An analysis of production theory in the agricultural and service sectors of Nigerian economy, 1981-2019

Abstract

Production theory is a fundamental part of economic theory, and when applied to sectors of an economy, the theory can show how productive such sectors are. This study investigated the production theory in the agricultural and service sectors of Nigeria in order to ascertain how these sectors fit the theory. Autoregressive Distributed Lag Model (ARDL) and Bounds Test were used to analyze data collected for the study. The results showed that labour, capital, and electricity supply have a long run relationship with the agriculture and the service sectors output. In the long run, capital and electricity supply impacts positively on agriculture and service sectors output while labour impacts negatively on both sectors output. The impact of capital on both sectors is statistically significant. However, the short run results of the agricultural sector show that labour impacts positively but not significantly on the sector GDP. Capital impacts positively and significantly on the sector output, while electricity supply impacts negatively on the sector output. The short run result of the service sector indicates that capital impact positively and significantly on the sector output. Labour and electricity supply impact positively but not significantly on service sector output. A major recommendation, among others put forward, is the decentralization of power generation and distribution in Nigeria such that each state would be allowed to independently generate and distribute electricity as this would boost electricity supply which is a key factor in the production process.