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Agricultural Productivity, Fiscal and Trade Policies Nexus in Sub-Saharan Africa: A Panel Structural Vector Error Correction Model Analysis

Ogunlesi, Ayodeji (2018): Agricultural Productivity, Fiscal and Trade Policies Nexus in Sub-Saharan Africa: A Panel Structural Vector Error Correction Model Analysis.

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Abstract

Public expenditure on the agricultural sector targeted towards raising investments for increased agricultural productivity has been low in most countries in Sub-Saharan Africa (SSA). Also, existing empirical evidence on the impact of fiscal and trade policies on the improvement of agricultural systems remains mixed and inconclusive. In view of the above, this study employs a three-variable Panel Structural Vector Error Correction Model (PSVECM) in capturing the dynamic structure of the possible relationships among agricultural productivity, fiscal and trade policies in 37 selected countries within SSA, using annual data from 1990 to 2016. In imposing short- and long-run identifying restrictions, the cointegration structure of the PSVECM reveals an instantaneous impact of government expenditure and terms of trade on crop production in the transitory period. Likewise, terms of trade has a permanent significant effect on crop production and government expenditure within the reviewed period in SSA. The impulse response and variance decomposition analysis trace out a mixed result of both short and long run significant and fluctuating relationships among government expenditure, terms of trade and crop production in SSA. This finding implies that fiscal and trade policies are crucial in influencing agricultural productivity; and recommends that policymakers should adopt expansionary fiscal (in line with the Keynesian theory) and trade policies which stimulate both short and long run agricultural productivity growth in countries within SSA

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