Natural Ressource Forum

Received: 5 June 2023 Revised: 7 September 2023 Accepted: 11 September 2023
DOI: 10.1111/1477-8947.12343
ORIGINAL ARTICLE
Oil price movements and agricultural production

from heterogeneous sub-sectors: Analysing the
Dutch disease in an African resource-rich
economy
George N. Ike 1 | Ojonugwa Usman 2 | Cihat Köksal 3
1
Department of Economics, Girne American
University, North Cyprus, Turkey Abstract
2
Department of Economics, Istanbul Ticaret The economy of a developing country like Nigeria has
University, Istanbul, Turkey evolved from a strong dependence on agricultural exports
3
Department of International Trade, Istanbul
in the 1960s to an unhealthy reliance on crude oil exports.
Ticaret University, Istanbul, Turkey
This has led to a large agricultural trade deficit that requires
Correspondence a better understanding of the dynamic relationship between
Ojonugwa Usman, Department of Economics,
Istanbul Ticaret University, Istanbul, Turkey. oil price booms and agricultural production. To this end, the
Email: ousman@ticaret.edu.tr study not only isolates the effect of oil price movements on
agricultural production from heterogeneous sub-sectors in
Nigeria but also tests for Dutch disease symptoms using
annual data from 1970 to 2019. Employing the auto-regres-
sive distributed lag (ARDL) cointegration and dynamic simu-
lations as well as dynamic Granger causality techniques, the
study shows that in the long run, oil price booms affect the
food sector and the livestock sector heterogeneously. An
increase in the oil price undercuts the production perfor-
mance of the food sector. Also, because of the strong link-
age between domestic livestock production and the global
livestock market, an increase in domestic production has a
weak predictive content for oil price booms. The policy
implications of these findings include the sterilization of oil
revenues outside the country and collaboration with foreign
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and
reproduction in any medium, provided the original work is properly cited.
© 2023 The Authors. Natural Resources Forum published by John Wiley & Sons Ltd on behalf of United Nations.
Nat Resour Forum. 2023;1–23. wileyonlinelibrary.com/journal/narf 1

14778947, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/1477-8947.12343 by INASP/HINARI - CAMEROON, Wiley Online Library on [08/10/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
2 IKE ET AL.
investors to provide much-needed investment in the agri-

