1. Presented by : Idowu Ayodeji Adetunji
Supervised by: Prof. Liu Ying
June 4th 2013.
2.
3. The Federal Government of Nigeria aims to make Nigeria
one of the top twenty economies by the year 2020.
To achieve this aim, the economy must be diversified-
recourse to agriculture.
Government now aggressively sources for more domestic
and foreign investments into the agricultural sector.
Though Nigeria has, over the years, attracted huge volumes
of foreign direct investment (FDI).
Surprisingly, large chunk of these investments escape the
agricultural sector.
4. Little or no research work has been done to
evaluate “FDI-Agriculture” relationship in Nigeria.
The few studies that observed this relationship
employed FDI that was obtained in the entire
economy rather than that which was specifically
obtained in the agricultural sector.
5. To evaluate and forecast the relationship between
the level of productivity in the agricultural sector
relative to the amount of foreign direct investment
that has been obtained in the sector.
6. The level of agricultural sector output is significantly related
to the level of FDI the sector receives.
The level of labor generation of the agricultural sector is
significantly related to FDI in the agricultural sector.
FDI into the agricultural sector and the agricultural sector
output have a complementary long-run relationship.
Foreign investment inflows to the agricultural sector have a
complementary long run relationship with labor generation
in the agricultural sector.
7. To understand the link between FDI inflows and
productivity levels of the agricultural sector.
To uncover channels through which FDI
stimulates the growth and development of
Nigeria’s agricultural sector.
To identify the policy levers that may be
engineered to maximize both inflows and gains of
FDI into the agricultural sector.
8. Theory and evidence shows that an agricultural
economy is strategic to national development,
particularly for developing countries (Okorie and
Eboh, 1990).
Nigeria’s agriculture enjoyed a boisterous era
between the sixties and the seventies but started to
decline soon after the discovery of oil.
Quantity and quality of government spending is low
(Mogues et al, 2008).
9. The relationship between FDI and economic
growth in Nigeria is unclear (Ayanwale, 2007).
Question of the significance and sustainability of
FDI to Nigeria’s economic growth is yet
unanswered.
Autoregressive models are more robust to detect
the dynamic interactions involved within their
framework.
10. In order to evaluate and forecast the impact of FDI in the
agricultural sector of Nigeria; the relationship between the
three time series variables from 1980- 2007 was examined
in a vector autoregressive (VAR) environment.
Data used in this study was obtained from Central Bank
of Nigeria (CBN) statistical bulletin.
11. Figure 1: Sectorial Analysis of Cumulative Foreign Direct Investment in Nigeria
12. We employ a vector auto regression system of three time
series variables; FDI, output and labor. An unrestricted
VAR with lag length p can be expressed as:
Where;
Yt denotes a vector of variables (agricultural output, labor
and FDI),
C represents a vector of corresponding constant terms;
Φ1,…,Φp are matrices of coefficients and,
Ψt is an unobservable zero-mean independent white
noise process.
1 1 ... .................(1)t t p t p tY C Y Y− −= + Φ + + Φ + Ψ
13. Our model consists of three equations. Each variable serves as
the dependent variable in each of the equations while the
regressors are lagged values of all the variables.
1 1 1 1 1
1 1 1
1 1 2 3 .........................(2)
k k k
t j t j j t j j t j t
j j j
Y Y Y Yα β δ ϕ ε− − −
= = =
= + + + +∑ ∑ ∑
2 1 1 1 2
1 1 1
2 1 2 3 .........................(3)
k k k
t j t j j t j j t j t
j j j
Y Y Y Yα β δ ϕ ε− − −
= = =
= + + + +∑ ∑ ∑
3 1 1 1 3
1 1 1
3 1 2 3 ............................(4)
k k k
t j t j j t j j t j t
j j j
Y Y Y Yα β δ ϕ ε− − −
= = =
= + + + +∑ ∑ ∑
14. This was done using ADF to determine the integration
order of the variables. They all had an order: I(1)
1 1
1
...................................(5)
k
t t t i t t
i
y y y yρ λ µ− −
=
∆ =∆ + + ∆ +∑
1 1
1
.........................................(6)
k
t t i t t
i
y y yα ρ λ µ− −
=
∆ = + + ∆ +∑
1 1
1
.................................(7)
k
t t t i t t
i
y y y yα ρ λ µ− −
=
∆ = + + + ∆ +∑
1Where is the first difference of the series; , and are parameters to be estimated
while is a stochastic disturbance term.
ty t ty y ρ λ
µ
−∆ = − µ
15. This was done using JJ max likelihood to obtain the
number of co-integrating vectors.
