Evaluating the agricultural policy-productivity gap in Nigeria: a Markov-switching analysis

Abstract The agricultural policy-productivity gap remains a significant challenge in both academic literature and practice, driven by the complex interplay of economy-wide and sector-specific policies. This study explores the country-level determinants of the agricultural policy-productivity gap in Nigeria, assessing the effectiveness of various policy incentives and dysfunctions on agricultural productivity. Utilising the Markov-Switching Vector Autoregressive (MS-VAR) model, our results indicate that lending and credit policies consistently enhance agricultural productivity across different regimes. However, exchange rate and price policies exhibit a negative relationship with productivity, suggesting inefficiencies in macroeconomic management. Based on these findings, we recommend targeted agricultural credit programs to increase access to affordable financing for farmers and agribusinesses, alongside macroeconomic stabilisation measures to mitigate the adverse effects of exchange rate volatility and inflation on the sector. Additionally, reforms in exchange rate policies and inflation control mechanisms should be prioritised to create a stable economic environment conducive to agricultural growth.