cultural sector through various incentive schemes.
KEYWORDS
African resource-rich economy, agricultural production, Dutch
disease, dynamic ARDL simulations, oil price fluctuations
1 | I N T RO DU CT I O N
The Nigerian economy has been highly dependent on crude oil exploration since the oil price boom of the 1970s, which
led to a rise in the influx of foreign exchange into the domestic economy with attendant macroeconomic consequences.
Since oil was discovered in the 1970s, it has taken centre stage as the main source of foreign exchange revenue in the
Nigerian economy, accounting for about 95% of income from exports. It has also gradually dominated government expen-
diture, taking up about 80% of its revenue source. The volatility in price movements, which has been a recurrent feature
in the crude oil market since the mid-1970s, has exposed oil-dependent economies like Nigeria to external oil price-
instigated shocks. The macroeconomic consequences emanating from these fall under the umbrella of the resource curse.
A key implication of the resource curse is exclusively economic, and it is widely referred to as the ‘Dutch disease’. The
effects of the resource curse (see Arezki & Van der Ploeg, 2010; Ike et al., 2016; Ike et al., 2020; Kolstad, 2009; Mehlum
et al., 2006; Papyrakis & Gerlagh, 2004; Sachs & Warner, 1995, 2001), as well as the symptoms of the Dutch disease (see
Corden & Neary, 1982; Corden, 1984; Fardmanesh, 1991; Nyatepe-Coo, 1994; Ismail, 2010; Nwaka et al., 2020), have
been well documented in the literature. The main transmission mechanism of the Dutch disease is the contraction of the
economy's tradable ‘lagging’ sectors. This is occasioned by exchange rate appreciation that is induced by an external hike
in the prices of the ‘booming’ tradable sector.
Basically, oil production has diminished the role of agriculture in the modern economy. Before the oil boom in the
late 1970s, the Nigerian economy depended on agriculture. However, the agricultural sector has come under enormous
neglect due to Dutch disease effects. This may come about due to the shift from the agricultural sector to the more lucra-
tive crude oil sector. As a result of this, the agricultural sector's productivity has diminished due to the crowding-out
effects of the booming crude oil sector (Adedoyin et al., 2020; Bekun & Akadiri, 2019). Oil price movements have been
shown to exhibit unpleasant effects on the economies of oil-dependent countries. These effects are well detailed in the
Dutch disease literature, which elaborates on how a boom in the price of a specific resource (usually point-sourced) could
have both a spending effect and a resource movement effect. A spending effect could come from increased expenditure
on the service sector by the government and boom sector-specific stakeholders due to the increased availability of funds
from this particular sector. A resource movement effect, on the other hand, could induce the transfer of resources such
as capital and labour from non-boom-specific sectors to the lucrative booming sector. The crowding-out occurs through
the appreciation of the exchange rate, which undercuts the competitive performance of the tradable lagging sector of the
economy. This occurs because as the real exchange rate appreciates, the price of the lagging sector's commodities in for-
eign countries becomes cheaper relative to the price of the domestic lagging sector's commodities. This effect implies an
increase in import demand to the detriment of domestic products, which become more difficult to produce (Nyatepe-
Coo, 1994). Within the Nigerian economy, the oil sector represents the tradable booming sector, while the lagging sector
could depict the tradable agricultural sector. A boom in the oil sector would induce the growth in the oil and service sec-
tors to persist till an external price shock occurs, which instigates a ‘bust’ or a sharp reduction in the price of crude oil.
This would result in a situation whereby imports become more expensive because of a shortage of oil sector foreign
exchange to finance their purchase. One of the ways through which this effect could become reinforced is the resource-
seeking foreign direct investment (FDI). If the influx of crude oil-based foreign investment outweighs the influx into other
non-oil-specific sectors, then direct ‘de-agriculturalization’ or de-industrialization would be reinforced. This is induced by
IKE ET AL. 3
a resource movement effect wherein labour moves from the lagging sectors to the booming tradable crude oil sector.
Foreign investments can also bring about a spending effect, wherein proceeds from booming sector investments are
spent on the non-tradable lagging sector, which initiates a real exchange rate appreciation that undercuts the perfor-
mance of the tradable lagging sector. This process is termed indirect de-industrialization (de-agriculturalization).
Arising from these developments, it becomes important to analyse the effect of oil price fluctuations on the agri-
cultural sector empirically in order to develop the policy frameworks needed to increase agricultural sector produc-
tivity. This is in light of the boom/bust cycles of the oil sector and also the reversal of the long-term decline of the
agricultural sector in the Nigerian economy. Thus, the primary objective of the present study is to empirically deter-
mine the effect of oil price fluctuations on agricultural production in the Nigerian economy between the 1970 and
2019 periods. The sample size is motivated by data availability. The study separates the agricultural sector into food
production and livestock production. This is mainly because food and livestock follow different production and retail
dynamics in the Nigerian economy, and hence, they may respond differently to oil price movements. The paper
offers the scientific community a better understanding of the idiosyncrasies embedded in the agricultural sector
regarding oil price sensitivities. This knowledge will enable policymakers to better formulate policies that will be tai-
lored towards specific sub-sectors of the agricultural sector and not just an enactment of an all-encompassing policy
framework that may not be compatible with various sub-sectors of the agricultural sector.
According to data from the World Bank's World Integrated Trade Solution, the Nigerian agricultural sector has con-
stantly maintained a trade deficit between 1996 and 2020. Livestock product exports rose from 18,946,000 USD in
1996 to 40,234,710 USD in 2020, whereas imports of livestock also rose from 313,374,150 USD to 2,207,242,940
USD in the same period. In the same vein, food product exports went from 129,987,57 in 1996 to 471,750,130 in
2020, while imports in that sector went from 255,579,010 USD to 765,027,080 USD within the same period. This goes
without saying that domestic production of livestock and food products cannot keep up with demand pressures, which
bring about capital leakages to the economy. Considering the abundance of wildlife and arable land in Nigeria, it, thus,
becomes important to ascertain empirically if the reasons for these deficits are related to Dutch disease dynamics.
To the best of our knowledge, no other study has separately analysed the long-run effect of oil price fluctuations
on food and livestock production within the context of the Nigerian economy. The importance of employing this analyti-
cal framework is predicated on the fact that the policy framework needed to mitigate the Dutch disease effects within
the agricultural sector may be different for food production and livestock production. Thus, the present study brings a
fourfold contribution to the literature. First, the study makes a detailed investigation of the effect of oil price movements
on the Nigerian agricultural sector by distinctly accounting for food production and livestock production. Second, the
present study employs unit root tests, which account for one unknown structural break to mitigate the spurious rejec-
tion (non-rejection) of the unit root null due to the low power of traditional unit root tests when structural breaks are
present in the series. Third, the study employs cointegration tests, which account for multiple structural breaks, to obtain
consistent results. Last, by employing the recently introduced dynamic auto-regressive distributed lag (ARDL) simulations
of Jordan and Philips (2018), a clearer graphical depiction of the dynamic relationship amongst the variables is presented
as the variables are modelled in the ARDL specifications. The ARDL model is employed because it can accommodate
models with both I(1) and I(0) variables and it has efficient small sample properties. The estimation results show that
food production and livestock production respond to oil prices in different ways. This result constitutes a novelty in the
literature and validates the segregation of agricultural production into food and livestock production.
The study proceeds with a brief review of the literature in Section 2. In Section 3, the empirical methodology and
data are elaborated. Section 4 outlines the empirical results, while Section 5 concludes with policy recommendations.
2 | B R I E F R E V I E W OF TH E L I T E R A T U R E
There have been various studies within the Nigerian context that have tried to isolate the relationship between oil
price movements and an array of macroeconomic variables. Most studies try to establish how the oil price affects
4 IKE ET AL.
the level of output and inflation. Hamilton's (1983) seminal paper on oil prices and the US macroeconomy establishes
that all except one of the post-World War II US recessions were preceded by a significant spike in crude oil prices.
This may not be unconnected with the status of the United States as a net oil-importing economy during this time
frame (1948–1972). Hamilton's results were corroborated by Mork (1989), wherein asymmetric effects were con-
trolled for and it was uncovered that oil price increases had a significant negative effect on the level of output
growth in the US economy while oil price declines had no significant effect on the US economy within the study
period. Around the globe, documented evidence exists of the sensitivity of several macroeconomic variables to oil
price movements. Shahzad et al. (2022) isolate the dynamic relationship between oil prices and the Bloomberg Com-
modity Index (BCI) at different time scales. Their findings show that oil price and BCI are correlated in the medium to
long run and not in the short run. Balcilar, Ike, and Gupta (2022) and Balcilar, Usman, and Roubaud (2022) find that
oil price has predictive content for different macroeconomic variables across several emerging economies. Balcilar,
Usman, and Roubaud (2022) examine the transmission of not only uncertainty but oil market shocks by considering
the demand and supply shocks separately in the USA using the nonlinear Vector Autoregressive model. The findings
indicate that oil supply shock is associated with the period of rising levels of oil prices leading to recession of the
economy, but the positive oil demand shocks lead to expansion of the economy. Furthermore, Alao et al. (2023) find
an asymmetric effect of oil price shocks on output growth in G7 countries, while there is persistent volatility, which
is clustered with the asymmetric GARCH models outperforming the symmetric GARCH models. Mutascu et al.
(2022) examine how gasoline and diesel prices are co-moving in Germany, France and Italy with regard to the fuel
tax system at a time. Applying the time-frequency domains methodology, the study observed that the co-movement
of gasoline and diesel prices in these countries is stronger in the long run even though gasoline taxes are higher than
diesel taxes.
Nigeria, being a major oil-exporting country may exhibit a different type of behaviour in the level of its macro-
economic variables in the face of oil price fluctuations. This is because a positive oil price shock is expected to lead
to a depreciation in exchange rates in oil-importing countries while an appreciation should be expected in oil-
exporting countries (Krugman, 1983). The study by Ayadi (2005) evinced that oil price fluctuations did not exhibit
any strong macroeconomic effect on the Nigerian economy based on the results of variance decompositions. All the
macroeconomic variables employed for the study had less than 10% variation in error variance in response to a shock
in oil price. This is largely corroborated by Olomola (2006) who finds that oil price fluctuations have no direct statisti-
cal relationship with inflation and output but have a statistically significant relationship with exchange rates and
money supply. These results may have arisen due to the existence of an exchange rate buffer, which absorbs most
of the shocks from the oil price movements. A different empirical direction was taken by Ogundipe et al. (2014)
where it is uncovered that oil price has a significant effect on exchange rate volatility in the Nigerian economy.
Iwayemi and Fowowe (2011) in their empirical findings show that though oil price movements have no significant
relationship with most of the macroeconomic variables employed in their study, there is, however, a
significant causal effect of negative oil price on output and exchange rates. Wealth effects from an oil price upsurge
may appreciate the real exchange rates and, thus, undercut the performance of the lagging tradable sector with
attendant consequences for economic output. Furthermore, the study by Asaleye et al. (2019) finds that employment
exhibited the most pronounced effect on oil prices across the study horizon based on the results of variance decom-
position employed for their study. Udemba (2019) uncovers evidence for unidirectional causality from oil price
movements to foreign direct investment and trade in Nigeria. This validates the resource-seeking FDI hypothesis
and also comes with the implication that crude oil dominates trade in the Nigerian economy.
Earlier studies on Dutch disease effects on the Nigerian economy show that the effect of the Dutch disease
could be empirically observed in the Nigerian economy. For instance, Struthers (1990) finds that the contraction of
the Nigerian agricultural sector may have come about due to the overvaluation of the currency. Even though no
empirical basis was given for this viewpoint, Struthers (1990) further elaborated on the possibility of a resource
movement effect, which squeezes the lagging agricultural sector by moving resources from this sector to the service
sector and in a limited way to the oil sector. Furthermore, Nyatepe-Coo (1994) observes that spending effects from
IKE ET AL. 5
expansionary government policies contributed to a squeeze in the agricultural sector, which brought about increased
import demand and real exchange rate overvaluation. The study did not, however, elaborate on the nature of the
agricultural sector squeeze.
Oludimu and Alola (2022) validate the existence of the Dutch disease in Nigeria by empirically isolating a
negative relationship between crude oil output and income in Nigeria. Their results also show that higher levels
of crude output can mitigate this effect. Asiamah et al. (2022) test whether a Dutch disease is present in the case
of sub-Saharan Africa. The study confirms that Dutch disease is not also present but also a pull effect mechanism
is found for sub-Saharan Africa. In the same vein, Zhang and Udemba (2023) empirically reveal that oil price incre-
ments contract both the agricultural and manufacturing sectors in the Nigerian economy. These studies are
closely related to the present study but do not account for the heterogeneous oil price response of commodities
within the same sector that the present study addresses. Furthermore, Awe et al. (2023) show that crude oil has
a positive impact on the development of the Nigerian economy by increasing the revenue of the government and
subsequently all the components of the economy.
Within the agricultural sector, Chopra et al. (2022) find that natural resources have a negative association with
agricultural productivity in ASEAN countries. Their study, however, does not segregate the agricultural sector into
different sub-sectors. Magazzino et al. (2021) reveal that while access to credit significantly affects agricultural pro-
duction in developing economies, it, however, impacts both production and productivity in developed economies.
This reveals the importance of financial development for global sustainable agricultural development. This is also in
line with Magazzino and Santeramo (2023), wherein it is revealed that access to credit stimulates agricultural sector
development only in the most developed economies.
What can be picked out from this brief review is the fact that oil price fluctuations in the Nigerian economy
mostly have a significant impact on exchange rate movements with attendant potential implications for other trad-
able sectors of the Nigerian economy, notably, the agricultural sector. The fact that oil price fluctuations can also
affect employment in the Nigerian economy shows the potential existence of the crowding-out effect of the Dutch
disease, which may shrink other tradable sectors by shifting resources (both capital and labour) from these sectors to
both the oil sector and the service sector by way of spending effects. An effect that may translate to a net loss of
employment if employment gain in the oil and service sector is less than employment loss in other tradable sectors
of the Nigerian economy. The effect of oil prices on sub-sectors of the Nigerian agricultural sector, however, has not
been studied extensively within the Nigerian context. The aforementioned developments in the empirical literature
have opened a gap, which needs to be bridged empirically.
3 | D A T A A N D M E T H O D O LO G Y
The study employs unit root and cointegration testing techniques, which account for structural breaks in the series. The
study also employs the autoregressive distributed lag model of Pesaran et al. (2001) to estimate the long-run coefficients.
Subsequent sub-sections would expound on the data (Table 1) and empirical methodology in greater detail.
3.1 | Data
3.2 | Theoretical framework, model and empirical strategy
The Corden and Neary (1982) theoretical model explores the implications of a raw material boom on various eco-
nomic factors, income distribution, labour allocation and sector profitability. It adopts a systematic graphical
6 IKE ET AL.
TABLE 1 Variables and definitions.
Variables Definition Measurement Source

