The Effect Of Stabilization Policies On Nigerian Economy

Project and Seminar Material for Economics

The Effect Of Stabilization Policies On Nigerian Economy


Abstract


This research work focus on the appraisal of Macroeconomic Policy on Inflation in Nigerian Economy, also to determine how it enhances the growth of Nigerian Economy.

The aim of this research work is to look into challenges and numbers of hypothesis were drawn. Information necessary to address the test of hypothesis was gathered through secondary data, source from Central Bank of Nigeria (CBN).

Economic analysis was used to formulate the three (3) models that were stated in this research work. Multiple regressions were also used to test the appraisal of Macroeconomic Policy on Inflation in Nigerian Economy. The findings of this research show that macro-economic policy as a tool for Economic Policy and Growth as a Positive Effect on the Growth in Nigeria. In conclusion, government should ensure that operational problems are tackled prior to sale so that there would not be any barrier hindering the high degree of efficiency that is associated with the stability of the Nigerian economy.


Chapter One


Introduction

1.1 Background of the Study

Over the years, Nigeria has made conscious and determined efforts to attain a high level of social and economic transformation of the economy in order to attain the development goals and including monetary policy, fiscal, policy, exchange control measures and income and price control. The measures adopted were changed from time to time to reflect the changing economic environment and circumstances.

This work focuses on two of the policies adopted (monetary and fiscal policy) and examines their uses for economic growth and stability in Nigeria. Since the main burden of aggregate economic policy must fall on either monetary policy and fiscal policy or a combination of both.

The question arises as to whether to clear cut distinction can be made between policies which are termed “MONETARY” are those which are to be called “FISCAL”. The truth is that considerable ambiguity about these terms exist and this often leads to useless debate and confusion.

However, monetary policy can be as a measure which deals with the discretionary control of money supply by the monetary authorities with a view of achieving stated economic’ objectives. In other words, it employs the use of variation in the money supply to achieve economic objectives.

Fiscal policy on the other hand may be defined as the policy pursued by a government to influenced economics activities in economy by changing the size and content of taxation, expenditure and public debt with a view to achieving given objective. Although, there two policies are independent tools of 1conomics stabilization, they are often combined by most countries for a greater effect on the economy.

Monetary and Fiscal policies as adopted in Nigeria have four broad objectives.

The objectives include:

  1. Maintenance of relative stability in domestic price
  2. Attainment of a high and sustainable rate of economic development
  3. Maintenance of balance of payment equilibrium growth and stability are so closely related that the economic policy of the government should include both of them.

Economic growth may be judges from the growth it total output of the economy as measured by annual increases in net national rod, ct in constant price. Such a measure tells us how much bigger the total economy is becoming over a period of time, but it tells nothing about changes in the standard of living of the people in the economy.

The more significant measures in the growth in real net national product divided by the number of people in the population. There are many targets of economic growth and development.

They includes

  1. Income distribution Gross national product Sectoral development (such as agriculture industries etc)
  2. The pressure to attain economic stability or our economic is so strong that measures to promote federal government fidget.
  3. To achieve the maximum practicable rate of growth, this is necessary to have stability. This does not mean a perfectly smooth rate of growth, but one that is not interrupted byI recessions and depression.
  4. Stabilization policies that are usually released annually concerns attempts to stabilize the level of national income by ensuring that serious inflationary and deflationary gapsdo not persist so that something close to full employment without rapid inflation can be achieved.

The government uses the instruments of monetary and fiscal policies to influence economic growth and development. The instrument of monetary policy available to the Nigeria monetary authorities include:

  1. Rediscount rate
  2. Interest rate structure
  3. Reserve requirement
  4. Direct credit control
  5. Exchange rate and
  6. Moral suasion

Some of the Fiscal policies relating to economy a growth and stability in Nigeria include: tax incentives (capital allowance, income tax relief, reconstruction tax exemption etc. relief fromimport duties, tariffs measures and budgetary measures. The government uses the instruments in achieving economic growth and stability.


1.2 Statement of Problem

  1. Has there been effort to study the monetary and fiscal policies used by the Central Bank of Nigeria (CBN) in achieving economic growth and stability.
  2. The ability to access the effectiveness of monetary and fiscal policies.
  3. Has there been recommendation to correct observed mistake by (CBN). If done, this will enable the monetary authorities to make optimal use of various monetary and fiscal tools at their disposal for rapid economic growth and stability.

1. 3 Aim and Objectives of the Study

The general aim of this study is to examine the real problem of macroeconomic policy in Nigeria and propose some stabilization policies. While specific objectives are:

  1. To study the monetary and fiscal policies; used by the Central Bank of Nigeria (CBN) in achieving economic growth and stability.
  2. To asses the effectiveness of monetary and fiscal policies
  3. To make recommendation to correct observed mistake by the Central Bank of Nigeria (CBN) this will enable the monetary authorities to make optimal use of the various monetary and fiscal tool at their disposal for rapid economic growth and stability.

1.4 Research Questions

  1. Can monetary and fiscal policy be used as a tool to achieve economic growth?
  2. Could monetary and fiscal policy assess the effectiveness of monetary and credit policies?
  3. Does the policies of the Central Bank useful to achieve rapid economic growth and stability?

