Impact of Foreign Trade on the Performance of Agricultural Sector in Nigeria

Abstract

The agro-processing sector in Nigeria had experienced a sustained decline in its contribution to gross domestic product over the years. This trend reflected underlying structural challenges and an inability to effectively leverage the country’s vast agricultural resource base despite its leading position in agricultural production in Africa. This paper was thus carried out to examine the impact of foreign trade on the performance of the agro-processing sector in Nigeria over the period 1986 to 2025. The paper employed the Auto-Regressive Distributed Lag modelling technique, following preliminary unit root and bounds cointegration tests, to estimate both short-run and long-run relationships among the variables. The findings revealed that import penetration had a negative and statistically significant effect on agro-processing sector performance, indicating that increased reliance on imports, particularly processed goods, had undermined domestic value addition. Export intensity exhibited a positive and significant impact, suggesting that greater participation in international markets enhanced the sector’s growth through expanded demand and improved production incentives. Tariff rates, however, showed a positive but statistically insignificant effect, implying that trade protection alone had not been sufficient to drive sustained improvements in agro-processing performance. The error correction results further confirmed the existence of a stable long-run relationship among the variables, with a moderate speed of adjustment toward equilibrium. Based on these findings, the study recommended the implementation of a targeted import management framework that discouraged the importation of goods competing with locally processable products while facilitating access to productive inputs. It also emphasized the need to promote value-added exports through institutional support, financing, and compliance with international standards. Furthermore, the study advocated for a restructuring of tariff policies to distinguish between industrial inputs and finished goods, alongside complementary measures such as improved infrastructure, energy supply, and institutional coordination to enhance the competitiveness of the agro-processing sector in Nigeria.