lRGDP GDP per capita Thousand US Dollars World development indicators
(constant 2015 US$) https://databank.worldbank.org/source/
world-development-indicators
lLPI Livestock production index Index World development indicators
(2014–2016 = 100) https://databank.worldbank.org/
source/world-development-indicators
lFPI Food production index Index World development indicators
(2014–2016 = 100) https://databank.worldbank.org/
lFDI Foreign direct investment, Thousand US Dollars World development indicators
net inflows (BoP, current US$) https://databank.worldbank.org/
divided by total population source/world-development-indicators
lOIL Real oil price (Brent crude) US Dollars United States Energy Information Administration
https://www.eia.gov/outlooks/steo/realprices/
IR Interest rate spread (lending Percentage World development indicators
rate minus deposit rate) https://databank.worldbank.org/
Note: With the exception of the interest rate spread, all other variables are transformed into their logarithmic forms.
Source: Authors' computation.
approach to analyse changes in an economy affected by Dutch disease. The economy in question comprises two
tradable goods sectors: oil and manufacturing, along with a non-tradable sector of services. Tradable goods' prices
are external and fixed, while service prices are determined domestically and adjust flexibly to maintain market
equilibrium.
Monetary aspects are excluded for simplicity, making all prices relative to the given manufacturing goods' prices.
The internal demand is restricted to household consumption, foreign trade is balanced, the labour market is flexible,
and there is no unemployment. Two production factors, labour and capital, are present, and they may have varying
degrees of mobility between sectors. Additionally, each sector differs in its capital-to-labour ratio for technology.
The real exchange rate, representing the ratio of non-tradable goods' prices to tradable goods' prices, is not fixed.
For the Nigerian case, we assume inter-sectoral labour mobility wherein labour moves across the three employments
to equalize its wages.
The mechanism proposed by Corden and Neary (1982) is expounded under different boom scenarios. However,
we elaborate on specific scenarios, which align more closely with the Nigerian case. These scenarios include
(a) Hicks-neutral technological progress, (b) non-neutral technological progress, (c) a rise in oil prices, and, and (d) a
rise in oil prices when energy is an intermediate product.
Scenarios (a) and (b) consider cases wherein an improvement in technology brings about a boom in the tradable
oil sector. Scenarios (c) and (d) consider cases wherein oil price increments induce the boom. Scenario (d) by implica-
tion entails that the cost of production in energy-intensive sectors within the economy will rise. This is, however, not
the case in Nigeria prior to 2023.1 An oil price subsidy enacted by the government ensures that exogenous oil price
hikes do not negatively affect the profit of energy-intensive sectors. Thus, scenario (c) is more appropriate to the
Nigerian case. In scenario (c), it is assumed that oil is a final product that is not traded domestically. It, thus, follows
that as oil export revenues increase, the oil sector receives substantial foreign currency, leading to significant profit-
ability. This overall effect can be divided into the resource movement effect and the spending effect. The resource
movement effect involves the movement of labour to the oil sector due to its rising marginal gains. The conse-
quences include changes in the real exchange rate, depending on capital-to-labour ratios and resource mobility. The
IKE ET AL. 7
spending effect results from higher income due to export gains, leading to increased demand in all sectors, including
services, causing a relative price surge and contributing to a real appreciation. The overall impact on the economy
depends on the sum of the resource movement effect and the spending effect.
We assume labour mobility across all three sectors but sector-specific capital. Given these assumptions,
the impact of a rise in oil prices in Nigeria and its effect on the agricultural sector can be summarized as fol-
lows: First, an increase in oil price induces an influx of foreign capital into the oil sector, which increases the
oil sector profitability as well as the marginal product of labour in the oil sector. As a result, labour moves
both from the agricultural sector and the service sector to the oil sector. This constitutes the resource move-
ment effect.
• When labour moves directly from the agricultural sector to the oil sector, this constitutes direct
de-agriculturalization. This implies that agricultural sector output will diminish due to the real appreciation, which
undercuts its competitive performance internationally. In effect, the price of domestic tradable agricultural com-
modities will rise relative to foreign ones.
• The movement of labour from the service sector to the oil sector induces a supply shortage in the service sector,
which brings about an excess demand for services. This, in turn, will bring about a further movement of labour
from the agricultural sector to the service. This crowding-out of the agricultural sector constitutes indirect
de-agriculturalization.
Second, an increase in oil prices will induce increased expenditure either directly through factor owners or indi-
rectly by the government via spending tax revenues. As a result, expenditure on services increases, inducing a real
appreciation. In effect, the price of non-tradables will rise relative to tradables. This will bring about a further move-
ment of labour from the agricultural sector to the service sector, which further reinforces indirect de-
agriculturalization. Since oil extraction has limited linkages to the overall economy as noted by Hirschman (1958), it
is expected that much of this spending effect will be induced by government expenditure as oil reserves are publicly
owned in the Nigerian economy.
3.2.1 | The model
The long-run relationship between agricultural production (livestock and food production) and the aforementioned
covariates can be modelled as
lAPI ¼ β0 þ β1 lRGDPt þ β2 lOILt þ β3 IRt þ β4 lFDIt þ β5 t þ ut : ð1Þ
From Equation (1), l denotes the natural logarithm; API denotes the agricultural production index, which may
either be the livestock production index or the food production index. RGDP denotes gross domestic product per
capita, which is a proxy for economy-wide average income. Increased income levels affect labour supply via positive
substitution effects and negative income effects. A positive sign for income will entail that substitution effects pre-
dominate, while a negative sign would indicate that income effects predominate. OIL denotes oil price. An increase
in oil prices is indicative of a boom in the crude oil sector. A negative sign for OIL is indicative of the resource move-
ment effect, while a positive sign indicates a spending effect. IR denotes interest rate spread and captures bank prof-
itability and transaction costs within the financial sector. A higher interest rate spread means higher transaction
costs and limited access to credit within the financial sector. This also may limit the availability of capital for invest-
ment within the framework of the loanable fund's theory. Thus, a higher interest rate spread would entail lower capi-
tal availability. FDI denotes foreign direct investment inflows per capita,2 while u denotes the stochastic error term,
all at time t. t is a time trend, which captures unobservable technological progress that is highly correlated with time.
8 IKE ET AL.
β0 to β5 are the unknown parameters to be estimated. The unknown parameters from Equation (1) would be non-
spurious if the error term (u) is a stationary process.
3.2.2 | Unit root tests
Before estimating the empirical model, there is a need to determine the time series features of the variables
under investigation. Traditional unit root testing techniques like Phillip–Perron and the augmented Dickey–
Fuller tests do not control for the effects of structural breaks. The Zivot–Andrews unit root tests, which
control for one unknown structural break, are employed as well as other conventional unit root tests notably
the Elliott–Rothenberg–Stock DF-GLS (DFGLS) unit roots. This would give a more balanced inferential
framework.
3.2.3 | Cointegration tests
The multiple structural break cointegration test of Maki (2012) is employed to ascertain if there exists a stable
long-run relationship amongst the variables. The multiple structural break cointegration test of Maki (2012) controls
for up to five structural breaks in the cointegration model. Not controlling for the effects of these shocks may lead
to spurious (non)rejection of the null of no cointegration. The Maki (2012) cointegration test performs as well as
Gregory and Hansen (1996) and Hatemi-j (2008) in the presence of two breaks but performs better than both of
them in the presence of more than two breaks. The cointegration test accommodates up to four models, which are
level shift, level shift with the trend, regime shift and regime shift with the trend. All four models will be employed
with up to five structural breaks in order to ascertain the most optimal cointegrating model. The model specification
follows, thus,
Model 0: Level shifts
X
k
yt ¼ ϑ þ ϑi Di,t þ β0 At þ ut : ð2Þ
i¼1
Model 1: Level shifts with a trend
X
k X
k X
k
yt ¼ ϑ þ ϑi Di,t þ γ i tDi,t þ β0 At þ β0i At Di,t þ ut : ð3Þ
i¼1 i¼1 i¼1
Model 2: Regime shifts
X
k X
k
yt ¼ ϑ þ ϑi Di,t þ γt þ β0 At þ β0i At Di,t þ ut : ð4Þ
i¼1 i¼1
Model 3: Regime shifts with a trend
X
k X
k X
k
yt ¼ ϑ þ ϑi Di,t þ γt þ β0 At þ β0 At þ β0i At Di,t þ ut : ð5Þ
i¼1 i¼1 i¼1
From Equations (2) to (5), t = 1, 2, …, T. The observable variables, which are indicated by the scalar yt and the m
1 vector At = (A1t, …, Amt) are all supposed to follow a non-stationary random walk process. The error term is
IKE ET AL. 9
indicated by ut, which is independently and identically distributed (i.i.d). Di,t takes a value of 1 if t > TBi (i = 1, …, k) and
0 otherwise where the maximum number of breaks is indicated by the character k and TBi denotes the period in
which the break occurs.
3.2.4 | Estimation technique
The ARDL technique of Pesaran et al. (2001), which employs a parametric augmentation of autoregressive
and distributed lags in order to control for endogeneity, is utilized to establish the long-run cointegrating
coefficients. Equation (1) is reparametrized to include autoregressive lags of the dependent variable as well as
the distributed lags of the independent variables via an unrestricted error correction form,
X
m X
p
ΔlAPIt ¼ β0 þ β1 lAPIt1 þ β2 lRGDPt1 þ β3 lOILt1 þ β4 IRt1 þ β5 lFDIt1 þ θ1 ΔlAPItk þ θ1 ΔlRGDPtk
k¼1 k¼0
X
q X
r X
s
þ θ2 ΔlOILtk þ θ3 ΔIRtk þ θ4 ΔlFDItk þ ω0 Di þ φt þ ut : ð6Þ
k¼0 k¼0 k¼0
Based on Equation (6), Δ denotes the difference operator. coefficients β1 to β5 indicate the long-run impact
parameter estimate of the aforementioned variables. Additionally, m, p, q, r and s indicate the maximum lag lengths.
Furthermore, the effects of the multiple structural breaks are indicated by ω, where Di = (D1, …, D5) indicates a vec-
tor of structural break dummies. φ captures the effect of technological change over time. The null hypothesis for the
non-existence of cointegration can be specified as, thus,
(H0: β1 = β2 ¼ β3 ¼ β4 ¼ β5 = 0) against the alternative hypothesis.
(H0: β1 ≠ β2 ≠ β3 ≠ β4 ≠ β5 ≠ 0).
The above test follows a non-standard distribution and is employed regardless of whether the variables are I
(0) or I(1) or a combination of both. The critical values for these tests are outlined in Pesaran et al. (2001). These
groups of critical values categorize the regressor variables into strictly I(0), strictly I(1), or jointly cointegrated. Once
cointegration has been validated, the short-run relationship can be determined by the construction of an error cor-
rection model of the following form:
X
n X
p X
q X
r X
s
ΔlAPIt ¼ φ0 φ1 ΔlAPItk þ φ1 ΔlRGDPtk þ φ2 ΔlOILtk þ φ3 ΔIRtk þ φ4 ΔlFDItk þ ω0 Di þ φt
k¼1 k¼0 k¼0 k¼0 k¼0
þ λECMt1 þ εt , ð7Þ
where ECMt1 denotes the error correction term, which is explicitly represented as
X
p X
q X
r X
s
ECMt1 ¼ lAPIt β0 β1 lRGDPtk þ β2 lOILtk þ β3 IRtk þ β4 lFDItk , ð8Þ
k¼0 k¼0 k¼0 k¼0
where ECMt1 denotes the error correction parameter. Equation (7) λ captures the adjustment speed with which
short-run disequilibrium is corrected to maintain long-run equilibrium.
3.2.5 | Dynamic ARDL simulations
We employ dynamic ARDL simulations to visualize the effect of a counterfactual change in one regressor at a spe-
cific point in time while holding constant the effect of other regressors. The dynamic ARDL simulation of Jordan and
10 IKE ET AL.
Philips (2018) helps to simulate the results of ARDL models and gives a clearer perspective on the dynamic interrela-
tionships between variables.
3.2.6 | Granger causality analysis
The Toda and Yamamoto (1995), and Dolado and Lütkepohl (1996) framework of Granger causality testing is
employed to ascertain the direction of causality. The technique is applicable irrespective of whether or not the vari-
ables in the system are stationary, non-stationary, mixed or cointegrated. In this technique, the significance of the
parameters of a VAR(p) model is determined by the utilization of a modified Wald statistic. The application of the
procedure involves the artificial augmentation of the precise VAR order, p augmented by d extra lags (dmax), resulting
in the estimation of a VAR ( p + dmax), where dmax denotes the maximal order of integration in the VAR model. This
procedure guarantees the asymptotic χ2 distribution of the Wald statistic. Granger causality within this framework
usually involves ignoring the parameters of the remaining dmax autoregressive parameters and designating them as
exogenous to the VAR system as their usefulness lies mainly in overcoming the limitations imposed by the non-
standard asymptotic properties of integrated variables in standard Wald tests. The test will also be exogenously aug-
mented with dummy variables pertaining to the structural break periods obtained from the Maki (2012) test for
cointegration. Within the framework of TYDL, a dynamic VAR( p) can be specified as, thus,
2 3
2 3 2 3 2 3
lAPIt θ ω11i ω12i ω13i ω14i ω15i lAPIti
6 7 6 7 6 7 6 7
6 lRGDP 7 6 σ 7 6 ω ω ω ω ω 7 6 lRGDP 7
6 t7 6 7 6 21i 22i 23i 24i 25i 7 6 ti 7
6 7 6 7 X 6 7 6 7
6 7 6 7 p 6 7 6 7
6 lOILt 7 ¼ 6 β 7 þ 6 ω31i ω32i ω33i ω34i ω35i 7 6 lOILti 7
6 7 6 7 6 7 6 7
6 7 6 7 i¼1 6 7 6 7
6 7 6 7 6 7 6 7
6 IRt 7 6 α 7 6 ω41i ω42i ω43i ω44i ω45i 7 6 IRti 7
4 5 4 5 4 5 4 5
lFDIt γ ω51i ω52i ω53i ω54i ω55i lFDIti
2ρ ρ12j ρ13j ρ14j ρ15j 3 2 lAPItj 3 2 u1t 3

