Effect Of Inflation On Saving And Economic Growth Of Nigeria

Project and Seminar material for Accountancy

Project and Seminar material for Accountancy


Abstract


In view of the topic of this project which says “the effect of inflation on savings and economic growth in Nigeria”. I the research carried out this study using regression analysis.

Based on the findings of the research work, it was found that inflation have an impact on savings. It was also noticed that inflation has no impact on the economic growth of Nigeria.

Finally, with these observations effort will be made on the management of inflation to at least remain as a single digit to improve our savings status so as to encourage investment which will lead to economic growth.


Table Of Contents


Preliminary Page(s)

  • Title page
  • Approval page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Background of the study
  • 1.2 Statement of problem
  • 1.3 Objective of the study
  • 1.4 Scope of the study
  • 1.5 Significance of study
  • 1.6 Limitation of the study

Chapter Two

2.0 Literature Review

  • 2.1 Literature review
  • 2.2 Theories of inflation
  • 2.2.1 Demand pull theory
  • 2.2.2 Cost push theories of inflation
  • 2.2.3 Imported inflation theories
  • 2.2.4 The accelerations theory of inflation
  • 2.2.5 The monetary theory of inflation
  • 2.2.6 The structural rigidity theory
  • 2.2.7 Review of growth theories
  • 2.2.8 The classical growth theory
  • 2.2.9 The Harrow – Doman Growth theory
  • 2.2.10 The Neo –classical growth theory
  • 2.3 Empirical review of the effect of inflation on saving and growth.
  • 2.4 Evaluation of inflation and economic growth in Nigeria

Chapter Three

3.0 Research Design and Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Sources/Methods of Data Collection
  • 3.4 Population of Study
  • 3.5 Instrument for Data collection
  • 3.6 Validation of the Instrument
  • 3.7 Methods of Data collection
  • 3.8 Method of Data analysis

Chapter Four

4.0 Presentation and Analysis of Data

  • 4.1 Introduction
  • 4.2 Presentation of Data
  • 4.3 Data Analysis
  • 4.4 Testing of Hypothesis
  • 4.4 Interpretation of Result(s)

Chapter Five

5.0 Summary, Conclusion and Recommendations

  • 5.1 Summary of Findings
  • 5.2 Conclusion
  • 5.3 Recommendations
  • Bibliography
  • Appendix

Chapter One


1.0 Introduction

One of the constant face by rural women economic advancement in Nigeria has been blamed by a school of thought on the inability of Nigeria women’s to embrace co-operative way of doing business Helm (2011), this is because co-operatives are of the most effective vehicles for organizing rural production.

The paper aims to analyze the effectiveness on the contribution of women co-operative to women access to credit as a method of advancing the development of women in Nigeria gender analysis it unitized to explain the disadvantage and marginalization of women in the co-operative. It is noted that Nigeria women access to credit receptive to co-operatives, which are made attractive to them by engaging in topics pertinent to women’s development such as access to credit, training economic, health and education activity and advancement of women’s participation in the co-operative movement.

Cooperatives are not only the most suitable organization and frame work for accelerated rural development but they are veritable instruments for assisting women in the achievement of increase output of farm products for instance, in the procurement of farms inputs like fertilizers, improved seeds and seedling , credit as well as in the product storage and marketing, continently measured as the percentage rate of increase in real gross domestic produce and it is usually calculated in real terms, i. e inflation adjusted terms in order to net out the effect of inflation on price of goods and services produced.

Barro and Grilli (1994), posit that mainstream economists believe that high rates of inflation are caused by high rates of growth of the money supply. They are of the view that changes in inflation are sometimes attributed to fluctuations in real demand for good and services or in available supplies (i.e. changes in scarcity), and sometimes to change in the supply and demand for money.

In Nigeria, one of the major problem facing the economy is inflation, the country registered low inflation in the years immediately after independence. However, the country experienced double digit inflation rate in the 1970s. this was mainly as a result of civil war. Other era of high inflation was 1984, 1988,1992 and 1995.
Various macro-economic policies notably fiscal, monetary and exchange rate had from time to time been adopted to address this problem of inflation.

