Economic Theorist And Its Impact On Nigeria Economy

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Economic Theorist And Its Impact On Nigeria Economy


Abstract


This research work examines the economic theorist and its impact on Nigeria’s economy.The question involved in this study is that whether natural resource wealth has a positive impact on economic growth in Nigeria or not. The economy of Nigeria is observed to be growing on paper but deplorably, poverty and unemployment is on a progressive increase in reality. The study uses the endogenous growth theory (AK Model) in terms of how resource wealth can influence economic growth. It exploits time series analysis (Unit Root and Co-integration) techniques to test for the existence of a relationship. It also applies the Error Correction Mechanism (ECM) in testing for the existence of a relationship as it captures the short-run dynamics and provides a measure to resolve the behaviour of the series in the short run with its performance in the long run. The result confirms that that natural resource (Oilrent and Agriculture) based growth strategy will not lead to sustained economic growth for the Nigerian economy. Thus it was recommended that Nigeria should follow an industrial growth strategy with a vibrant real sector that would result in the diversification of the economy with the aim of addressing and tackle the issue of wide spread corruption and mismanagement of public funds in all respective areas and sectors of its economy. The involvement of this study lies in the reality that it provides additional confirmation on the ongoing debate of resource wealth on the economic growth development within a specific country.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses
  • 4.5 Discussion of Findings

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • APPENDIX

Chapter One


Introduction

1.1 Background of the Study

Achieving sustainable economic growth and development in Nigeria has been a longstanding concern over the past decades. Despite its full potentials, the “Giant of Africa” due to its vast population of approximately 1 47 million, the most populous nation in Africa and abundant wealth in fertile land fields, forestry, hunting and fishing (substituted by Agriculture) and Crude oil resources, the Nigerian economy continues to struggle to alleviate its challenges ranging from poverty, unemployment etc. Nigeria is a region abundant in natural resources and rich in vast oil reserves. In recent years, the economy has witnessed an accelerated GDP growth rate. In many cases the petroleum industry has played a pivotal role in this growth. Some would see the widespread presence of oil as route to unlocking growth and securing development in the region. Nigerian oil projects have attracted substantial investment.

The oil and gas sector is a foundational element of economic growth for the nation as it accounts for a significant part of the state’s revenues and represents a prime mover for employment, domestic power development, and in many cases, infrastructure development. In the last five years, Nigeria’s economy grew by an average of 7 per cent, primarily driven by the oil sector which accounts for more than 30 per cent of gross domestic product and 70 per cent of all exports (OECD 2011). According to OECD, in 2011, mining and quarrying (including oil) accounted for 33.5 per cent of total GDP. Unfortunately, Negative growth of the oil sector has drag down overall growth. The performance of the oil sector was hampered by supply disruptions arising mainly from oil theft, illegal oil bunkering and pipeline vandalism. The non-passage of the Petroleum Industry Bill also seems to be contributing to weak investment in exploration and exploitation of oil and gas, resulting in no new finds during 2013.As a result, crude-oil production dropped to an average of 2.2 1 million barrels per day (mbpd) in 20 13 from 2.3 1 (mbpd) in 20 12 (World Bank, 20 1 3).

Despite the oil sector’s dominance, agriculture is also an important contributor to the economy. It contributed more than 75% of export earnings before 1 970 (World Bank, 20 1 3). In 1 960, the proportion of the national output accounted for by agriculture (defined generally to include crops, animal husbandry, fishing and forestry) stood at 67%. By the mid 1 990s, the agriculture share of export had declined to less than 5% and the overall agricultural production rose by 28% while per capita output rose by only 8.5% during the same decade. Agriculture has suffered from years of mismanagement, inconsistency, poorly conceived government policies and lack of basic infrastructure. However, the sector accounts for 33 .4% of the gross domestic product (GDP) and two-thirds of employment (World Bank, 201 3). The country has not been able to satisfy internal demand and has to import a considerable amount of food products to meet domestic demand.

