An Empirical Analysis of Exchange Rate Dynamics and the Agricultural Sector in Nigeria

Abstract

This study looks at the dynamic relationship between exchange rate movements, domestic oil prices, monetary policy rates, and agricultural sector performance in Nigeria between January 2012 to January 2025 using the Autoregressive Distributed Lag (ARDL) model and Granger causality methods. The empirical results of the ARDL show that there is a long-run co-integrating relationship between ASP, EXR, DOILP, and MPR, as well as a significant long-run relationship between exchange rate and agricultural performance, with a positive impact. Domestic oil prices, however, and monetary policy rates have a long-term negative impact on agricultural productivity. Only changes in monetary policy have a significant positive effect in the short term. Granger causality analysis reveals that there is no causal relationship between the exchange rate and agricultural sector performance. The findings emphasize the importance of integrating fiscal and monetary policy interventions to protect agricultural productivity from macroeconomic shocks, especially in light of the removal of oil subsidies and exchange rate liberalization of 2024. To ensure long-term agricultural growth, the study recommends stable exchange rate policies, moderate interest rates, and increased farmer support