The advancement of the economic situation of a country is the main aim of the Government of the state.
How the various Governments of the
states go about this business of advancing the economic situation of the
country has been an area of focus to many scholars. In analyzing how
the Government fares in its pursuance of this lofty objective, the
growth rate of the Gross Domestic Product of the, country is normally
used as the major criterion for such analysis. This study is an
extension of the existing views and theories on the subject.
To accomplish this, the government
fiscal actions, that is, its expenditures and revenue, are correlated to
the Gross Domestic Product, to show how such Government fiscal actions
advance this objective of economic development. In a similar vein,
unemployment rate and inflation rate are also correlated to the fiscal
actions of the government, to show how these actions of government
affect these indices of economic performance.
From the result of the regression
analysis, the study proved that government fiscal actions are positively
related the level of Gross Domestic Product and that Unemployment rate
and inflation rate are significantly affected by Government's fiscal
The significance of the hypothesis
tested suggests that the theories are valid and relevant to improving
Government fiscal actions.
TABLE OF CONTENT
CHAPTER ONE: Introduction
1.2 Statement of Problems
1.3 Objective of Study
1.4 Significance of Study
1.5 Scope and Limitation of Study
1.6 Research Question
1.7 Research Hypothesis
1.9 Data collection
1.10 Organization of Study
1.11 Definition of Relevant Variables
CHAPTER TWO: Literature Review and Theoretical Framework
2.1 Theoretical Framework
2.2 Macro Economic and Policy Development In Nigeria
2.3 Trends in Savings
2.4 Trends in Investment
2.5 Trends in Economic Growth
CHAPTER THREE: Research Methodology and Analytical Framework
3.1 Research Methodology
3.2 Model Specification And Description Of variable
3.3 Hypothesis Of Study
3.4 Sources Of Data
3.5 Analytical Techniques
CHAPTER FOUR: Research Methodology, Data and Interpretation of Result
4.1 Research Methodology
4.2 Model Specification
4.3 Criteria for Decision Making
4.4 Data Analysis And Interpretation of Result
CHAPTER FIVE: Summary, Findings and Recommendation
5.1 Summary and Findings
The good economic performers of the
1960s, 70s and early 80s in Africa turned out to be disappointments in
nearly all cases, in large part due to increasing inefficiencies
bringing growth and investment to a halt. On the contrary, the recent
improvement in economic performance in several African countries have
been fuelled by the removal of market distortions and to a lesser extent
by structural change, while significant progress in terms of higher
investment rates has been absent (see, for example, Fischer,
Hernandez-Cats and Khan,1998).
Nigeria has been a country of paradoxes.
It is a country abundantly blessed with natural and human resources but
in the first four decades of its independence, the potentials remained
largely untapped and even mismanaged. With a population estimated at
about 140 million, Nigeria is the largest country in Africa and
one-sixth of the black population in the world. Nigeria is the 8th
largest oil producer and has the 6th largest deposit of natural gas in
the world. Currently, barely 40 percent of the arable land is under-
cultivation. With over 100 tertiary institutions producing more than
200,000 graduates per annum, the basic human capital for progress is
there. There are abundant solid mineral deposits that remain largely
untapped. It is estimated that over 5 million Nigerians live outside of
Nigeria, with tens of thousands as world class medical doctors and other
professionals. In the midst of these resources, Nigeria (on the
average) stagnated over the period up to 1999. The poverty situation
worsened consistently such that by 1999, the incidence of poverty was
estimated at 70 percent.
A classic example to underscore the
scope of our misfortune is to compare Nigeria with Indonesia and even
Malaysia. By 1972 before Nigeria and Indonesia had the first oil boom,
both countries were comparable in almost all counts: agrarian societies;
multi-ethnic and religious societies; with comparable size of GDP; etc.
Both experienced oil boom in 1973 and thereafter, but took different
policy choices. The outcomes of the differences in policy regimes are
such that today, while manufactures exports as percentage of total
exports is about 40 percent in Indonesia, it is less than one percent in
Nigeria where we were in the 1970s. We hear of how Malaysia got their
first palm seedlings from Nigeria in the early 1960s when oil palm
produce was already a major export of Nigeria. In the 1990s, it was
estimated that Malaysia's export of palm oil produce earned it more than
Nigeria earned from oil exports, and Nigeria had become a net importer
of palm produce.
In economic terms, the decade of the
1990s witnessed an average GDP growth rate of 2.8 percent- just about
the rate of growth of the population (2.83). This means that on a per
capita basis, growth was zero during the decade of the 1990s and no
wonder poverty incidence worsened to 70%. All basic infrastructure was
in a state of crisis, with barely 1700MW of electricity being generated
for a country that needed at least 40,000. Needless to recount the
dilapidated transportation infrastructure and the nascent, albeit
fragile financial system that was ill suited to the demands of
socio-economic transformation. Unemployment and poverty were the twin
faces of the economy. Real wages were declining precipitously since the
1970s until the wage increases in 2000 that began to reverse the trend
but not yet recovered to the mid 1970s levels in real terms.