Manufacturing sector has strengthened in recent years, the sector still accounted for less than 5 per cent of GDP. The low share of the manufacturing sector in GDP reflects long-standing problems of competitiveness. The loss of competitiveness of Nigerian industry appeared during the oil-boom period of the early 1 970s with the resulting real appreciation of the exchange rate which led to a surge in imports (World Bank, 201 3). The inability to compete with imports can also be traced to high costs of production caused by poor infrastructure and a deficient business environment. The problems include : power shortages, poor transport infrastructure, widespread insecurity and crime, lack of access to finance, corruption, and inefficient trade-facilitation institutions. With incessant power cuts in Nigeria, manufacturers rely increasingly on expensive generators. This problem is particularly acute for small and medium-sized enterprises (SMEs).

20 12 (AEO 20 1 4). This growth rate is higher than the West African sub regional level and far higher than the sub-Saharan Africa level. Thus, are prospects in Nigeria for sustained growth driven by an improved performance of the key non-oil sectors (agriculture, information and communication technology, trade and services). But decline in the contribution of the oil sector may dampen the positive outlook. Nevertheless, there is much discussion on the topic of what can be done to ensure continuous economic growth. Hence, there is a need for the Nigerian economy to look to other, more manageable sources of earnings and government revenue to spur economic growth.


1.2 Statement of the Problem

Does a resource based growth strategy lead to sustained economic growth? The resource based growth strategy followed by Nigeria and many developing countries with an abundance of natural resources appear to not be working. Most Latin American and African countries still struggle to develop, while developed countries follow industrialization strategies which have led to economic growth. Hence, it is important to better understand the roots of failure in natural resource-led development.


1.3 Objective of the Study

Specific objectives of this study include:

  1. To examine the direction of causality between Oil, Agriculture and economic growth in Nigeria.
  2. To examine the paradox of economic growth in Nigeria with a key focus on natural resource wealth (Oil and Agriculture.)
  3. To highlight policy implications for Nigeria in view of the findings from the research.

1.4 Research Questions

  1. What is the direction of causality between Oil, Agriculture and economic growth in Nigeria?
  2. What is the paradox of economic growth in Nigeria with a key focus on natural resource wealth?
  3. What is the policy implications for Nigeria in view of the findings from the research?

1.5 Significance of the Study

This study is highly significant to students and scholars in the field of economics. The empirical reviews and literature in this study will add significantly to their previous knowledge. The findings and recommendations that will be made in this study will serve as a framework for the implementation of economic policy in Nigeria.


1.6 Scope of the Study

This study is focused on economic theorists and its impact on Nigeria’s economy. The study also covered the direction of causality between Oil, Agriculture, and economic growth in Nigeria, the paradox of economic growth in Nigeria with a key focus on natural resource wealth, and the policy implications for Nigeria in view of the findings from the research


1.7 Limitations of the Study

This study was constrained by some factors. Firstly, the time frame allocated for the completion of this study was not enough for the researcher to extensively carry out research based on the theme of this research work. On the other hand, the research participants were not willing to participate in responding to the administered questionnaire of this study. Also, the required materials like journals and articles needed for the proper completion of this study were not readily available online and offline. All these constraint put together, ultimately determined the extent to which the researcher was able to go in this study.


1.8 Definition of Terms

Economic Growth:

The increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of increase in the real gross domestic product, or real GDP.

Economist:

A professional and practitioner in the social science discipline of economics.

The individual may also study, develop, and apply theories and concepts from economics and write about economic policy.

Economy:

The systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership, and many other areas of government interventions into the economy.

Theory:

A rational type of abstract thinking about a phenomenon, or the results of such thinking. The process of contemplative and rational thinking is often associated with such processes as observational study or research. Theories may be scientific, belong to a non-scientific discipline, or no discipline at all.


1.8 Organisations of the Study

This research work is categorized in five chapters, for easy understanding, as follows.

