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The Impact Of Agricultural Development On
Nigeria Economic Growth, 1980– 2007
ABSTRACT
In recent
times there has been growing concern about the rising but volatile rate of
investment in Nigeria. This concern stems from the fact that investment play a
dominant role in stimulating growth. The study buttress on the overview and
empirical analysis into the determinants of investment in Nigeria.
In order to
achieve the objectives hypothesis was stated with the purpose of achieving
current and future stable upswing of investment by re-addressing problem of
investment as highlighted in the statement of the problem.
The study used
investment as the dependent variable and government expenditure, tariff , real
interest rate and capital stock as the independent variable. In analyzing the
data, economic model of multiple regression using ordinary least square (OLS)
technique was employed. That t-test conducted indicates that government
expenditure, tariff and real interest rate. Not statistically significant at 5
percent level. Normality test and heteroscedaticity test were employed as the
second order test.
TABLE OF
CONTENTS
Title
Page - -
- - -
- - -
i
Approval
Page - -
- - -
- - -
ii
Dedication
- - -
- - -
- - -
iii
Acknowledgement - -
- - -
- - iv
Abstract -
- - -
- - -
- - v
CHAPTER
ONE - INTRODUCTION
1.1 Background of the Study - -
- - -
1
1.2 Statement of the Problems -
- - -
- 6
1.3 Research Questions -
- - -
- - 8
1.4 Objective of the Study -
- - -
- - 8
1.5 Statement of the Hypothesis -
- - -
- 9
1.6 Significance of the Study - -
- - -
9
1.7 Scope/Limitation of the Study- -
- - -
10
CHAPTER
TWO- LITERATURE REVIEW
2.1 Literature Review - -
- - -
- 11
2.2 Empirical Literature -
- - -
- - 30
2.3 Limitation of Previous Studies - -
- - -
36
CHAPTER
THREE - METHODOLOGY
3.1 Model Specification -
- - -
- - 37
3.2 Analytical Techniques -
- - -
- - 39
3.3 Sources of Data and Software Packages -
- - 41
CHAPTER
FOUR - PRESENTATION AND ANALYSIS OF
RESULT
4.1 Presentation of Regression Result -
- - -
43
4.2 Result Interpretation -
- - -
- - 43
4.4 Evaluation Based on Economic Criteria -
- -
43
CHAPTER
FIVE- SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of Findings -
- - -
- - 51
5.2 Conclusion - -
- - -
- 51
5.3 Policy Recommendation - -
- - -
- 53
BIBLIOGRAPHY - -
- - -
- 55
Appendix
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The Nigerian
economy has witnessed a slow pace of growth of less than 5 percent in the last
two decades. Various reasons have been advanced to this development but the
most apparent has been the poor investment climate in the economy and this has
been attributed to the low available investable funds.
The
stimulation of sustained economic growth requires a balance investment in
physical and financial assets human and social capital as well as natural and
environmental capital.
Nigeria has been classified as low
savings and even lower investment economy (Ajakaiye 2002) one of the principal
objective of the Nigerian government under the 1999 democratic dispensation is
fostering of sustained economic growth. Over the years the government has been
in the driver’s seat in growth the economy. But lessons of experience have show
that government cannot regulate the economy effectively. A typical example has
been the shift under the National Economic Empowerment and Development Strategy
(NEEDS) which has recommended the need to restructure and deepen the financial
system. Some economists like Mckinnon and Shaw (1973) said that rising
investment alone is not sufficient enough to bring about growth and the role of
financial institutions is very vital. In particular, the view expresses that
the role of capital fund is very critical to the success of any endeavor (World
Bank 1998). In this regard, it is therefore important to investigate the
determinants of investment in economy in the past three decades.
Growth of economies is derived from
investment is such economy. A key role is assigned to investment as a
propellant of economic growth. Investment in various sectors of the economy
stimulate aggregate employment, output, demand income which also increase the
government revenue for further provision of basic industrial and agricultural
further provision of basic industrial and agricultural inputs for the growth
and development of an economy. This entails that the investment multiplier
increase national income which increases savings for investment, consumption
and aggregate demand level. The effect will be the rising standard of living of
the masses which is the major determent of growth and development in an
economy.
Banking sub
sector in Nigeria has remained foreign in rural areas. But recently the
establishment of community banks (now micro finance banks) has been to deepen
their operation in rural areas. These banks with government assistance give
loans and mobilize savings from rural areas for further investment in Nigeria.
In addition government have tried to provide necessary infrastructures in rural
areas to help reduce the rate of rural – urban migration for the purpose of
compelling the rural population to take agriculture to greater height as it was
in past 38 years. However the diversification of the various sectors of the
economy has been the main objective of the government. This is to increase
employment which will increase income and savings for investment. But the
process so far have not been adequate because of political instability and
policy inconsistency which range from corruption of political administrators
and negative effect of transitional government.
Diversification
of different key sectors of the economy like agriculture and industry increases
employment, incomes, consumption, savings, demand and generally, aggregate
investment level that will broaden and deepen the society’s standard of living.
But the dismissal growth record in most African countries relative to other
regions of the world has been of concern of economists (World Bank, 1998).
This is
because the growth rate registered in most African countries including Nigeria
is often not commensurate with the level of investment.
In Nigeria
for instance, the economy witnessed tremendous growth in the early and late
1970s, as a result of the oil boom.