( )1
ˆln 1 .................................................(8)
n
trace i
i r
Tλ λ
= +
= − −∑
( )max 1
ˆln 1 ........................................(9)rTλ λ += − −
max
1
Where is the trace statistic, is the eigen max statistic,
ˆ denotes the smallest Eigen values, and is the sample size.
traceλ λ
λ
−
− Τ
16. LOG (FDI) LOG (LABOR) LOG (OUTPUT)
Mean 6.163550 9.437671 11.17186
Median 7.097342 9.440102 11.42612
Maximum 7.192859 9.448491 11.84764
Minimum 4.764735 9.418330 9.975622
Std. Dev. 1.076626 0.007886 0.593251
Skewness -0.342763 -1.045413 -0.809189
Kurtosis 1.247110 3.199716 2.309315
Jarque-Bera 4.132996 5.146683 3.612223
Probability 0.126628 0.076280 0.164292
Sum 172.5794 264.2548 312.8119
Sum Sq. Dev. 31.29634 0.001679 9.502557
Observations 28 28 28
Table 1: Descriptive Statistics of Data
17. Table 4.1.3 Unit Root Test at stationarity at First difference
Variable Statistic ADF None ADF Intercept ADF Trend &
Intercept
ln(output) 5% sig level -1.9654 -2.9810 -3.5950
ADFα -2.1368 -5.8028 -6.3071
Probability 0.0340 0.0001 0.0001
Ho: D(lnoutput) has a unit root
Variable Statistic ADF None ADF Intercept ADF Trend &
Intercept
ln(labor) 5% sig level -1.9544 -3.0049 -3.6450
ADFα -2.4680 -0.9926 -14.752
Probability 0.0158 0.7373 0.0000
Ho: D(lnlabor) has a unit root
Variable Statistic ADF None ADF Intercept ADF Trend &
Intercept
Ln(FDI) 5% sig level -1.9544 -2.9810 -3.5950
ADFα -4.6297 -5.0351 -4.9915
Probability 0.0101 0.0004 0.0024
Ho: D(lnFDI) has a unit root
Table 2: Unit Root Test for stationarity at First difference
18. Table 4.1.4.1 Unrestricted Cointegration Rank Test (Trace)
Hypothesized No.
of CE(s) Eigenvalue Trace Statistic 0.05 Critical Value Prob.**
None * 0.768647 51.24535 29.79707 0.0001
At most 1 0.441895 14.65010 15.49471 0.0667
At most 2 0.002792 0.069893 3.841466 0.7915
Trace test indicates 1 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Table 4.1.4.2 Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized No.
of CE(s) Eigenvalue Trace Statistic 0.05 Critical Value Prob.**
None * 0.768647 36.59525 21.13162 0.0002
At most 1 * 0.441895 14.58020 14.26460 0.0446
At most 2 0.002792 0.069893 3.841466 0.7915
Max-eigenvalue test indicates 2 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Table 3: Unrestricted Co-integration Rank Test (Trace)
Table 4: Unrestricted Co-integration Rank Test (Maximum Eigenvalue)
20. Lags LM-Stat Prob
1 11.64723 0.2339
2 14.11512 0.1183
probs from chi-square with 9 df
Table 5 shows results of residual test, we fail to reject Ho to further confirm there is
no serial correlation of the residuals.
Source: Author’s estimation from E-views 5.1
Table 5: Residual Test
Ho: no serial correlation at lag order h
27. FDI inflows is not significant on output of the
sector.
FDI inflows is significant on labor generation.
FDI inflows does not have a complimentary long-
run relationship with output of the sector.
FDI inflows has a complimentary long-run
relationship with labor generation.
28. There is a very low level of FDI that is obtained in
the agricultural sector of Nigeria.
Bottlenecks that lead to high costs of doing
business should be removed.
Policies geared towards FDI should be open.
The availability of FDI would help to provide
resources which are lacking in the sector.
29. More FDI should be sought for the agricultural sector.
Focus should be on attracting FDI that seeks to enhance domestic
capacity or domestic investment.
FDI that is able to generate spillover effects in the entire value chain
of the agricultural sector should be targeted.
Research and development (R & D) institutions such as universities
should be better funded so that new innovations can be created.
Overall, government is urged to run agriculture strictly as a business
and not as a developmental programme.
Efforts to increase foreign participation in the sector are now meticulously implemented.
Most research work carried out on the significance of FDI on Nigeria’s economy concentrate on the extractive sector-oil and gas.
Other reasons include but not limited to; lack of political will, policy instability, poor quantity and quality of government spending in agriculture, and poor foreign participation.
Becos the p-values here are greater than p-alpha, it implies the error term in the model is normally or evenly distributed.
Open policy- to make the investor guaranteed of security over his investments.
To increase the level of production and holistically develop the agricultural sector
Resources such as; capital, energy, technology and international business connections
good corporate governance and the rule of law must be allowed to prevail so as to not only attract FDI but to ensure that the agenda, aims and objectives of all stakeholders are met.