Title:
An Empirical Analysis of the Nexus Between Monetary Policy and Agricultural Output in Sierra Leone (1980-2024)

Authors:
Sylvester Bob Hadji, Abdulai F. Bangura, Sierra Leone

Abstract:

Sierra Leone, irrespective of being a small developing country, is extremely endowed with vast potential in agricultural products. The agricultural sector, despite the fact that it contributes to the country’s Gross Domestic Product (GDP) and employs majority of the population, has not been able to improve the country’s development index in terms of food security.

The study investigates and analyses the effect of monetary policy on agricultural output in Sierra Leone for the period 1980-2024.

The study employs annual time series secondary data obtained from various sources such as World Development Indicators (WDI), World Bank, International Monetary Fund (IMF), International Financial Statistics, Financial Sector Deepening Africa (FSDA), Statistics Sierra Leone (Stats SL), and Bank of Sierra Leone (BSL) Bulletin. Key macroeconomic variables such as agricultural output, money supply, exchange rate, inflation, lending rate, and domestic credit to private sector are specified in the model. The variables were tested for stationarity using unit root tests before adopting the Autoregressive Distributed Lag (ARDL) technique in running regression for the purpose of obtaining both long-run and short-run effects of monetary policy on agricultural output in Sierra Leone. Various diagnostic tests were carried out to determine the robustness of the model using appropriate econometric criteria.

The study empirically reveals that exchange rate, lending rate, and money supply had negative effect on agricultural output in Sierra Leone both in long-run and short-run for the period being investigated, while inflation and domestic credit had positive effect on agricultural output in Sierra Leone for both the long-run and the short-run. Furthermore, the study reveals that domestic credit to the private sector was the most effective tool for boosting agricultural productivity followed by lending rate. The study shows that money supply was the least effective tool as its changes did not translate into agricultural output gains, rendering it ineffective as a stand-alone tool in agricultural sector for the period being considered.

The study, therefore, proffers strategic recommendations such as the need to prioritise expansion of agricultural credit access, implement favourable lending rate policies to agriculture, enhance monetary policy transmission to rural areas, integrate monetary policy with the “Feed Salone Initiative”, and promote financial inclusion through rural banking and mobile finance platforms, among others.

DOI: https://doi.org/10.51505/IJEBMR.2025.9905