11j
6 7 6 7 6 7
6 ρ ρ ρ ρ ρ 7 6 lRGDP 7 6 u 7
6 21j 22j 23j 24j 25j 7 6 tj 7 6 2t 7
X 6
dmax 6 7 6 7 6 7
7 6 7 6 7
þ 6 ρ31j ρ32j ρ33j ρ34j ρ35j 7 6 lOILtj 7 þ 6 u3t 7, ð9Þ
6 7 6 7 6 7
j¼pþ1 6 7 6 7 6 7
6 7 6 7 6 7
6 ρ41j ρ42j ρ43j ρ44j ρ45j 7 6 IRtj 7 6 u4t 7
4 5 4 5 4 5
ρ51j ρ52j ρ53j ρ54j ρ55j lFDItj u5t
From Equation (9), Granger causality from lRGDPt to lAPIt entails that ω12i ≠ 08 i ; similarly, Granger causality
from lAPIt to lRGDPt entails that ω21i ≠ 08i:
4 | EMPIRICAL RESULTS
In this section, we employ several unit root testing techniques in order to come to a more robust empirical conclusion as
this will determine the estimation process that would be more fitting to the study. The tests include the Elliott–
Rothenberg–Stock DF-GLS (DFGLS) unit root test and the Zivot and Andrews (2002) unit root test. The unit root test by
Zivot–Andrews is employed to ascertain if the variable has a unit root even in the presence of structural breaks. This is
necessary because not allowing for the existence of structural breaks could reduce the power of conventional unit root
tests with the possibility of yielding spurious inferences such as falsely (not)rejecting the unit root null. After this, we also
employ two cointegration testing procedures to ascertain if the variables co-move together through time. We employ the
IKE ET AL. 11
Maki (2012) test for cointegration, which permits up to five unknown structural breaks in the data. This is necessary
because economic shocks can also alter the data-generating process of macroeconomic variables; thus, it becomes neces-
sary to employ cointegration tests, which can control for these potential breaks to mitigate the incidence of spurious
cointegration test inferences. There are a few other cointegration testing techniques, which allow for the inclusion of
structural breaks such as Gregory and Hansen (1996), which allows for a single structural break, and Hatemi-J (2008),
which allows for up to two unknown regime shifts. However, these cointegration tests control for a limited number of
structural breaks, which may not accurately account for the number of breaks in the series and, thus, may suffer from low
power in the presence of more than one or two breaks. The second cointegration test employed in this study is the ARDL
bounds test for cointegration, which is valid whether or not the variables are I(1), I(0), or fractionally integrated. Before
employing this test, the structural breaks obtained from the Maki (2012) cointegration test are introduced into the ARDL
model to obtain consistent inferences.
After employing these cointegration testing techniques, it then becomes pertinent to estimate the long-run and
short-run parameter estimates. Here also, the model is augmented with the breakpoints, which are established by
the Maki (2012) cointegration technique to uncover consistent estimates. Finally, the Toda–Yamamoto dynamic
Granger causality testing technique is employed to ascertain the direction of causality amongst the variables under
study.
4.1 | Descriptive statistics, correlation matrix and data evolution
From Table 2, it can be seen that the logarithmic transformation of the livestock production index (lLPI), food pro-
duction index (lFPI), oil price (lOILP), and interest rate spread (IR) all follow a normal distribution based on the
Jarque–Bera statistics; however, the logarithmic transformation of income (lRGDP) and foreign direct investment
(lFDI) does not follow a standard normal distribution. Income also appears to be positively skewed with the possibil-
ity of positive outliers in the distribution. lFDI is, however, negatively skewed with a higher excess skewness relative
TABLE 2 Descriptive statistics and correlation matrix.
lLPI lFPI lFDI lOILP lRGDP IR

