = Constant term (1)
B 1, ... Bq = Population Parameters
pi = Error term (lb)
..and
! ASGDP = Agriculture Sector GDP
OEXP = Oil Exploration

CPI = Consumer Price Index as proxy for poverty

ABUT = Agricultural Budget Allocation
ACGST = Agricultural Credit Guarantee Scheme Fund as a proxy for Poor Credit
Scheme.
PFP = Dummy Variable for Poor Farm Practices
PEXC = Political Exigencies - a Dummy Variable.
Vi = Error term (2b)
3.3: ESTIMATION PROCEDURE
3.3.1: Method of Data Analysis
As said earlier, the ordinary least square (OLS) method of estimation shall
be employed in this study. This is because of the various assumptions of the
classical least square estimation criteria, which takes care of certain qualities of
the variables. The OLS has Best Linear Unbiased estimator (BLUE). Therefore,
the BLUE are efficient, consistent, sufficient and unbiased estimators.
 Techniques for Evaluation
3.3.2: Evaluation Based on Econometric Criteria
Economic theory explains the nature of the variables in use and their relationship
with one another especially the explained variable and the explanatory variables.
The evaluation therefore is based on whether the coefficients conform to economic
postulations.

I 3.3.3: Evaluation Based on Statistical Criteria (First-order-Test).

i. The test of Goodness of fit ( R ~ )
Coefficient of determination, R2 fits the regression time. It checks the
goodness of fit of a model. The R~ is important since the closer the observations,
the better the explanation of the variations of the dependent variable.
ii. The Adjusted R~ (R2)

Though R2 measures the goodness of fit, studies have shown that it is only
necessary but not a sufficient condition for measuring the goodness of fit.

. R~ is therefore considered which is a better measure taking into account the

cognizance of the degree of freedom.
iii. T-Test & F- Test.
I
The t-test will be employed to verifjr whether the variables are individually
statistical significant or not. The F- test shall be used to check the significance of
the entire model.

3.3.4: Evaluation based on Econometric Criteria (Second-Order Test).

i. Normality Test:
Normality test is used to determine whether or not the residuals conform to the
classical assumptions the stochastic disturbance term is normally distributed with
zero mean and constant variance i.e.
PW O , 8 3
 where: p = stochastic disturbance term or white noise.
N = Normal distribution
0 = Zero mean
ti2= Constant Variance
Jarque-Bera (JB) test shall also be employed to compute the skewness and
Kurtosis.
ii. Co-integration Test:
This test is employed to investigate the long run relationships among variables in
I the model.
'. iii. Stationary first
The data shall be tested to check for the existence of a long term or equilibrium
relationship among the variables.
iv. Auto-correlation Test:
This shall be tested using the Durbin Watson statistics to check the presence of
aufor correlation in the model.
v. Multicolinearity Test:
This shall be done under the pair wise correlation matrix. It shall be conducted
on the variables to investigate the level of correlation between any two of the
variables when other variables are held constant.
vi. Heteroscedasticity Test:

This will be used to ascertain whether the error term (U,) in the regression model
has a constant variance.

3.4: JUSTIFICATION
The primary advantage of using the standard model is that it presents a complete
picture of the regression outcome to researchers. If the variables were important
enough to earn a place in the design of the study, then they are given room in the
model even if they are not contributing very much to the coefficient of
 determination. That is, on the assumption that the variables were selected on the
basis of their relevance to theory or attests on the basis of hypothesis based on a
comprehensive review of the existing literature on the topic; the standard model
, provides an opportunity to see how they fore as a set in predicting the dependent
variable.

3.5: ANALYTICAL TECHNIQUES FOR EVALUATION OF RESULTS.

The model will be evaluated using OLS method. The sample consists of time
series 1970 to 2005. The work will rely on PC-Give econometric s o h a r e version
.. 8.0 for estimation.

3.6: DATA AND SOURCES

The data were obtained from Central Bank of Nigeria (CBN) Statistical Bulletin,
(Various issues), CBN Annual Report, as well as National Bureau of Statistics. All
series are annual and span the period from 1970 to 2005.
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