CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Recently
in Nigeria, the CBN and the Finance Minister have told Nigerians that the
nation is in an economic recession, it is very important that the impact of
this recession on the Nigerian populace is well understood. The causes can be
well understood if the definition of an economic recession is revisited. An
Economic Recession is defined as a
significant decline in economic activity spread across the economy, lasting
more than a few months, normally visible in real Gross Domestic Products, real
income, employment, industrial production, and wholesale-retail sales.(US
National Bureau of Economic Research).
Generally
in economics, a recession is a negative economic growth for two consecutive
quarters. It is also a business cycle contraction which results in a general
slowdown in economic activity (Merriam-Webster Online Dictionary, 2008).
Macroeconomic indicators such as GDP (gross domestic product), investment
spending, capacity utilization, household income, business profits, and
inflation fall, while bankruptcies and the unemployment rate rise.
Recessions
generally occur when there is a widespread drop in spending (an adverse demand
shock). This may be triggered by various events, such as a financial crisis, an
external trade shock, an adverse supply shock or the bursting of an economic
bubble. Governments usually respond to recessions by adopting expansionary macroeconomic
policies, such as increasing money supply, increasing government spending and
decreasing taxation.
A
recession has many attributes that can occur simultaneously and includes
declines in component measures of economic activity (GDP) such as consumption,
investment, government spending, and net export activity. These summary
measures reflect underlying drivers such as employment levels and skills,
household savings rates, corporate investment decisions, interest rates,
demographics, and government policies.
A
researcher, Koo (2009) wrote that under ideal conditions, a country's economy
should have the household sector as net savers and the corporate sector as net
borrowers, with the government budget nearly balanced and net exports near
zero. When these relationships become imbalanced, recession can develop within
the country or create pressure for recession in another country (Koo, 2012).
Policy responses are often designed to drive the economy back towards this
ideal state of balance.
A
severe (GDP down by 10%) or prolonged (three or four years) recession is
referred to as an economic depression, although some argue that their causes
and cures can be different (Shiskin, 2004). As an informal shorthand,
economists sometimes refer to different recession shapes, such as V-shaped,
U-shaped, L-shaped and W-shaped recessions
Unemployment
is particularly high during a recession. Many economists working within the
neoclassical paradigm argue that there is a natural rate of unemployment which,
when subtracted from the actual rate of unemployment, can be used to calculate
the negative GDP gap during a recession. In other words, unemployment never
reaches 0 percent, and thus is not a negative indicator of the health of an
economy unless above the "natural rate," in which case it corresponds
directly to a loss in gross domestic product, or GDP.
The
full impact of a recession on employment may not be felt for several quarters.
Research in Britain shows that low-skilled, low-educated workers and the young
are most vulnerable to unemployment in a downturn. After recessions in Britain
in the 1980s and 1990s, it took five years for unemployment to fall back to its
original levels (Vaitilingam, 2009). Many companies often expect employment
discrimination claims to rise during a recession (Rampell, 2011).
1.2 STATEMENT OF THE PROBLEM
This
study is examining the impact of economic recession on the Nigerian populace. Productivity
tends to fall in the early stages of a recession, then rises again as weaker
firms close. The variation in profitability between firms rises sharply.
Recessions have also provided opportunities for anti-competitive mergers, with
a negative impact on the wider economy.
The
living standards of people dependent on wages and salaries are not more affected
by recessions than those who rely on fixed incomes or welfare benefits. The
loss of a job is known to have a negative impact on the stability of families,
and individuals' health and well-being. Fixed income benefits receive small
cuts which make it tougher to survive.
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
1.
To examine the impact of economic
recession on the Nigerian populace.
2.
To examine the relationship between
economic recession and unemployment in Nigeria.
3.
To examine the relationship between
economic recession and standard of living in Nigeria.
1.4 RESEARCH QUESTIONS
1.
What is the impact of economic
recession on the Nigerian populace?
2.
What is the relationship between
economic recession and unemployment in Nigeria?
3.
What is the relationship between
economic recession and standard of living in Nigeria?
1.5 HYPOTHESIS
HO:
The economic recession does not have significant impact on Nigerian populace
HA:
The economic recession does have significant impact on Nigerian populace
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
1.
This study will educate the government
of Nigeria and the general public on the impact of this ongoing economic
recession of the Nigerian populace.
2.
This research will be a contribution
to the body of literature in the area of the impact of economic recession on
the Nigerian populace, thereby constituting the empirical literature for future
research in the subject area.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This
study is limited to the impact of economic recession on the residents of Edo
State of Nigeria.
LIMITATION
OF STUDY
Financial
constraint- Insufficient fund tends to impede the efficiency of the researcher
in sourcing for the relevant materials, literature or information and in the
process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will
simultaneously engage in this study with other academic work. This consequently
will cut down on the time devoted for the research work.
REFERENCES
Koo, Richard
(2009). The Holy Grail of Macroeconomics-Lessons from Japan's Great Recession.
John Wiley & Sons (Asia) Pte. Ltd.
Merriam-Webster
Online Dictionary. Retrieved 19 November 2008.
Rampell,
Catherine (11 January 2011). "More Workers Complain of Bias on the Job, a
Trend Linked to Widespread Layoffs". The New York Times
Shiskin,
Julius (1 December 2004). "The Changing Business Cycle". New York
Times. p. 222.
Vaitilingam,
Romesh (2009). "Recession Britain: New ESRC report on the impact of
recession on people's jobs, businesses and daily lives". Economic and
Social Research Council. Retrieved 22 January 2010.