Mean 4.356905 4.148763 3.890329 3.970001 25.97965 5.941976
Median 4.327207 4.273632 4.183583 3.914063 25.75962 6.676667
Maximum 4.817455 4.834455 4.782067 4.775314 26.86376 11.06417
Minimum 3.677313 3.323596 1.769189 2.957072 25.40412 0.316667
Skewness 0.190362 0.36533 1.118255 0.056557 0.682965 0.266211
Kurtosis 1.939624 1.685541 3.610009 1.761127 2.051469 2.126469
Jarque–Bera 2.115579 3.769452 8.956812 2.579336 4.609130 1.744219
Probability 0.347223 0.151871 0.011351 0.275362 0.099802 0.418069
lLPI 1.000000
lFPI 0.941919 1.000000
lFDI 0.837945 0.79613 1.000000
lOILP 0.185375 0.00015 0.397764 1.000000
lRGDP 0.863796 0.846005 0.838373 0.422026 1.000000
IR 0.657071 0.789227 0.474726 0.162331 0.612517 1.000000

12 IKE ET AL.
FIGURE 1 Graphical representation of data series.
to lRGDP. The correlation matrix shows that the correlation amongst all independent variables is less than 0.7 with
the reduced likelihood of multicollinearity.
From Figure 1, it can be seen that all the variables are non-mean reverting with the existence of various peaks
and through within the series. This necessitates the use of unit root and cointegration testing procedures which can
control for multiple structural breaks within the series.
4.2 | Unit root test results
From Table 3 the unit root test results uncover different results across the different testing techniques. These unit root
tests include the DFGLS unit root test and the Zivot–Andrews unit root test (ZA). While DFGLS does not capture the
effect of structural breaks, the unit root test by Zivot and Andrews (2002) does. The tests are conducted both with con-
stant and also with constant and trend using a 5% level of significance. The results show that the null hypothesis of unit
root cannot be rejected at levels. However, after the first difference, the null hypothesis for the unit root is rejected.
IKE ET AL. 13
TABLE 3 Unit root test results.
Elliott–Rothenberg–Stock DF-GLS test Zivot–Andrews unit root test
Test statistic Test statistic

