Impacts of Capital Formation and Investment Sources on Total Factor Productivity: The Example of Nigeria’s Agriculture

Abstract

The study was designed to analyse the impact of capital formation and investment sources on Nigeria's agricultural productivity from the period 1980 - 2021. The time series data were analysed with Malmquist Data Envelopment Analysis (DEA) and the tobit regression models using DEA, the Total Factor Productivity Change, which quantifies the degree of productivity, was estimated at 1.022, which implies an average productivity progress of 2.2% annually. Again, since the value of technical efficiency change is less than technological change, it implies that the productivity gains are mainly attributable to technological progress instead of efficiency improvements in the periods under the study. The results of tobit regression indicate that domestic capital formation significantly influences agricultural TFP, highlighting the importance of government expenditure on agriculture (GEA) and gross fixed capital formation (GFCF) in enhancing productivity, although with minimal effects. Human capital formation (HCF) also showed positive impacts on Total Factor Productivity TFP, suggesting that improvements in workforce skills and knowledge are crucial for agricultural efficiency. However, FDI exhibited no significant correlation with TFP, implying that local investments are more beneficial than foreign aids in the context of Nigeria's agricultural sector. The findings emphasize the need for robust policy frameworks that align capital disbursements with agricultural production periods to optimize TFP. This study contributes to the discourse on agricultural productivity by providing empirical evidence on the critical role of capital investments in enhancing TFP within developing economies like Nigeria.