Nigeria has had lost decades of stagnant
growth and has been one of the slowest growing economies in the world
on a per capita basis in the last 30 years despite receiving about $300
billion from oil exports. For several years, the development challenge
for Nigeria became the diversification of the productive base away from
oil. Successive governments took up this challenge in the design and
implementation of several plans and policies. However, the attempts at
achieving a more rapid growth of the industrial sector led to investment
in several projects that turned out to be "white elephants".
During 2003-7 Nigeria is attempting to
implement an economic reform program called the National Economic
Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to
raise the country's standard of living through a variety of reforms,
including macroeconomic stability, deregulation, liberalization,
privatization, transparency, and accountability. A related initiative on
the state level is the State Economic Empowerment Development Strategy
A longer-term economic development
program is the United Nations (UN)-sponsored National Millennium Goals
for Nigeria. Under the program, which covers the years from 2000 to
2015, Nigeria is committed to achieve a wide range of ambitious
objectives involving poverty reduction, education, gender, equality,
health, the environment, and international development cooperation. In
an update released in 2004, the UN found that Nigeria was making
progress toward achieving several goals but was falling short on others.
Overall, the economy is characterized by
low savings-investment equilibrium and low growth trap, and lack of
high growth persistence is a defining feature of the economy such that
in over 40 years, it has never had a growth rate of 7% or more for more
than three consecutive years.
An even more worrisome issue is the
miniscule investment rate. A society that does not invest is a society
that cannot grow. The bulk of investment is undertaken by the public
sector, and the low private sector investment is essentially on account
of the risky and uncertain investment climate, and the atypically high
cost of doing business; Nigeria has a potentially large market (although
the purchasing power in a $300 per capita economy is low). But
investors are less enthusiastic to exploit this opportunity because of
the risks and costs involved. The growth of output of any economy
depends on capital accumulation, and capital accumulation requires
investment and an equivalent amount of saving to match it. Two of the
most important issues in development economics, and for developing
countries, are how to stimulate investment, and how to bring about an
increase in the level of saving to fund increased investment.
For growth to occur, a country must
invest to build up productive capacity. It is this capacity that
determines the level of output of goods and services in the economy. If
investment, which represents the net increase in an economy's capital
stock leads to growth, then there is relationship between capital
accumulation and economic growth. When sustained growth has occurred, it
is expected that, over time, with the appropriate policies that allows
for more equitable distribution of the fruits of economic growth among a
progressively larger percentage of the population, economic development
would follow. Thus, the fact that capital is needed for economic growth
is not disputable. Faith in this relationship has long been
1.2 STATEMENT OF THE PROBLEM
The weakness of the Nigerian economy in
the past three decades is not unrelated to its dependence on oil.
Indeed, the country is a textbook example of an economy under the
influence of the Dutch Disease with its deleterious impact on the,
development of other aspects of the real sector. Oil generates about 90%
of foreign exchange earnings and 75% of government revenues. It
contributes about 30% of GDP but employs only about 3% of the labour
For several years therefore, the
development challenge for Nigeria became the diversification of the
productive base away from oil. Successive governments took up this
challenge in the design and implementation of several plans and
policies. However, the attempts at achieving a more rapid growth of the
industrial sector led to investment in several projects that turned out
to be "white elephants". Two factors probably contributed to this
development. First, the capacity to design/execute such projects was
lacking. Secondly, the soft funds heeded to sustain the projects after
they were started dried up following the collapse of oil prices in the
early eighties. But there is an even more significant development
resulting from the attempt to put the economy right. Government
inadvertently became the dominant force in the economy employing about
one million people. The huge resources accruing to government turned it
into a centre for rent seeking and corruption. Though Nigeria's rating
in world corruption table is often contested, the government has
acknowledged that the situation is sufficiently bad to warrant a frontal
The economy is characterized by low
savings-investment equilibrium and low growth trap, "and lack of high
growth persistence is a defining feature of the economy such that in
over 40 years, it has never had a growth rate of 7% or more for more
than three consecutive years. The bulk of investment is undertaken by
the public sector, and the low private sector investment is essentially
on account of the risky and uncertain investment climate, and the
atypically high cost of doing business. Nigeria has a potentially large
market (although the purchasing power in a $300 per capita economy is
low). But investors are less enthusiastic to exploit this opportunity
because of the risks and costs involved. Nigeria needs help to meet the
challenge of initiating an inclusive rapid growth with socio-structural
transformation to strategize, prioritize and to manage its own resources
better. Hence, the purpose of this paper which looks at transforming
the Nigerian economy into a state of development through huge capital
1.3 OBJECTIVES OF THE STUDY
Since independence, Nigeria has
formulated five development plans, four rolling plans and the Vision
2020. However, the fruits of planning could not be said to have been
realized. There is urgent need for the economy to be transformed.