Test statistic (constant Test statistic Break (constant Break
Variables (constant) and trend)** (constant) year and trend) year
At levels
lFDI 0.9993 1.8391 3.2504 (1) 2005 3.0465 (1) 1995
lOILP 1.4964 1.9755 3.3034 (2) 1986 3.1508 (2) 2004
lRGDP 1.3014 1.3473 4.6455 (1) 1981 4.7598 (1) 1981
IR 1.2512 2.9759 4.3844 (1) 1989 4.8753 (1) 1988
lLPI 0.5843 1.1973 1.4551 (1) 2012 2.2768 (2) 2012
lFPI 0.2318 1.4687 2.7394 (2) 1988 2.1538 (2) 2003
At first difference
ΔlFDI 9.8427** 10.928** 12.8143 (1)** 1999 12.9688 (1)** 1999
ΔlOILP 6.4282** 6.4848** 7.1409 (2)** 1999 7.0534 (2)** 1999
ΔlRGDP 2.0788** 2.6873 5.8646 (1)** 2000 6.8587 (1)** 1984
ΔIR 7.2432** 7.2522** 8.0328 (1)** 1988 7.9348 (1)** 1988
ΔlLPI 7.0396** 7.9507** 9.3062 (2)** 1993 9.1978 (2)** 1993
ΔlFPI 1.937 2.9580 5.3929 (2)** 1985 6.4470 (2)** 1988
Note: ** Denotes statistical significance at the 5% level, respectively. Number of lags in brackets. The test was conducted
with EViews 11.
Based on these results, it is safe to conclude that all the variables follow I(1) processes; that is, the variables are all but sta-
tionary at first difference. By these results, it is safe to apply the ARDL model for the estimation of our models.
4.3 | Cointegration test results
The cointegration test proceeds firstly with the Maki (2012) cointegration technique, which controls for up to five
structural breaks in the series. Results from Table 4 validate the presence of cointegration for all the models speci-
fied. Break points from the most significant specification of the Maki (2012) cointegration test, which is Model 2, are
used to augment the ARDL model. Following this, the Pesaran et al. (2001) bounds testing technique is also
employed to test for cointegration. The ARDL bounds test results in Table 5 show that cointegration is supported by
both the F-statistics and the t-statistics of the bounds test as both values are greater than the 1% upper bound
values, which signify the presence of cointegration amongst the variables. In light of these developments, it then
becomes valid to ascertain the long and short-run coefficients via the ARDL model.
4.4 | Long- and short-run coefficients
The long- and short-run coefficients of the model are estimated via the ARDL model. From Table 6, it can be seen
that while interest rate spread is associated with a negative relationship with livestock production, it, however, is not
a significant determinant of livestock production in Nigeria. This may imply that domestic banking sector profitability
does not have a statistically significant relationship with livestock production in the country. This implies no linkages
14 IKE ET AL.
TABLE 4 Maki cointegration test with up to five break points.
Model specifications Test statistics [5% critical values] Break years

Dependent variable: LPI
Model 0 7.2401*** [6.306] 1975, 1979, 1982, 1998, 2013
Model 1 7.610*** [6.494] 1975, 1979, 1987, 1997, 2014
Model 2 10.90*** [8.869] 1975, 1982, 1992, 1997, 2004
Model 3 13.50*** [9.482] 1978, 1985, 1991, 1997, 2005
Dependent variable: FPI
Model 0 6.589** [6.306] 1984, 1988, 1991, 1998, 2004
Model 1 8.276*** [6.494] 1975, 1987, 1990, 2006, 2008
Model 2 14.89*** [8.869] 1974, 1982, 1988, 1997, 2004
Model 3 12.18*** [9.482] 1978, 1984, 1990, 1997, 2004
Note: ‘***’ denotes statistical significance at the 1% level. The test was conducted with GAUSS.
TABLE 5 ARDL bounds test.
Test statistic Value Signif. I(0) I(1)

