Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.5, No.24, 2014 124 Government Policy, Agricultural Output and National Saving in Nigeria C.O. Idiaye 1 , K.A. Bolaji-Olatuji 2 , M.O. Ojebode 1 , O. Obi-Egbedi 1 and V.O. Okoruwa 1 1, Department of Agricultural Economics, University of Ibadan, Ibadan, Nigeria 2, Forestry Research Institute of Nigeria, Ibadan, Nigeria Corresponding Author: chuksidiaye@yahoo.com Abstract The study examined the role government policy and agricultural output play in national saving in Nigeria, time series data on national savings, agricultural GDP, government policy–related variables as well as other relevant socio-demographic variables were sourced for the period of 1981 – 2012 and analyzed. The Augmented Dickey- Fuller (ADF) test for stationarity, the trace and maximum Eigen statistics for cointegrating vectors as well as the cointegration regression were used at various stages for the analysis. It was found that government’s recurrent expenditure, money supply and population all positively affect national saving. On the other hand, debt servicing by the government, unemployment rate and importation of goods all showed negative relationships with national saving. It was thus recommended that government recurrent expenditure which empowers the populace economically should be given priority during national budget implementation, that unnecessary contraction of money supply should be avoided within reasonable inflation limits, that unrestrained borrowing as well as corruption, which prevents funds borrowed by the government from achieving their objectives thus making servicing of loans burdensome to the economy, be checked. Furthermore, it was recommended that local production of goods and services be supported to prevent excessive importation and the attendant devaluation of the Naira. Finally, it was recommended that employment generation through government expenditure which stimulates local production by the empowerment of the youth and the promotion of infant industries must be prioritized so that the Country’s teeming population can be converted into a work force that will be a driver of economic growth. Key words: government policy, agricultural output, national saving, time series Introduction One of the fundamental macroeconomic variables that determine economic growth in any nation is saving. The investment capacity of any nation rests largely on the amount of savings generated by its economy. Saving has been described as that part of disposable income that is not allocated to consumption (Carroll, 2006). Similarly, Rutherford (2002) defined saving as the residue of income of a government, a firm or a household after all their expenditures have been incurred. In national accounts terminology, saving is the net surplus of income over consumption or, stated differently, the amount of resources or income produced in the economy in a given period that is not consumed immediately but put to use in a way that will provide returns to the economy in future (Menander, 2010). Saving, therefore, means forgoing consumption today so as to enjoy a better standard of living in the future while national saving, on the other hand, is the sum of saving by households, businesses, and all levels of government. National saving thus represents resources available to government and businesses for investment in infrastructure, purchase of capital goods, human capital growth among other uses. Higher saving and investment in a nation’s capital stock contribute to increased productivity and stronger economic growth over the long term. That is, saving today increases a nation’s capacity to produce goods and services in the future and, therefore, serves as a basis for improved standards of living for future generations (GAO, 2001). Production often brings about an increase in income either of individuals (businesses) or government and invariably a corresponding propensity to save from the additional income. Berube and Cote (2003) found that savings plays a central role in income determination both in the short run through aggregate demand, and in the long run through capital formation and capital accumulation. Furthermore, Aghevli et al (1990) found that the saving rate and investment in human capital are indeed closely linked to economic growth. Household saving is also an important determinant of welfare, especially when credit and insurance markets are not available as it helps households to tackle unanticipated variations in household incomes. Consequently, the interplay of consumption and saving decisions at a particular period of time determines the economic structure. Economic agents consider their planning horizon, their wealth and expected income in each period, relative prices in the economy, their preferences and how they value consumption in different periods. They then decide on how much to consume or save from their income. Through the consumption decision, there is an increase in the utility level of the economy while the saving decision defers consumption/utility to a future time.