ECONOMIC ANALYSIS OF ASYMMETRIC COTTON LINT SUPPLY RESPONSE IN NIGERIA.

Abstract

Studies on cotton supply response based on linear models have often reported inelastic long run results. These studies assume that the supply response model is linear, and therefore any deviation from equilibrium is adjusted in a symmetric manner. This finding therefore, implies that price-support policies and programs will have a very little or no impact on cotton supply response in Nigeria. This forms the basis for policy bias against the cotton lint sub-sector and agriculture in general. However, this study argues that the main possible reason for such low elasticity estimates is the inappropriate model specification and estimation techniques employed. This is because cotton lint farmers’ response to positive and negative price changes is not always the same. This paper therefore, argues that the main possible reason for such low elasticity estimates is the misspecification of the actual functional form of the models. This study therefore, investigates the extent of asymmetry in the cotton lint supply response in Nigeria over the period 1966-2018. To achieve this objective, both linear and Nonlinear Autoregressive Distributed Lag Model (NARDL) were estimated and the result shows that cotton lint supply response is asymmetric in both the short run and long run. This shows that taxing agriculture on the belief that it is not responsive to changes in price incentive may deter the growth of the cotton lint sub-sector and the economy at large. Thus, policies and programs such as the Anchor-Borrower designed to raise cotton lint supply should be redesigned to take into account the cotton lint farmers’ differential response to positive and negative price changes in Nigeria