Dependent variable: LPI (ARDL 1,0,0,0,0)
F-statistic Asymptotic: n = 1000
Fk,n (4, 45) 6.5312*** 10% 3.03 4.06
5% 3.47 4.57
1% 4.4 5.72
Finite sample: n = 45
10% 3.298 4.378
5% 3.89 5.104
1% 5.224 6.696
t-bounds test t-bounds critical values
t-statistic 5.1873*** 10% 3.13 4.04
5% 3.41 4.36
1% 3.96 4.96
Dependent variable: FPI (ARDL 1,0,0,1,0)
F-statistic Asymptotic critical values: n = 1000
Fk,n (4, 44) 5.9722*** 10% 3.03 4.06
5% 3.47 4.57
1% 4.4 5.72
Finite sample critical values: n = 45
10% 3.298 4.378
5% 3.89 5.104
1% 5.224 6.696
t-Bounds test t-bounds critical values
t-statistic 4.5303** 10% 3.13 4.04
5% 3.41 4.36
1% 3.96 4.96
Note: ‘***’ and ‘**’ denote statistical significance at the 1% and 5% levels. The test was conducted with EViews 11.
IKE ET AL. 15
TABLE 6 ARDL long-run estimates and short-run estimates.
Coefficients
Panel A: Long-run regressors
LPI model FPI model
lRGDP 0.3436*** (0.0701) 0.0408 (0.148)
lOILP 0.13887*** (0.0279) 0.1224*** (0.044)
IR 0.004 (0.007) 0.0065 (0.011)
lFDI 0.0256 (0.0171) 0.0269 (0.258)
Panel B: Short-run regressors
D_1985 0.1232*** (0.042) __
D_1991 __ 0.0959*** (0.012)
D_2005 __ 0.0329** (0.014)
Trend 0.024*** (0.004) 0.01466*** (0.002)
ECMt1 0.6478*** (0.107) 0.3721*** (0.0645)
Panel C: Diagnostics
Breusch-Godfrey LM test χ2(4) 0.23 [0.6249] 7 [0.06]*
ARCH χ (4) 2
0.713 [0.398] 1.6 [0.21]
Jarque–Bera 1.179 [0.554] 0.871 [0.646]
Note: ‘***’, ‘**’ and ‘*’ denote statistical significance at the 1%, 5%, and 10% levels, respectively. Standard errors in curved
brackets. Probability values in squared brackets. Due to the presence of weak auto-correlation in the FPI model, both
models employ heteroscedasticity and auto-correlation robust standard errors. The estimation was carried out with the
EViews 11 software for data analysis.
between the livestock sector and the financial sector, implying that it may be difficult for livestock producers to
access credit from the financial sector. Income is observed to have a negative relationship with livestock production.
This entails that the negative income effect supersedes the positive substitution effect in the livestock sector. This
implies that as income levels rise, labour supply to the livestock sector diminishes with a resultant negative effect on
livestock production. This shows that livestock production is perceived as a risky occupation by the Nigerian work-
force. This effect, however, is not connected with oil resource booms as the effect of oil prices is held constant. Oil
price is observed to have a positive relationship with livestock production, which may indicate the spending effect.
This may imply that some of the windfall gains from a boom in oil prices are spent on the livestock sector to increase
livestock production. This is, however, not consistent with the stylized facts about agricultural production in Nigeria,
which shows a constant trade deficit for over two decades. In line with Dutch disease dynamics, only non-tradable
sectors benefit from the spending effect and the livestock sector has a large tradable component. This result is at
variance with Oludimu and Alola (2022), wherein oil output is observed to have a negative relationship with agricul-
tural production. It also differs from Zhang and Udemba (2023), wherein a negative relationship between oil price
and agricultural production is observed. The inflow of FDI has a negative but statistically insignificant relationship
with livestock production with the implication that foreign investors do not perceive livestock production to be prof-
itable. A positive and statistically significant trend variable isolates the positive effect of technological progress.
For the FPI model, it can be observed that— unlike the LPI model, the effect of an oil price increment is negative
for food production. This implies that a boom in the tradable oil sector induces a resource movement effect, which
crowds out labour from the food production sector to other more viable sectors of the economy. These sectors may
have benefited from the oil sector-induced spending effect. This implies that the food sector has a strong tradable
component with more import substitutes. This result mirrors the conclusions of several studies in the literature (Ike
et al., 2016; Ike et al., 2020; Oludimu & Alola, 2022; Zhang & Udemba, 2023). Income proxied as GDP per capita has
a negative but statistically insignificant effect on food production. This comes with the implication that an increase in
16 IKE ET AL.
FIGURE 2 CUSUM and CUSUMSQ plots of the LPI model.
FIGURE 3 CUSUM and CUSUMSQ plots of the FPI model.
income level will bring about equal income and substitution effects, which will neutralize each other. FDI and interest
rate spread have no statistically significant relationship with food production in Nigeria.
In the short run, the error correction mechanism shows that about 65% of short-run disequilibrium in LPI is
corrected every year to maintain long-run equilibrium with the independent variables. The significant dummy vari-
able that was left in the model captures the year 1986 and coincides with the beginning of the Structural Adjustment
Program (SAP), which saw the abolishment of price regulations and high import tariffs. For the FPI model, the error
correction mechanism indicates a slower adjustment to long-run equilibrium. 37% of short-run disequilibrium in FPI
is corrected annually to maintain long-run equilibrium with the independent variables. Dummy variables, which cap-
ture the 1991 and 2005 periods, correspond to periods of oil shocks, wherein price hikes were induced. The 1991
shock coincided with the Gulf War, which triggered a sharp hike in oil prices due to supply shocks. The 2005 shock
coincides with the OPEC supply cutback, which also triggered an increase in oil prices. From the diagnostic tests of
the LPI model, it can be seen that both the LM test and the ARCH test do not reject the hypothesis of no serial cor-
relation and homoscedasticity, respectively. The JB test does not reject the hypothesis of residual normality. The
IKE ET AL. 17
F I G U R E 4 Dynamic ARDL simulations for the lLPI model. Response of lLPI to impulse of ±1% counterfactual
change in independent variables The vertical lines from grey to light blue indicate the 75%, 90%, and 95%
significance levels, respectively.
CUSUM and CUSUMSQ plots from Figure 2 show that the model is stable in both the long run and the short run. All
diagnostic tests except for the LM test also hold for the FPI model. Figure 3 indicates long- and short-run model sta-
bility for the FPI model. Weak serial correlation can be observed for the FPI model. This, however, has been
corrected by including heteroscedasticity and auto-correlation robust standard errors.
4.5 | Dynamic ARDL simulations
The dynamic ARDL simulation mirror largely the results obtained by the ARDL model.3 Since both models are esti-
mated with trend effects, a positive trend can be observed in the response paths of all variables for both models.
Consistent with the model parameters, technological change induces a consistent positive shift in the level of agricul-
tural production over time. From Figure 4, a unit shock to IR at time 10 induces a statistically insignificant negative
deviation of lLPI from its long-run trend holding constant the effect of all other variables in the model. A unit shock
to lOIL at time 10 induces a positive deviation of lLPI from its long-run path. This effect is not statistically significant
in the short run but becomes significant in the long run as the confidence intervals get narrow. A unit shock to lFDI
at time 10 induces a statistically insignificant negative deviation of lLPI from its long-run trend. A unit shock to lGDP
per capita at time 10 induces a statistically insignificant negative deviation of lLPI from its long-run trend in the short
run. This negative deviation becomes statistically significant in the long run.
18 IKE ET AL.
For the lFPI model in Figure 5, it can be observed that a unit shock to both IR and lFDI induces a statistically
insignificant deviation of lFPI from its long-run trend. A unit shock to lOIL, however, induces a statistically insignifi-
cant negative deviation of lFPI from its long-run trend in the short run. This negative deviation becomes statistically
significant in the long run as the confidence interval narrows down.
4.6 | Toda–Yamamoto dynamic Granger causality test results
Before estimating the model, the VAR selection order criteria identified two lags as the optimal lag length. The third
lag of all endogenous was then exogenously controlled for in the model. For the lFPI model in Table 7, unidirectional
causality is observed to flow only from oil price to food production, which corroborates with the inference from the
ARDL model. For the lLPI model in Table 8, causality flows from interest rates down to livestock production. Oil price
also has weak predictive content for interest rates. This may imply that oil price causes lLPI through its effect on
interest rates.
What is quite surprising is the observation that livestock production has weak predictive content for oil prices.
This is quite counterintuitive as oil prices are determined internationally and the economy of Nigeria is not nearly
large enough to accommodate such exogeneity. This, however, can be explained since Granger causality does not
F I G U R E 5 Dynamic ARDL simulations for the lFPI model. Response of lFPI to impulse of ±1% counterfactual
change in independent variables The vertical lines from grey to light blue indicate the 75%, 90%, and 95%
significance levels, respectively.
IKE ET AL. 19
TABLE 7 Toda–Yamamoto dynamic Granger causality inference [lFPI model].
Causal variables
Dependent
variables lFPI lOILP lFDI IR lRGDP
lFPI — 4.7524** (0.029) 0.4371 (0.509) 0.3729 (0.541) 2.3181 (0.127)
lOILP 0.8435 (0.358) — 2.1326 (0.144) 2.0190 (0.155) 0.2572 (0.612)
lFDI 0.4487 (0.503) 0.0791 (0.778) — 1.1932 (0.274) 2.0703 (0.15)
IR 0.6797 (0.41) 2.1472 (0.142) 2.0837 (0.149) — 0.2656 (0.606)
lRGDP 2.4262 (0.119) 0.1417 (0.707) 1.5924 (0.207) 0.2523 (0.616) —
Note: ‘***’, ‘**’ and ‘*’ denote statistical significance at the 1%, 5%, and 10% levels respectively. p-values in brackets.
TABLE 8 Toda–Yamamoto dynamic Granger causality inference [lLPI model].
Causal variables
Dependent
variables lLPI lOILP lFDI IR lRGDP
lLPI — 2.561 (0.111) 0.682 (0.409) 4.508** (0.033) 21.117*** (0.000)
lOILP 3.425* (0.064) — 2.547 (0.111) 0.433 (0.51) 1.248 (0.264)
lFDI 3.0049* (0.083) 1.176 (0.278) — 2.349 (0.125) 4.310** (0.038)
IR 0.5183 (0.472) 2.750* (0.097) 4.2811** (0.038) — 1.897 (0.168)
lRGDP 10.060*** (0.000) 2.001 (0.157) 2.046 (0.152) 0.1175 (0.732) —
Note: ‘***’, ‘**’, and ‘*’ denote statistical significance at the 1%, 5%, and 10% levels respectively. p-values in brackets.
necessarily imply causation in the strictest sense. Going from the stylized facts, the livestock sector has quite a large
import base, which may be strongly linked with the global economy. Bi-directional causality can also be observed
between lRGDP per capita and livestock production. A weak unidirectional causality can be observed flowing from
lLPI to foreign capital. Foreign capital is also observed to have predictive content for bank profitability. The causal
relationships evince more interrelationships amongst the variables because more lags were employed in the dynamic
VAR model, whereas the equilibrium ARDL model employed a maximum of one lag. This implies a longer delay
between cause and effect.
4.7 | Discussion of results
Overall, the results reveal certain aspects of the Nigerian agricultural sector that were hitherto latent. There are
structural differences between the food production and livestock production sectors of the Nigerian agricultural sec-
tors based on their sensitivity to oil price shocks. It should be noted that tradable agricultural products may also have
some non-tradable elements within them. For instance, subsistence crops may benefit from the spending effect
because of domestic demand. Cash crops like cocoa, which serves as a raw material for various products, have their
prices determined internationally and may not have as much domestic demand as subsistence crops that are con-
sumed domestically. The resource movement effect will, however, move labour out of the cocoa industry to the
more lucrative oil sector. However, the spending effect could also move labour from other sectors into the subsis-
tence crops' subsector if the income elasticity of demand for subsistence crops is positive. There is, however, one
caveat; because of the weak linkage of crude oil extraction to the rest of the economy, the channel for this spending
effect may have to be exclusively through government expenditure. If government expenditure is not properly chan-
nelled towards the agricultural sector by way of loans and subsidies to farmers, then they do not benefit from the
20 IKE ET AL.
spending effect. In essence, a reduction in the output of cash crops due to the resource movement effect will bring
about a net reduction in overall food production.
The same, however, cannot be said about the livestock production sector. A positive relationship can be
observed between oil price hikes and livestock production. On further analysis, it is also observed that livestock pro-
duction increments have predictive content for oil price increments. Meaning that causality is going in the opposite
direction. This may arise because an increase in livestock production may come by way of export. Increased interna-
tional demand for livestock may be an indication of rising global income, which could also increase oil demand and,
consequently, oil prices. Also, a reduction of imports in the livestock sector, which could very well increase domestic
livestock production, may imply that trade partners are substituting livestock production with other more oil-
intensive industrial products. If sustained, this could lead to higher oil prices in the future. The analysis does not give
clear evidence that the livestock sector benefits from a spending effect. It also does not validate a resource move-
ment effect for the livestock sector. What is, however, clear is that the livestock sector and the food sector respond
to oil prices differently.
5 | C O N C L U S I O N A ND P O LI C Y I M P L I C A T I O N S
This study attempts to assess the dynamic interaction between oil price and two sub-sectors of agricultural pro-
duction, that is, the food and livestock sub-sectors while controlling for the effect of per capita real GDP, foreign
direct investment and oil prices. Employing traditional unit root testing procedures as well as a unit root testing
procedure, which controls for dual structural breaks in the model, it is discovered that all the variables follow the
I(1) data-generating processes. As such, traditional least square estimations may tend to be spurious if the vari-
ables are not cointegrated. To choose the best method of estimation, a cointegration analysis is employed to
ascertain if the variables are cointegrated or not. While testing for cointegration, a procedure proposed by Maki
(2012), which controls for multiple unknown structural breaks that can be as many as five, is employed to deter-
mine the status of cointegration. As a result, a cointegration was validated for all five specifications of the
cointegration technique. After this, the Pesaran et al. (2001) ARDL bounds test for cointegration was also
employed to check for the robustness of the Maki (2012) multiple structural break cointegration test.
Cointegration is also validated via the ARDL bounds test. Thereafter, the long- and short run coefficients are esti-
mated via the ARDL model and it is observed that oil price has a negative effect on livestock production. This
implies a resource movement effect on food production. Increased income levels have a negative effect on live-
stock production with the implication that livestock production is perceived to be risky by the Nigerian work-
force. Interest rate spread and foreign direct investment have no association with both livestock and food
production in Nigeria. This comes with the implication that the Nigerian agricultural sector does not benefit from
foreign capital and access to credit.
Given these findings, several policy implications arise. First, in order to protect domestic agricultural production
levels, oil revenue should be sterilized outside the country. This would reduce the spending effect and the resource
movement effect. Fiscal responsibility requires that macroeconomic policies be countercyclical or neutral to oil prices
to protect other tradable sectors of the economy from the volatility of oil price movements. In the event of an oil
price boom, oil revenues should be saved abroad. These revenues should only be utilized domestically when there is
an oil price bust or a sharp reduction in prices. If the government for some reason cannot adopt countercyclical poli-
cies, in the event of an oil boom, the government should channel the excess crude revenue to the lagging sectors of
the economy. This could reduce the resource movement effect as labour could be incentivized to stay in the agricul-
tural sector due to various agricultural subsidies and loans emanating from the government.
Second, it is important that the financial sector improvises ways and means by which foreign investment can be
incentivized through various programs and initiatives. The financial sector should also initiate the provision of credit
facilities to the agricultural sector's stakeholders. This would enhance the linkages of the financial sector with
IKE ET AL. 21
agricultural sector stakeholders, resulting in higher inflows of funds to the sector. Government and other relevant
agencies and stakeholders should set up programs that would give the financial sector the needed incentive to col-
laborate with agricultural sector investors to channel funds for much-needed investment in the agricultural sector of
the Nigerian economy. This is especially true for the livestock sector, which has a larger trade deficit. There is a need
to partner with foreign investors from countries with the required technical know-how in projects and investments
that would modernize and revitalize the agricultural sector to spur the much-needed economic growth the country
so earnestly craves. It is also important to introduce a monetary policy program to induce competitive interest rates
for foreign investors with investments in the agricultural sector of the Nigerian economy. This will gradually increase
the incentive by foreign investors to source short-term funds from domestic financial sectors, which would be chan-
nelled into the agricultural sector and would also lead to an increased inflow of foreign exchange into the country.
The analysis was met with a few limitations based on data availability. Data capturing different segments of the live-
stock sector was not readily available. This would have provided better clarity on the relationship between oil prices
and specific segments of the livestock sector. Future research should elaborate on the intricacies of the livestock
sector by capturing various segments of the livestock sector. This will aid a better understanding of how the live-
stock sector responds to oil price shocks.
DATA AVAI LAB ILITY S TATEMENT