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), background to the study, statement of problem, objectives of the study, research questions, significance of the study, scope and limitation of the study, definition of terms.
  2. Chapter two encompasses the conceptual review theoretical review and empirical reviews on which the study is based.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary of Findings

The above table shows the Error Correction Mechanism (ECM). The Short run coefficients of the model were not significant as their probability values are greater than 5%. This further implies that the short run coefficients are not significant variable to explain economic growth in the short run. The error correction estimates presented above reveal that the 42 error correction term [ECM(-1 )] or speed of adjustment towards long run equilibrium is correctly signed with the expected negative Error Correction Term. This means that there is a tendency by the model to correct and move towards the equilibrium path following disequilibrium in each period. Hence, meaningful error correction is taking place annually. Therefore in each short-term period, economic growth is adjusted by taking into account the previous time periods difference between the independent variables and per capita real GDP growth. The ECM term, however accounts for the correction of about 30.29% of the error generated in the last period. i.e. the speed of adjustment is 30.29% annually.

The speed of the adjustment implies that by computation, it will take between 6 to 7 years for the economy to close the gap between its current state (short run period) and the long run equilibrium. In consistent with (Oyinbo et al., 20 1 4), their result indicated the expected negative sign of the error correction term, implying that about 68% of disequilibria from the previous year’s shock converge back to the long run equilibrium in the current year in their study. The result of the ECM also keeps the validity that there exist a long run equilibrium relationship between GDPC and other variable of interest. However, the ECM term is not statistically significant at 5% level of significance but Significant at 1 0% level of significance. Thus in the short run, agriculture is not significant to explain economic growth. This is in line with (Oyinbo et al., 20 1 3) as their heir Error Correction Estimates of Economic Growth in Nigeria indicated that in the short run, the lagged value of agriculture is negative and insignificant in influencing economic growth. They attributed this to poor budgetary allocation to agriculture relative to other sectors of the economy (Oyinbo et al., 20 1 3). Thus, the integral role of agricultural financing is lacking, thereby hindering growth of the agricultural sector. Based on current supervision and assessment reports of 2007 and 2008 (Ujah and Okoro, 2009) shows that agricultural budget was far below 25% and 1 0% recommendation from the Food and Agricultural Organization and African Union respectively. The insignificance of the agricultural sector in influencing the Nigerian economic growth in the short 43 run period is also essentially attributed to a number of problems and challenges faced by the sector over the past decades. “International market opportunities for some exportable commodities have been low on account of the sector’s inability to be competitive” (UNDP report 20 12). (Oni, T.O 20 1 3) identified numerous challenges such as: “marketing problem, storage and processing problems, infrastructural inadequacies, unstable input and output Prices, seasonal labour shortages due migration of able-bodied youths from the rural to urban areas, technical constraint, inadequacies in past policies and programmes as well as impute supply problems”. In addition, resources from the agricultural sector are under utilized for the growth of the Nigerian economy. Thus, there is little or no effort to add value to the sector from the returns of economic growth.

This is consistent with literature and empirically true for the Nigerian economy that highlights the lack of attention, total neglect and investment in the agriculture sector in spite of its proven potentials Awokuse (2008). Another reason why this sector has performed poorly on economic growth stems from the land tenure system and its associated problems in Nigeria. In Nigeria, Land is communally owned. Land is been shared out to families and individuals, while the community or clan maintained absolute ownership. Although land has been heavily regulated by the Nigerian government through the establishment of the Land Tenure Law of Northern Nigeria of 1 962 and Land Use Act No. 6 of 1 978, “the implementation of the Act in the past decades has increasingly become an obstruction in the wheel of economic growth and development as the Act is anti-people and oppressive” (Namnso et al. , 2014).

The Land Use Act has resulted to multiple forms of tenure system leading to unwarranted bureaucracy in getting consent and approval for land transactions and certificate and insecurity of right of occupancy granted under the Act. In terms of ease of registration of property, Nigeria is ranked among the lowest, World Bank (20 1 4). According to the provision of Section 1 of the Act, individuals cannot own freehold interest in land in Nigeria. This implies that all land in the territory of each state, government holds the absolute interest in land. 44 In connection with the above, the oil sector which has the bulk of the Nigerian federally collected revenue has no significant impact in influencing the growth of the Nigerian economy. (Akinlo, 20 1 2) argued that the oil sector has very little linkage with other sectors of the economy since the sector does not offer much opportunity for employment. Nigeria is a country whose relationship with oil over the decades has been volatile, plagued by corruption and mismanagement. Volatility in oil price makes the exchange rate volatile thereby encouraging excessive short term capital flow (Akinlo, 20 1 2). Thus the efficiency of macroeconomic policy is being constrained. The oil rich Niger Delta region has become the site of an intense and controversial struggle between the state and the indigenous population (Omeje 2006). Local indigenous people have become incensed by foreign oil corporation reaping the rewards of this resource, when they themselves have seen little if any improvement in their standard of living (Omeje 2006). The effects of oil extraction for the environment and the Niger Delta communities have been devastating. According to Nigerian federal government figures, there were more than 7,000 oil spills between 1 970 and 2000 (Omeji 2006).