Unfortunately, these measures have met with little or no success and this has hindered the achievement of other macro-economic objectives such as economic growth, increase in employment, satisfactory balance of payments and equitable income distribution.
It is in this light that this study is devoted to identify the impact and the rate of inflation that is acceptable to achieve economic growth.


1.1 Background Of The Study

The beginning of inflation in Nigeria can be said to be a direct result of the polices of the country’s government to stimulate a fast rate of economic growth and development since 1951 when ministerial government was introduced.

Inflationary trend since independence shows two distinctive periods in terms of digital analysis. Until 1969 the growth rate of inflation was in one unit with the highest being about 9% in 1966 and even negative growth rate was recorded in 1966, 1997 and 1998. since 1999, the inflationary growth has become two digits, except in 1972, 1973 and of the 1975 recorded 33.7% indicating the effect salary Awards in the fale of inadequate supply of commodities. It was 11.4% in 2008, 21% in 2009, 40.9 in 2010, inflation ha continued recently to as its effects penetrate more deeply into the nation’s life. It has become something of a platitude to say sharp, continuous increase in prices are among the most serious economic problems of our time.

One of the fundamental objectives of macro-economic policies in both developed and developing economic is to sustain high economic both together with low level of inflation. This is because a high level inflation disrupts the smooth operation of a market economy Krugman 2011.

At the individual level, inflation exerts a heavy toll on those with bed income. It relatively favours debtors at the expense of creditors. At the firm level, the effect of inflation is called the “menu cost” Rotenberg (1996), Naish (1997), Dmaziger (1998) Valdovinoz (1999) because it affects output when firms have to insure costs as they adjust to the new price level. I.e. (changing their price cost for customers).

In recent times, Inflation was moved from being a wartime phenomena and has established itself firmly on the economic arena of the world and its impact on the key macro economic variable cannot be over emphasized. According to the international monetary fund (IMF). The most complex and serious set of economic problems to carryout national government and international community since the end of world war II consist of virulent and wide spread inflation, a declaration of economic growth and a massive disequilibrium of international payment and according to fried man, one of the most though provoking aspects of inflationary phenomena is that it is found in all societies at every of economic development, under every variety of government and within all kinds political economic and social ideologies.

Generally, inflation can be defined as a continuous and persistent in the general price level of goods and services.

Inflation is frequently described as a state where too much money is chasing too few goods when there is inflation, the currency loose purchasing power. In the definition of inflation, two key words must be born in mind. First is aggregate or forward which implies that the rise in price that constitutes inflation must cover the entire basket in the economy as distinct from an isolated rise in the price of a single commodity or group of commodities.

The implication here is that changing in the individual prices or any combination of this price cannot be considered as the occurrences of inflation

Inflation generally has an adverse effect on savings which takes the form of accumulated financial assets the willingness of individual and business to hold an increasing quantity of money is influenced to a large event by their aspect regarding future price levels inflation therefore has an adverse effect on saving and is such tends to have a damping effect on the economy.


1.2 Statement Of Problem

Central banks, government and the world over are observed about inflation and therefore devoted a significant amount of resources as disposal to fight inflation. Hence, the primary objective of monetary policy is to ensure price stability the focus on price stability derives from the overwhelming empirical evidence that it is only in the midst of price stability that sustainable growth can be achieved price stability does not cannote constant or unchanging price level but it simply means that the rate of change of the agents do not worry about it.


1.3 Objective Of The Study

The broad objective of this study is to analyze the effects of lion on savings and economic growth the specific objective of the study includes:

  1. Assessment of the effects of inflation on savings
  2. Assessment or estimation of the impact of inflation on economic growth.
  3. To evaluate the importance of savings

1.5 Significance Of The Study

This research study should be of immense benefit to individuals, house holds, government, economist, etc. this is because as inflation is being fully treated and analysis in the study, decisions will be carefully taken in carrying out economic plans policies.


1.6 Scope Of The Study

The study will be limited to the period 1991, 2006 and the focus is on the rising profile of inflation in Nigeria and its effects on savings and economic growth.

