AGRICULTURAL VALUE ADDED, TRANSPORT SERVICES, AND ECONOMIC GROWTH IN NIGERIA: THE ROLE OF TRADE OPENNESS AND INTEREST RATE SPREAD-AN ARDL BOUNDS TESTING APPROACH

Abstract

This study examines effects of agricultural value added and transport services on economic growth in Nigeria from 1990 to 2024, with trade openness and interest rate spread as conditioning variables. Using annual time-series data obtained from the World Development Indicators, the study employs the autoregressive distributed lag (ARDL) bounds testing approach to cointegration. The Augmented Dickey–Fuller unit root tests show that all variables are non-stationary at levels but stationary after first differencing, confirming that they are integrated of order one, I(1). The ARDL bounds test confirms a long-run relationship among the variables, as the F-statistic of 5.67 exceeds the upper-bound critical value of 4.01 at the 5% significance level. The long-run results show that agricultural value added (coefficient = 0.089, p = 0.014), transport services (coefficient = 0.156, p = 0.003), and trade openness (coefficient = 0.234, p = 0.002) have positive and statistically significant effects on economic growth, while interest rate spread (coefficient = −0.412, p = 0.002) has a negative and significant effect. The short-run error correction model shows that the error correction term is negative and highly significant (−0.678, p = 0.000), indicating that approximately 67.8% of disequilibrium from the previous year is corrected in the current year. In the short run, agricultural value added is positive but statistically insignificant, transport services are marginally significant, trade openness is positive and significant, and interest rate spread is negative and significant. Diagnostic tests confirm the absence of serial correlation, heteroskedasticity, and non-normality, while the CUSUM and CUSUM of Squares tests indicate parameter stability. Granger causality tests reveal unidirectional causality from agricultural value added, transport services, trade openness, and interest rate spread to economic growth. The study concludes that agricultural value added and transport services are important long-run drivers of economic growth in Nigeria, while high financial intermediation costs constrain growth. It recommends increased agricultural investment, prioritization of transport and logistics infrastructure, measures to reduce interest rate spread, and complementary trade and infrastructure policies