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Globalization And Its Impact On Economic
Growth Of The Nigerian Economy (1986 - 2008)
ABSTRACT
This
research work Globalization and its impact on the growth of the Nigerian
economy from periods of 1986 to 2008 is basically to determine the impact of
globalization on the Gross Domestic Product of the Nigerian economy as well the
impact of financial integration on the Nigerian economy. It was found out in
recent years that the Nigerian economy has developed economically wise due to
globalization. Globalization being a process of interconnections between
countries of the world has turned out to have a positive effect on the Nigerian
economy most especially in the telecommunication and industrial sectors of the
Nigerian economy.
This work
shows the impact and those variables responsible for the impact. From evaluation and analysis of result, this
work shows that only Foreign Direct Investment proved to have a positive impact
on the Nigerian economy through globalization and hence it should be given lots
of concern. Other variables used alongside Foreign Direct Investment, in
judging this impact were Real Interest rate, Openness and Real Exchange Rate.
Also
necessary recommendations were made at the concluding part of this work
(chapter five) to help boost the economic growth and development of Nigeria
based on the indices used if properly applied and implemented.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Generally,
globalization can be viewed as the integration of national economics through
trade, capital flows and the accompanying convergence of economic policies. It
is the process whereby political, social, economic and cultural relations
increasingly take on a global scale and which has a profound consequence for
individual’s local experience and everyday lives (Bilton, 1997). The definition
above implies that globalization operates both at global and local levels and
therefore impacts on the economy and politics of a country as well as the culture
and well being of the citizens.
Globalization
is rooted in multinational trading and investments arrangements and the opening
up of trade, through liberalization of the financial sector as well as the
economy as a whole. The reasoning behind this policy thrust is that the
promotion of trade enriches the wealth of nations. For instance, trade
liberalization under the Uruguay round of multilateral trade agreement of 1995
was estimated to have provided over 100billion U.S dollars a year in net
benefits accruing mainly to those countries that have removed trade barriers
(Hausters, Gerd, 2000). Financial integration as a part of globalization
therefore envisages the free flow of loanable funds, openness of capital flows
when combined with sound domestic policies, allow countries access to be much
larger pool of capital. High capital flows leads to enhanced investment and
economic growth, particularly when the inflows are in foreign direct
investments, as against potentially volatile short term portfolio flows.
Furthermore,
Foreign Direct Investment not only complements domestic savings but also
enhances the depth and efficiency of the domestic financial markets and the
absorption of foreign technologies. However, the monetary and fiscal policy
framework of the nation must be appropriate for the economy to benefit
financial globalization (Yusuf, 2001).
Globalization
is not a new phenomenon, as it has progressed throughout the course of history
dating back to the late 19th century. The history, was however, conquered and
the speed slowed down until the new era of global integration facilitated by
the removal of trade barriers and capital flows as well as the advancement in
communications and computer technologies which have made easy the collection
and processing of data needed for decision making. Consequently, the world
exports of goods and services have more than tripled between 1983 and 2005.
These changes have also stimulated demand for cross border finance, against the
background of financial liberalization in many countries, promoted a pool of
global liquidity to meet such demand.
Globalization
have no doubt increased opportunities for accessing capital funds for both
domestic and foreign sources more cheaply and on better terms. This is because
financial sector liberalization and product innovations have in many countries
been helped by technological advances. This in turn enhances financial
intermediation and creates a more competitive market environment for financial
institutions.
The downside
of those benefits is that international capital flows could be very volatile
and thereby pass serious threat to financial and macroeconomic stability. On
the other hand, reversal of capital flows as witnessed during the Mexican
crisis of 1994 to 1995 and the Asian and Russian crisis of 1997 to 1998 could
endanger the financial stability of the individual countries particularly where
banks are weak and poorly regulated. The contagion effect could as well
threaten the stability of the internationally financial system. There is also
the risk that during the period of boom and burst, asset prices may overshoot
economic fundamentals, thereby saddling banks with non- performing loan backed
by collaterals that have lost much of their values.
