The world economy is facing the most severe financial crisis since
the Great Depression of the last century. The risk of global recession
has heightened significantly and volatility of commodity prices, which
is the mainstay of most developing countries like Nigeria, has increased
further. If this situation continues to deteriorate, developing
countries could be in great jeopardy.
Time series data relating to the period 1990-2008 were collected and
analysed accordingly, using the econometric technique of multiple
regression. Statistical tests of significance were also carried out in
order to determine the possible impacts of the current global financial
crisis on the Nigerian economy. The tests include: Correlation
Coefficient (R); Coefficient of Multiple Determination (R2);t-Test; F-statistic and Durbin-Watson test.
The findings of this study revealed that the financial crisis was
responsible for the fluctuation in crude oil prices, external reserves,
exchange rates, decline in export, lower portfolio and foreign direct
investment (FDI) inflow, fall in equity market, decline in remittance
from abroad, dwindling economic growth, etc.
It was concluded that the Federal Government should come up with
intervention policies that will minimise these effects and jumpstart the
economy and that business operators should learn to do things using
resources at their disposal to develop and expand at manageable level to
stem the tide of the crisis.
BACKGROUND TO THE STUDY
The current global financial crisis, unprecedented in the history of
the modern world, has been described as Wall Street’s biggest crisis
since the Great Depression in October 1929. From the Wall Street
financial headquarters in the United States, across to Europe, Japan and
China, the global financial system around which modern free market
economy and capitalism is built is crashing like a pack of cards. The
financial crisis, which had been brewing for a while, started to show
its effects in October 2008. Around the world, stock markets began to
crash as billions of mortgage-related investments went bad. Mighty
investment banks which once ruled the financial world such as Lehman
Brothers and Merrill Lynch have either crumbled or reinvented themselves
as humdrum commercial banks.
The roots of the current global financial crisis can be traced back
to the fallout of the US subprime mortgage lending, which started in
early 2007. Without hesitation, it spread into other markets and
economies via a combination of market failures and regulatory
In general, market failed because of poor corporate governance and
incompatible executive remuneration structures. Moreover, the lack of
transparency in trading procedures, financial instruments, and balance
sheet positions of major financial institutions also exacerbated market
failures. In regulatory terms, most countries have weak idiosyncratic
rules pertaining to the operation of trading instruments and financial
conglomerates. Poor capital regulation and accounting rules contributed
to excessive risk-taking by banks. In addition, some rating agencies
were also not subjected to the jurisdiction of the national regulators.
In turn, this had led to complete breakdown of short-term financial
transactions in leading advanced and emerging market economies, and
subsequently, meltdown in global securities exchanges. With the freezing
of interbank lending and money markets, capital could not be channeled
to economic agents operating across the entire production chain.
However, there are many similar views on the causes of the current
economic meltdown. These include the inability of homeowners to make
their mortgage payments, poor judgment by the borrowers and/ or the
lender, speculation and overbuilding during the boom period, risky
mortgage products, high personal and corporate debt levels, complex
financial innovations, central bank policies and government regulation.
The significant decline in housing prices led to delinquencies in
mortgage payments and foreclosures in the US which caused a ripple
effect across the financial market and global banking systems, as
investments related to housing prices declined significantly in value,
placing the health of key financial institutions and government
sponsored enterprises at risk.
Dominique Strauss-Kahn (2008) said “At the core of the problem were
falling house prices in the U.S. and the resulting loss in the value of
securities linked to mortgage liabilities. Too many risky mortgages were
approved. It worked for a while, and led to high earnings, but in the
end, the carelessness led to the crisis”.
It is however noteworthy that this wild financial period is not
confined to the United States. The world has become a global village
sewn together through telecommunications and technological advancements.
This is a clear indication that the global economy is inter – related,
hence, what affects one country directly or indirectly affect the other.
The economy of Nigeria, as a developing nation, largely depends on the
economies of various foreign developed countries that are being plagued
by the current global financial crisis.