This
increased investment especially in the public sector. But with the collapse of
the oil market prices in the early and mid 1980s, investment fill, thereby
causing a fall in economic growth. For example during the investment boom,
gross investment as a parentage of GDP was 16.8% and 31.4% in 1974 and 1976
respectively, where as it declined to 9.5 and 8.7 percent in 1984 and 1985 due
to the depression.
Although the
rise in oil prices during the 1990 – 1991 period was supposed to spark off an
investment but that was not the case in Nigeria. The Nigerian Military
government for instance was inexperienced in formulating economic policy and
thus left that task to bureaucracy (Babalola and Idoko 1996). The unit was that
investment decision which were undertaken with great decline, the government in
1986 adopted the IMF World Bank Structural Adjustment Programme (SAP) with a
view to providing stable macroeconomic and investment environment.
To this end
interest rate that were previously fixed and negative in real terms were
replaced by an interest rate regime which is driven by the market forces.
The policy
shift de-emphasized direct investment stimulation through low interest rate and
encouraged savings mobilization by decontrolling interest rate (World Bank
1996). Consequently, the objective of enhanced investment and output growth was
not realized as the country’s investment failed to rise to anything near the
level it had reached in the 1970s.
Although
successive government has implemented policies and strategies raising the level
of savings and investment but these policies so far have been erratic as a
result of recent changes in government induced by political instability.
In addition
the experience of the east Asian countries suggests that an investment rate of
between 20 and 25 percent could engender growth rate of between 7 and 8
percent. Statistical evidence reveal that output represented by the real GDP in
Nigeria showed a positive growth soon after the civil war, following the oil
boom of the 1970s such that growth rate stood at 21.3 percent in 1971 (Bage
2003. P. 17)
Therefore,
for Nigeria to register increase in growth and development there is need to
increase the tempo of private investment that would lead to higher growth as
was the case in Asian countries.
Finally, an
analysis of domestic investment require a simultaneous link to GDP as
aggregating factor interest rate and other unique variables that react to
fluctuations in investment, like debt ratio, business environment real exchange
rate government expenditure and provision of infrastructures etc.
1.2 Statement of the Problems
Domestic
Investment in Nigeria has been constrained by numerous factors.
These
factors range from the followings
Low capital
stock: investment can never be successful if the capital stock is low.
The poor
level of capital stock has been as a result of poverty which decreases domestic
savings resulting from decline in real per capital inadequate infrastructures,
investment entrepreneurial activities is discouraged more by the absence of
basic infrastructure like electricity, good road and communication (Green J.
and D. Villanura (1991)).
Economic and
Social Infrastructures are poorly developed in Nigeria. Thus domestic and
foreign investors are wary of investing in countries where basic requirement
are inadequate. Political instability and policy inconsistency. Due to the
transitional nature of the Nigerian government investment have been derailed.
Interest
rate move inversely with investment, that is, as interest rate increase,
investment fall conversely, when interest rate is falling investment raises.
But Nigeria interest rate of about 17.6% year
ended 2006 did not account for upswing in private investment because of
inappropriate administration and poverty.
The growth
of domestic and external debt over the years has negatively affected the level
of investment in Nigeria. Nigeria debt burden between 1977 – 2007 has effect
for the economy and the welfare of the people. For example Nigeria was owing
the international community as at end of 2007 was up to billion while its total
external debt stock stood at 25.77 billion dollars (US), which could have been
used for more allocation of basic requirement that would aggravate investment
(Babalola and Idoko 1996).
Exchange
rate fluctuation have also contributed to low propensity to invest in Nigeria
by the foreigners. This is because of low manufacturing of export good capital
which would have ordinarily increased domestic exchange rate (Jhingan M. L.
2005).
Therefore
instead of investing domestically, the greater percentage of Nigerian’s prefer
investing abroad where their money would be managed effectively.
High cost of
raw materials and inadequate developed nature of domestic raw materials for
investment. Therefore government should give incentives to encourage the
investors given tax holding and reduction in duties charged during import of
raw materials.
1.3 Research Questions
The study
revolves around answering the following questions:
The
relationship between national savings and investment.
Relationship
between household consumption and investment.
The
relationship between inflation rate and investment
1.4 Objectives of the Study
The
objectives of the study will be to :
To determine
the trend, character and profile of investment.
To determine
the causal relationship between investment and real gross domestic production
in Nigeria.
Recommend
policy measures that will stimulate investment in Nigeria.
1.5 Statement of the Hypothesis
The research
study will be conducted under the hypothesis frame work below :
Ho: the macro economics variables do not
influence investment in
Nigeria.
Hi: the macro economics variables do influence
investment in
Nigeria.
1.6 Significance of the Study
The
importance of the study lies in the fact it will provide an insight into the
relationship between investment and other core policy variables.
It will also
further identify the reason why Nigeria’s investment efforts have not provided
the desired results.
It is
anticipated that this research work should be a source of reference to economic
and social planners interested in the study of investment in Nigeria.
1.7 Scope /Limitation of the Study
The major
limitation is the quality of date while public sector investment are easily
obtained from budget estimates, there is no reliable control in case of private
investment as the date series are questionable as it is derived residually the
analysis are questionable as it is derived residually.
The analysis
relied on data series from 1977 to 2007 the choice of time was informed by the
availability of data and the desire to capture the periods of structural break
control regime.
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