ABSTRACT

The study investigated the impact of capital flight and external debt servicing on agribusiness sector performance in Nigeria from 1970 to 2018. Agribusiness sector performance was measured by total contribution of agriculture output to aggregate gross domestic product of Nigeria while capital flight was measured by the residual method proposed by World Bank. External debt servicing was measured by the amount paid as interest for externally borrowed funds. Also, other variables included the model were interest rate differentials, inflation, exchange rate and political instability. The trend analysis conducted on the data showed that agribusiness performance (proxy, output), capital flight and external debt servicing accelerated over the period. Prior to the empirical analysis, the time series data were tested for unit root using Augmented Dickey-Fuller and Philip-Perron approaches to confirm the stationarity of data. Based on the unit root test results, it was found that the data were integrated at different levels, that is, a mixture of integration at level and first difference. Since the data were of mixed integration, it became appropriate to use the Autoregressive Distributed Lag (ARDL) proposed by Paseran et al. (2001) for situations that data were integrated at level and first difference. Long-run relationship between agribusiness output and the explanatory variables were ascertained by the F-statistic (5.982448) of the ARDL bounds tests which was greater than the upper and lower bounds of the ARDL critical values. The adjusted R² of 0.948618 showed that capital flight, external debt servicing, interest rate differentials, inflation, political instability and exchange rate accounted for approximately 94.86% of the total variations in agribusiness sector output in Nigeria. The observed collective impact of the explanatory variables on the dependent variable in the long-run was significant as shown by the p-value (0.000000) associated with the F-statistic. In the long-run, amidst fluctuations in interest rate differentials, inflation, political instability and exchange rate, capital flight emerged with negative coefficient (-0.020140) and a p-value (0.0352) which implied negative and significant impact of capital flight on agribusiness output. Similarly, external debt servicing emerged with a negative long-run coefficient (-3.455434) and a p-value (0.0211) indicating negative and significant impact on agribusiness sector output. In the short-run, all the explanatory variables were significant in explaining changes in agribusiness sector output as their p-values were less than 0.05 at the recommended lag length. However, capital flight and external debt servicing had positive impacts with coefficient of 0.020140 and 3.455434, respectively. The short-run adjusted R² of 0.882637 indicated that the explanatory variables sufficiently explained about 88.26% of the total variations in agribusiness output and its significance confirmed by the p-value (0.0000) of the F-statistic associated with the short-run ARDL model. Granger causality test was also carried out and it revealed that agribusiness output Granger caused external debt servicing. Based on these findings, it was recommended among other things that, government formulate and implement policies that would decelerate capital flight and external debt servicing and enhance agribusiness output and overall economic performance of the country.