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NATIONAL SAVINGS AND ECONOMIC GROWTH IN
NIGERIA (1980 – 2007)
ABSTRACT
The research
work studied the national savings and Nigerian economic growth, spanning from
1970-2007. The study adopted Ordinary Least Square (OLS) single equation model.
Using time series data over the period, the work shows that National Savings is
not significant at SY level and it granger causes real gross domestic product.
The study also shows that exchange rate is significant in its contribution to
economic growth. The investment as one the of explanatory variables is
significant and supports the idea that most of the investments in Nigeria are
not from savings. The study also reveals that money supply has no impact on
Nigeria’s economic should increase national savings through increased interest
rate on deposits and also maintain its
managed floating exchange rate policy.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Saving
naturally play an important role in the economic growth and development
process. Savings determine the national capacity to invest and thus to produce,
which in turn, affect economic growth potential. Low saving rates have been
cited as one of the most series constraints to sustainable economic growth.
Growth models developed by Romer (1986) and Lucas (1988) predict that higher
savings and the related increase in capital accumulation can result in a
permanent increase in growth rates.
The close
relationship between the savings rate of the economy and the economic growth is
stylized feature which has been well documented in number empirical
investigations. This is result which has been found in several sensitivity
analysis in the although it is emphasized that causality should be inferred
from this positive growth literature, example, Leveine and Renelt (1992) and Sala-i-Martin (1997). Contemporaneous correlation. The
close connection between saving and growth has also been a key finding in the
empirical saving literature; the possibility that country differences in saving
rates could be explained by differences in growth rate recognized early.
Modern
saving theories indicate that the rate of growth in aggregate real income is an
essential determinant of the national saving rates. Rapid growth raises the
saving rate. Higher national saving then release resources for the investment
needed to sustain high growth. If investment is discourage the growth rate fall
as does the saving rate. In the case of Nigeria, prior to the Structural
Adjustment Programme (SAP) in 1978; there had been a major disequilibrium in
the external sector from large current account deficit and capital inflows. The
balance of payment problems result from the high saving and investment gap in
Nigeria as we saw during SAP.
1.2 STATEMENT OF THE PROBLEM
In Nigeria,
prior to Structural Adjustment Programme (SAP) in 1987, there had been a major
disequilibrium in its external sector from large current account deficit and
capital inflows. The balance of payment problems resulted from the high saving
investment gap. National saving as a percentage of Nigeria GDP which was 6.1%
between 1973 and 1985 was inadequate to finance domestic investment, which accelerated
to 20.5% during the same period. There was a sizeable saving-investment gap of
14.4%of GDP between 1973 and 1985 (Adebiyi, 2001).
After the
SAP, the saving rate in Nigeria increase significantly from 6.1% of the GDP
between 1973 to 1985 to 11.7% of GDP between 1994 and 1998. This was reflect in
the growth rate of real GDP, which rose 1.5% between 1973 and 1985 to 2.7%
between 1994 and 1998 (Adebayo, 2001). This shows a relationship between saving
rates and economic growth. On the other hand, the inability of bank and
financial institution to make provision for more soft loans to Nigerians,
encourage small and medium scale enterprises, provides funds for the teeming
number of unemployed youths to engage in meaningful economic activities, then
saving may never lead economic growth in Nigeria.
This problem
of instability in saving rate would lead to low investment and low output which
will in turn lead to high demand of imported goods. This will cause
disequilibrium in Nigeria external sector as we saw during SAP period. Based on
the fore going analysis. Therefore the following research question can be
deduced.
1. Is there a long run relationship between
saving and economic growth in Nigeria?
2. Is there casualty between saving and economic growth?
This
research we as much as possible answer the questions above.
1.3 RESEARCH HYPOTHESIS
1. H0 (Null Hypothesis): saving rates and GDP
growth rates are not co integrated
2. i H0
(Null Hypothesis): The GDP annual saving
rate does not ganger cause GDP growth rate
3. ii H0
(Null hypothesis): The GDP growth rate does not ganger cause national
savings
1.4 JUSTIFICATION OF THE STUDY
Understanding
the relationship between national savings and economic growth would have significant
implication on the state of the Nigeria economy. Experiences of economic crisis
have highlighted the fact that low (and declining) saving rate have contributed
to generating unsustainable current account deficit in many countries. In the
case of Nigeria, prior to the Structural Adjustment Programme (SAPs) in 1987. There was a major
disequilibrium in its external sector from large current account deficit and
high capital inflows. The balance of payment problems resulted from the high
saving and investment gap. National savings, as a parentage (% of GDP, which
was 6.1% between 1973 and 1958 was inadequate to finance domestic investment,
which accelerated to 20.5% among the same period. There was a sizeable
saving-investment Gap, of 14.4% of GDP between 1973 and 1985 (Adebiyi, 2001).
After the
SAP, the saving rate in Nigeria increased significantly from 6.1% of the GDP
between 1973 and 1985 to 11.7% of GDP between 1994 and 1998. This was reflected
in the growth rate of real GDP, which rose from 1.5% between 1973 and 1987 to
2.5% 1994 and 1998 (Adebiyi, 2001). This
who shows a relationship between saving
rate and economic growth. The contribution of national saving rate and cannot
be ignored. Therefore, it is vital to study its contribution, and effect if
any. This relationship justified because it may inform policy formulation about
which variables should be selected and projected in achieving a higher economic
growth. It may help to determine policy instrument or variable that has much or
high magnitude while impacting on economic growth. It will also inform the rate at which a
particular instrument or variable can be manipulated policy wise to achieve a
desirable level of economic growth. This research will help our nation national
Nigeria to know which among the macroeconomic variables to encourage most in
other to attain a desirable economic growth and will equally help to achieve
the national vision in 2020 and beyond. It is also necessary for further
studies and references in Nigeria and the world at large.
SCOPE OF
STUDY
The scope of
this research is limited to national savings and economic growth: a causality
analysis from 1970-2007. The choice of the sample period is due to availability
of data.
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