The data that support the findings of this study are available from the corresponding author upon reasonable
request.
ORCID
George N. Ike https://orcid.org/0000-0001-7100-6598
Ojonugwa Usman https://orcid.org/0000-0002-6459-9898
Cihat Köksal https://orcid.org/0000-0003-4621-7697
ENDNOTES
1
Our dataset covers the period between 2017 and 2019. For much of this period, an oil subsidy was put in place to cushion
the effect of exogenous oil price hikes. This subsidy was removed in 2023.
2
We employ per-capita values to account for population size and distribution, considering the importance of population in
driving important macroeconomic variables in Nigeria (see Magazzino et al., 2023).
3
The dynamic ARDL simulations were produced with the STATA 17 software for data analysis.
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How to cite this article: Ike, G. N., Usman, O., & Köksal, C. (2023). Oil price movements and agricultural
production from heterogeneous sub-sectors: Analysing the Dutch disease in an African resource-rich
economy. Natural Resources Forum, 1–23. https://doi.org/10.1111/1477-8947.12343

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Received: 5 June 2023 Revised: 7 September 2023 Accepted: 11 September 2023

Oil price movements and agricultural production

George N. Ike 1 | Ojonugwa Usman 2 | Cihat Köksal 3

Nat Resour Forum. 2023;1–23. wileyonlinelibrary.com/journal/narf 1

investors to provide much-needed investment in the agri-

3.2 | Theoretical framework, model and empirical strategy

TABLE 1 Variables and definitions.

Variables Definition Measurement Source

3.2.1 | The model

lAPI ¼ β0 þ β1 lRGDPt þ β2 lOILt þ β3 IRt þ β4 lFDIt þ β5 t þ ut : ð1Þ

3.2.2 | Unit root tests

3.2.3 | Cointegration tests

Model 1: Level shifts with a trend

Model 2: Regime shifts

Model 3: Regime shifts with a trend

3.2.4 | Estimation technique

3.2.5 | Dynamic ARDL simulations

3.2.6 | Granger causality analysis

2ρ ρ12j ρ13j ρ14j ρ15j 3 2 lAPItj 3 2 u1t 3

4.1 | Descriptive statistics, correlation matrix and data evolution

TABLE 2 Descriptive statistics and correlation matrix.

lLPI lFPI lFDI lOILP lRGDP IR

Source: Authors' computation.

FIGURE 1 Graphical representation of data series.

4.2 | Unit root test results

TABLE 3 Unit root test results.

Elliott–Rothenberg–Stock DF-GLS test Zivot–Andrews unit root test

Test statistic Test statistic

4.3 | Cointegration test results

4.4 | Long- and short-run coefficients

TABLE 4 Maki cointegration test with up to five break points.

Model specifications Test statistics [5% critical values] Break years

TABLE 5 ARDL bounds test.

Test statistic Value Signif. I(0) I(1)

TABLE 6 ARDL long-run estimates and short-run estimates.

FIGURE 2 CUSUM and CUSUMSQ plots of the LPI model.

FIGURE 3 CUSUM and CUSUMSQ plots of the FPI model.

4.5 | Dynamic ARDL simulations

4.6 | Toda–Yamamoto dynamic Granger causality test results

TABLE 7 Toda–Yamamoto dynamic Granger causality inference [lFPI model].

TABLE 8 Toda–Yamamoto dynamic Granger causality inference [lLPI model].

4.7 | Discussion of results

DATA AVAI LAB ILITY S TATEMENT

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