Globalization
influences the financial sector in different and complex ways. Typically,
capital flows, exchange rate crisis and inflationary pressures are some of the
major avenues through which the impact of globalization can quickly be
transmitted into the domestic economy. The implication of globalization for
monetary policy can be seen through two channels. First, volatile short term
capital flows and exchange rate movement which are associated with
globalization can cause an increase in the uncertainties surrounding the
outcome of monetary policies. Secondly, globalization forces policy makers to
undertake structural adjustments or reform which changes the conditions under
which monetary policy targets, strategies and instruments. It is generally believed
that the more discretionary monetary and fiscal policies are constrained, the
more open an economy becomes.
Globalization
also compels government to exercise greater fixed discipline and to ensure
sound institutional and political frameworks. In order words, it does act as a
force for stability by limiting the scope for countries to pursue policies that
are consistent with medium term financial stability. High fiscal deficit and
unsound financial policies that lead to inflationary pressures, current account
deficits and/or high real interest rate, attracts the attention of
international investors and capital market operators. Thus, the room for fiscal
rascality or unsustainable policies is much reduced in a globalized world.
Specifically,
monetary and exchange rate policies have undergone changes in line with broad
economic objectives. From independence up till 1986, the conduct of monetary
policies was mainly by direct control, which involved the impositions of
ceilings on aggregate bank credit expansion, sectoral allocation of credit,
administrative control of interest rate, prescription of cash reserve
requirement, exchange rate controls and the mandatory holding for government
securities. The financial market during this period was mainly underdeveloped,
repressed with a limited money market instruments and fixed and inflexible
interest rate. A fully developed economy is that which have passed the various
stages of development. This development will be achieved more rapidly if
foreign investors have access to the domestic markets.
1.2 STATEMENT OF THE PROBLEM
There are
problems associated with the development of the Nigerian economy in her
different sectors based on the impact of globalization. These problems may be
economic problems based on the rate of instability, policy barriers to capital
flows, inappropriate economic policies and political instabilities. There may
also be problems like market liquidity. In using liquidity as a measure of
stock market development, it seems that the Nigerian capital market is illiquid
to an extent and it has contributed very little to the growth of the Nigerian
economy (Ibrahim, 2002).
Therefore,
this research work shall answer the following questions
1. Does globalization produce a rapid flow of
foreign capital for the Nigerian economy?
2. Does globalization significantly improve
management techniques for firms operating in Nigeria?
3. To what extent has globalization brought
about an advancement of new technologies in the Nigerian economy?
4. Has globalization resulted in inequality
between Nigeria and the western nations?
1.3
OBJECTIVES OF THE STUDY
Specifically,
the objectives of this study can be written as
1. To verify the impact of globalization on
Nigerian economy.
2. To
verify the impact of financial integration on Nigerian economy.
1.4 STATEMENT OF HYPOTHESIS
In view of
the above mentioned objectives, the hypothesis of this research would be
Ho:
Globalization has no significant impact on the Nigerian economy.
H1:
Globalization has a significant impact on the Nigerian economy.
Ho:
Financial integration has no positive impact on Nigerian GDP.
H1:
Financial integration has positive impact on Nigerian GDP.
1.5 SIGNIFICANCE OF THE STUDY
The economic
relevance of studying the impact of globalization on the economic growth in
Nigeria needs not to be over emphasized. This study is very imperative given
the recent efforts by monetary authorities in Nigeria to re-launch the banking
sub-sector to glorious heights. Globalization has brought about the rapid
change in the Nigerian economy that seeks to increase their share of financial
and direct investment in the international market. Globalization has by no
doubt increased opportunities by accessing capital funds from both domestic and
financial sources. More so, investors can now tailor their portfolio risk to
their preferences.
This study
is of great importance to
· Academic institutions; globalization
has played an important role in the improvement of learning techniques. These
techniques includes the use of electronic gadgets such as computer, printers,
laptops etc. which facilitate learning processes as well as creating basis for understanding new technological
processes that will aid student academically.
· Firms; through the help of
globalization, there has been easy and accessible communication network which
facilitate production, distribution of goods and services both domestically and
internationally, as well as attracting new investors.
· Government; in terms of governance,
globalization has improved our system majorly in areas of budget. With the help
of globalization, revenue collected and expenditure made are accounted for with
little or no errors.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
This study
covers the impact of globalization on the growth of the Nigerian economy from
the period of 1986-2008.
This
research work was limited by:
vInsufficient
fund.
Limited time
to carry out research.
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