The study will be based on the use of secondary data and analyzed through both linear and multiple regression techniques. Data will be collected from various books of the federal office of statistics, journal of applied quantitative methods and the central bank of Nigeria.


1.7 Limitation Of The Study

The problem encountered in this research work is the non. Availability and problem of data collection. There is problem of insufficient information.


1.8 Definition Of Terms

Inflation:

This is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.

Deflation:

This is a fall in the general price level.

Disinflation:

Is a decrease in the rate of inflation.

Hyperinflation:

An out of control inflationary spiral.

Stagflation:

A combination of inflation, slow economic growth and high unemployment.

Reflation:

An attempt to rise the general level of prices of counteract deflationary pressures and assets price inflation a general rise in the prices of financial assets without corresponding increase in the prices of goods or services.

Monetary Inflation:

An increase in the money supply.

Demand Pull Inflation:

This theory can be summarized as too much money chasing the few goods. In other words if demand is growing faster than supply, prices will increase. This usually occurs in growing economies.

Cost Push Inflation:

When companies cost group, they need to increase prices to maintain their profit margins. Increase cost can include things such as wages, taxes or increased cost of imports.


Chapter Five


5.0 Summary Of Findings, Conclusion And Recommendation

5.1 Summary Of Findings

Attempt had been made in this study to theoretically and empirically evaluate the effect of inflation on saving and growth.

Using the regression analysis it was discovered that for savings, inflation has an impact on it. This is because 35% of the variations we noticed in the savings during the regression analysis can be explained by change in consumer price index (CPI) and GDP rate. Also through the use of our regression analysis. Inflation was not significant in explaining changes in economic growth. In other words, inflation does not have any impact on economic growth.

So the findings from this study outlined above could be rationalized on the ground that inflation in Nigeria has been primarily structural in origin while policy have been formulated and implemented as if inflation was of the demand variety. This situation has contributed largely to depression savings and growth while the rate of inflation which disrupts growth appears largely untouched.

There should be an understanding of the origin and dimension of inflation in the Nigeria economy.


5.2 Conclusion

Situation and experiences in the country have shown that economic growth in Nigeria has been no the decline since the 1980’s while inflation has been on the increase.

Policy solution towards the management of inflation in Nigeria has also geared towards solving the problems of low growth rate in Nigeria. The polices per-support a thorough understanding of the various dimension of inflation in Nigeria and the socio economic peculiarities inherent in the country.

Our study showed that inflation has an impact on savings. Thus implies that during inflation, money loses its value and people are discouraged to save because any amount of money saved loses its work when measured with the future value during inflation periods.

Conclusively, the objective of this study is to find out the existence of (if there is ) a relationship between inflation and savings and economic growth in Nigeria. The methodology employed in this study is the multiple regression analysis.

It should be borne in our mind that the study did not consider if the relationship between inflation, saving and growth was negative or positive, however, various studies as reviewed in the literature has come out with the result high inflation is and has even been favorable to economic growth. Hence it will be good to maintain the fact that the causality that runs from inflation to economic growth is an indication of relationship showing that inflation indeed has an impact on growth.


5.3 Recommendation

From the result of the regression it was shown that inflation has an impact on savings while it also has no impact on economic growth.

Impact, not much has been achieved by the economic policy in ensuring macro economic stability in the country. We expect that effective implementation of macro –economic policy will impact positively on the over all productivity of the economy.

Economic policies that are geared towards increasing the level savings needed to boast investment and economic growth need to be formulated and also implemented.

Economic policy should be restructured to ensure people diversification of the productive base of the economy which will lead to increase productive output thereby lowering the effects of inflation on the economy. There is also need for the policy makes to understand thoroughly various division dimensions of inflation in Nigeria.

On cost side, there is need for the government to control reckless spending in unproductive ventures while on the demand side, investors and consumers desire must be compatible with this capacity of the economy.


5.4 Suggestions For Further Research

This research work on the effect of inflation on savings and economic growth in Nigeria is recommended for further research so as to cover the areas not adequately covered by the researcher. The researcher recommends that more research should be carried out on the same topic to establish a specific meaning of inflation and growth.


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