Resource expansion and its policy implication on agricultural sector development: Evidence from six Sub‐Saharan African countries

Abstract

AbstractThe discovery of crude oil in a number of Sub‐Saharan African countries resulted in resource expansion that tends to have great implications for the socioeconomic development of the region. Deep poverty and low standards of living are still prevalent, in spite of the oil boom. On this premises, a panel study of six Sub‐Saharan African countries is undertaken for the period between 1983 and 2020. The goal is to identify the best ways to reduce overdependency on resource (crude oil) and enhance the socioeconomic situation of the selected countries. The linear (augmented mean group) approach and nonlinear (nonlinear autoregressive distributed lag) with relevant variables (Agricultural sector, crude oil price, government expenditure, official exchange rate, foreign direct investment, inflow, GDP, and trade openness) are employed in this study for the selected countries. The findings from both Augmented Mean Group and Nonlinear Autoregressive Distributed Lag and Granger causality attest to the resources curse on the socioeconomic development of the six countries through the contraction of their respective agricultural sectors. Crude oil price (proxy for the oil sector), trade openness, and real exchange rate are in particular found to have a negative influence on the agricultural sector. However, direct foreign investment in the agricultural sector in oil‐rich economies in Sub‐Saharan Africa is having a positive impact. This can be linked to over‐dependence on rising oil exports, which tends to crowd out non‐oil (agricultural) exports. Hence, a resource‐based policy targeted at diversification of the economies through revenue generated from crude oil is recommended.