The national crusade for a new economy
is embodied in Obasanjo's socioeconomic transformation agenda entitled
"National Economic Empowerment and Development Strategy" (NEEDS) with a
focus on four key objectives- poverty reduction, employment generation,
wealth creation and value re-orientation. The Federal Government has
also assisted the States to develop the State Economic Empowerment and
Development Strategy, SEEDS and every state in Nigeria has its own
reform programme. The difference in outcomes so far between the Federal
programmes and some of the states lies in effective implementation. The
experience under NEEDS demonstrates that where you have a. robust
programme and implementation is effective, you have the desired
To achieve the NEEDS objectives,
government is embarking on massive capital accumulation. The foreign
reserve presently above $43billion.
The purpose of the study includes among others:
To determine why development plans have failed in the past.
- To determine the present level of development in Nigeria.
- To determine the need for capital accumulation in Nigeria.
- To determine the challenges of capital accumulation in Nigeria.
- To establish a relationship between capital accumulation and economy transformation in developing the Nigerian economy.
1.4 SIGNIFICANCE OF THE STUDY
It is a known fact that, Nigeria has
been a country of paradoxes. It is a country abundantly blessed with
natural and human resources but in the first four decades of its
independence, the potentials remained largely untapped and even
With a population estimated at about 140
million, Nigeria is the largest country in Africa and one-sixth of the
black population in the world. Nigeria is the 8th largest oil producer
and has the 6th largest deposit of natural gas in the world. Currently,
barely 40 percent of the arable land is under cultivation. With over 100
tertiary institutions producing more than 200,000 graduates per annum,
the basic human capital for progress is there. There are abundant .solid
mineral deposits that remain largely untapped. It is estimated that
over 5 million Nigerians live outside of Nigeria, with tens of thousands
as world class medical doctors and other professionals. In the midst of
these resources, Nigeria (on the average) stagnated over the period up
to 1999. The poverty situation worsened consistently such that by 1999,
the incidence of poverty was estimated at 70 percent.
This study is expected to bring fore the
phenomenon of underdevelopment or socio-economic decadence in Nigeria,
looking at why it is poor amidst plenty and how capital accumulation,
human and physical, can be instrumental to socio-economic transformation
in the country.
1.5 SCOPE AND LIMITATION OF THE STUDY
Because of the limitation of resources,
both time and financial the use of secondary data is preferred to
primary data and therefore to be used in this research work. The various
data are to be collected from CBN statistical bulletin, CBN annual
reports, FOS publications, and other relevant sources.
1.6 RESEARCH QUESTIONS
- Does gross fixed capital formation have significant impact on the GDP?
- Does foreign direct investment have significant impact on real GDP?
- Does gross national saving have significant impact on real GDP?
- Does exchange rate have significant impact on real GDP?
1.7 RESEARCH HYPOTHESIS
Ho = Gross fixed capital formation has no significant impact on real GDP.
H1 = Gross fixed capital formation has Significant impact on real GDP.
Ho = . Foreign direct investment has no significant impact on real GDP.
H1 = Foreign direct investment has significant impact on real GDP.
Ho = Gross nationals saving has no significant impact on real GDP.
H1 = Gross nationals saving has significant impact on real GDP.
Ho = Exchange rate has no significant impact on real GDP
H1 = Exchange rate has significant impact on real GDP
The research technique, to be used in
this research work is regression analysis, which is an econometric
method that is used to derive the relationship and estimates of economic
parameters from data observations.
1.9 DATA COLLECTION
This study will explore secondary
sources of data. The various data are to be collected from CBN
statistical bulletin, CBN annual reports, FOS publications, and other
1.10 ORGANISATION OF STUDY
In an effort to achieve the research
proposal, the project will be divided into five chapters. Chapter one
contains the introduction, while chapter two is a detailed exposition of
the literature review and theoretical framework. Chapter three deals
extensively with the methodological issues of data collection and the
nature of data used in the study. Chapter four focuses on data
presentation, analysis and interpretation. Here also the test hypothesis
is carried out to justify the purpose of the study. Chapter five
contains the summary, conclusion and recommendations.
1.11 DEFINITION OF RELEVANT VARIABLES
1. Gross fixed capital formation: this
is expenditure on fixed assets (such as building, machinery, etc)
either for replacing or adding to the stock of existing fixed assets.
2. Foreign direct investment: this is expenditure by foreign investors on real assets for the purpose of production rather than portfolio investments.
3. National savings: this is the total value of national savings whose major part lies in commercial bank.
4. Employment rate: this is the percentage of people who are gainfully engaged in one economic activities or another as defined by the CBN
5. Consumer price index: This
is the index of increment in domestic prices and it was used to deflate
nominal values such as gross fixed capital formation, foreign direct
investment and national savings.
6. Real gross domestic product at 1990 constant prices: This is an already deflated GDP using 1990 as the base year hence called real GDP.