This has led to serious ecological damage in the fragile region. In the last decade, a militant group called the Movement for the Emancipation of the Niger Delta (MEND) emerged. This group have launched many attacks on oil workers and pipelines, attempting to shut down production in the region (Omeje 2006). In consistent with other empirical literature that oilrent is not influential to economic growth. Lane and Tornell( 1 998) note that oil-rich Venezuela’s terms of trade rose 1 3 .7% per year during 1 970-1 990, while per capita output declined at a rate of 1 .4% per year. They also point out that Saudi Arabia’s real per capita GDP actually declined between 1 970 and 1 999.

Gylfason (2001, p. 848) claims that per capita GNP in OPEC countries fell 1 .3% per year during 1 965-1998. In general, the bulk of the reasons why agriculture and oil has not been significant to the growth of the Nigerian economy is chiefly due to gravity of corruption and mismanagement entirely different from the rest of the world. Going by Transparency International report, Nigeria 45 was ranked among the 38 most corrupt countries in the world out of 1 75 countries examined (Transparency International 20 1 4). In addition, Global Corruption Barometer reports that the population’s perception of corruption has increased significantly between 20 1 1 and 20 13. From the time Nigeria gained her in dependence, public funds amounting to about US$400 billion has been vanished due to corruption. New and evident report indicates that about US$6.8 billion was missing due to corruption in the subsidy program (Berne Declaration 20 1 3). A search also discovered between 200 1 and 2008, an astounding 3 00,000 barrels of oil were stolen per day and a total of 15 fuel importers collected more than US$300 million in fuel subsidy funds without importing any fuel (Nwaroh 20 1 2).

The R2 of the model is 0.2463 86. Although this value is low but it is warranted based on the nature of the variables in the model. There are so many other variables that the growth of the Nigerian economy depends on which are deliberately not included in the model. There exclusion was aimed at concentrating on natural resource impact on the growth of the Nigerian Economy. The Result of the ECM model is accepted given that the R2 statistic of 0.25 is less than the DW statistic of 1 .62. In confirmation to this is a test of statistical error below. Overall, the findings in this chapter have important policy implications for the Nigerian Economy and other developing countries with similar economic structures. The evidence indicates that the agricultural and oil sectors plays important role in terms of the Nigerian Economy. Thus, the development of these sectors would be beneficial and rewarding to the Nigerian economic growth.


5.2 Conclusion

It applied the error correction model (ECM) to evaluate the natural resource wealth and economic growth relationship. In this research, two questions were addressed: does a resource based growth strategy leads to sustained economic growth? What is the relationship between the natural resource wealth and economic growth in Nigeria? And if there is a relationship what is the direction of the relationship between natural resource wealth and economic growth in Nigeria? Does natural resource wealth cause economic growth or does economic growth cause the development of natural resources? Does Natural resource wealth cause inconsistency in the growth of the Nigerian Economy?

The study utilised two measures of natural resource wealth, Agriculture and Oilrent. The study established the existence of co-integration for all measures. Thus, the results obtained for all measures of natural resource wealth used in this research point to the existence of long run relationship between resource wealth and economic growth.


5.3 Recommendation

The empirical findings from this study highlight a policy implication issue relating to the role of natural resource wealth in economic growth in Nigeria. A major policy implication from the results is that natural resource based growth strategy will not lead to sustained economic growth. Thus Nigeria should aim at pursuing industrial growth strategy with a vibrant real sector that would result in the diversification of the economy. Also it is critically imperative for Nigerians and it government to tackle the issue of wide spread corruption and mismanagement of public funds in all respective areas and sectors of its economy.


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