Consequently, it is imperative to appraise how the global economic
meltdown would affect the key sectors of the Nigerian economy. Since the
commencement of the current global financial crisis, fears have been
expressed on its likely implications on our economy, especially on the
financial sector. Soludo (2008) was of the opinion that the crisis will
not affect the Nigeria economy. He maintains that the banking
consolidation programme was a pre-emptive measure ahead of the crisis.
So, the Nigerian banks were among the most capitalized in the world.
Without prejudice to the assurance given by the authorities of the
Central Bank of Nigeria (CBN) that the economy is immured to the global
financial crisis, there is need to critically look at the wider
implications of the crisis which has ravaged not only our economy, but
also developed economies of United States, Europe and Asia.
1.2Statement of Research Problem
Undoubtedly, the Nigerian economy is not insulated from the impact of
global financial meltdown owning to it’s interconnectedness with the
global economy. The sectoral interconnectedness of Nigerian economy
implies that the effects of global financial crisis will reverberate
through a large section of the Nigerian economy.
The study is therefore, designed to address the following issues as it affects the Nigerian economy.
I. The chronology of events leading to the current global
economic crisis and the channels of transmission of the crisis onto
II. A critical appraisal of the implications of the crisis
on the Nigerian macroeconomic indicators such as GDP, foreign reserve,
oil revenue, inflation rates, exchange rates and stock price index.
III. An appraisal of the various policy measures which have
been adopted by the monetary authority to minimise the impacts of the
global financial meltdown on the nation’s economy.
1.3 The Aims and Objectives of the Study
The study is aimed at achieving the following specific objectives:
I. To conduct an investigation into the causes of the
current global financial crisis and its impacts on specified
II. To ascertain the impacts of the crisis on general price
level, exchange rate, stock price index, external reserves, crude oil
price, and the possible implications of these variables for the nation’s
III. And, to assess the efficacy of the various policy measures
which have been adopted by the monetary authorities to curb the menace
of global financial meltdown in Nigeria.
The study provides appropriate responses to the following questions
in relation to the impacts of the current global financial meltdown on
the Nigerian economy.
I. What are likely causes of the current global economic crisis in Nigeria?
II. What are the possible implications of the crisis on crude oil revenue in Nigeria?
III. What are the impacts of the crisis on the Nigerian economic growth?
1.5 The statement of Research Hypotheses
The following hypotheses were tested with the view of providing an analytical research of the study.
I. Ho: The variations in the stock price
index, inflation rate, exchange rate and external reserves do
not have significant impacts on Nigerian oil revenue.
Ha: The variations in the stock price index,
inflation rate, exchange rate and external reserves have significant
impacts on Nigerian oil revenue.
II. Ho: The fluctuations in the stock price
index, crude oil price, inflation rates, external reserves
and exchange rates do not have significant impacts on
Nigerian economic growth.
Ha: The fluctuations in the stock price index,
crude oil price, inflation rates, external reserves
and exchange rates have significant impacts on
Nigerian economic growth.
1.6 The Research Methodology
The econometric technique of multiple regression will be used to
carry out the statistical test of significance on the possible impacts
of the current global financial crisis on the Nigerian economy. These
tests include correlation coefficient (R), coefficient of multiple determination (R2), t-Test, F-statistic and Durbin-Watson test (DW). The coefficient of determination (R2) will help examine the explanatory power of the independent variables. The F-statistic will be used to determine the significance of the parameters of the estimates. TheDW test will equally be used to determine the incidence of autocorrelation in the model.
1.6.2 Source of data
The study utilises secondary sources of data in form of time series
data which will be obtained from the Central Bank of Nigeria (CBN)
annual statistical bulletin, publications of Nigerian Stock Exchange
(NSE), International Monetary Fund (IMF), and so on. Economic journals,
national dailies, and relevant websites will also be consulted.
1.6.3 Model Specifications
The econometric models of Ordinary Least Square (OLS) technique will
be adopted in other provide an empirical analysis of the study. The
models are outlined as follows.
?= Crude Oil Price (US$Million),
?1= Stock Price index (#Million),
?2= Inflation Rates (%),
?3= Exchange Rates (%),
0= Constant Term
1…4= Coefficients of the Independent Variables, and
?= Stochastic Variable.