1.5 The Statement of Hypothesis

Hypothesis 1
  • Ho: That monetary Policy does not achieve economic growth and stability.
  • HA: That monetary policy achieves economic growth and stability.
Hypothesis 2
  • Ho: That effectiveness of monetary and credit policies could not be assess using the monetary policy.
  • HA: That effectiveness of monetary and credit policies could be assess using the monetary policy.
Hypothesis 3
  • Ho: That the policies of the Central Bank could not be use to attain rapid economic growth and stability?
  • HA: That the policies of the Central Bank can be used to attain rapid economic growth and stability?

1.6 Research Methodology

The research work makes use of secondary data obtained from various institution and publication. The data was obtained from Central Bank of Nigeria (CBN) Federal Office of Statistics (FOS), various publications from local and international journal. The search work will be tested using regression analysis; ordinary least square method was used in construction the model.


1.7 Significance of the Study

It is hope that this research work will be practically and theoretical significant to the household, firm and government and for the improvement of the whole economy. There is no doubt at this study will benefit quit a number of people especially units involved .


1.8 The Scope and Limitation of Study

This study macro economic tools measure under the period of Structural Adjustment Programme (SAP) and mid seventy’s (70’s) (978-2008) also in examining how effective and efficient the macro economic tools measures have change in the economy since 1970’s, only the activities of commercial, merchant, special banks and central bank will be used.

This was done through looking into the financial indicators in the economy.

  • The number of banks in operation
  • Money stock in the economy

Growth of credit allocation Banks loan and advances Growth of bank loans and advances Average interest rate (%).

A detail of this is in the date analysis which should be treated in further study. Most of the information and data used was collected mostly from Central Bank of Nigeria (CBN) through their annual reports bulleting and statement of account. This study shall be carried out exclusively in relation to the Nigeria economy.

This study as comprehensive as possible except for some constraints encountered during the course of study. There was a problem of time limit for the completion of the work. The regroup and hectic academic programmes which coincides with exams and period of the study or research was impediment. Inadequacy of data was alsomajor constraint other limitations of the study are time period under study and lack of current year data.


1.9 Organisation of the Study

The project is structured into five chapters:

  • Chapter One dealt with the introduction which includes brief description of Nigerian Economy, Area of merger in the economy, Relevant and Significance of the study, Definition of terms, Scope and Limitations.
  • Chapter Two is mainly the Literature Review and Theoretical Frame Work of the study, the meaning and definition of Merger, motives of Merger and Acquisition, Merger game and the effect on economy.
  • Chapter Three based on the research method this include method of data collection, hypothesis to be tested and the statistical tools that are to be used.
  • Chapter Four dealt with the research methodology, data preparation and analysis.
  • Chapter Five is the Summary, Recommendation and Conclusion of the research study.

Chapter Five


Summary of Findings, Policy Recommendations and Conclusion

5.1 Summary of Findings

In this study, we examined the impact of monetary policy on economic growth in Nigeria from 1980-2010. Before the application of the OLS, we conducted a unit root test to ascertain the stationarity of the variables. The result shows that most variables were stationary after first differencing while others became stationary after second differencing.

The empirical investigation of the effectiveness of Central Bank of Nigeria’s monetary policies was conducted and the major findings of the study are summarized below:

  1. It was found that overall, CBN’s monetary policies play crucial role in influencing the level of productivity in the country. This result gives weight to the place of Central Bank in the national growth and development process of a nation.
  2. The regression analysis revealed that the adoption of various monetary policy measures by the Central Bank of Nigeria has no significant impact on the inflation rate in the country. This suggests that the problem of inflation in Nigeria is not a monetary phenomenon but is rather attributable to the structural rigidity in the country. This is understandable as Nigeria is operating far below full employment equilibrium and the increase in GDP does not translate to improved purchasing power because poverty index has continued to worsen over the years. A lot still needs to be done in the areas of creating public awareness, improving operations of the financial market, enhancing the depth and breadth of the market and building regulatory capacity so as to appropriately position the market to face the challenges ahead.

5.2 Policy Recommendations

Given the above findings among other things, it is clear that the development of the Nigerian economy is highly dependent on the provision of the right environment for investment, which will in no doubt encourage economic growth and development. The following recommendations are hereby made:

Bridge the gap between monetary policy formulation and implementation. The non-significance of most of the monetary policy instruments is strong evidence of a gap between policy formulation and implementation in Nigeria. I strongly agree with Eyiuche (2000) who stated that “an excellent plan, painstakingly and brilliantly formulated, devoid of effective implementation is as good as idealistic admiration of horses without ridding”. Good monetary policies on paper without effective implementation will always produce non significant effects. Therefore, I recommend that the implementation mechanism of monetary policy should be checked for effective control of inflation in Nigeria.

Monetary policies should be used to create favourable investment climate by facilitating the emergence of market based on interest rate and exchange rate regimes that attract both domestic and foreign investments, create jobs, promote non oil export and revive industries that are currently operating far below installed capacity. In order to strengthen the financial sector, the Central Bank has to encourage the introduction of more financial instruments that are flexible enough to meet the risk preferences and sophistication of operators in the financial sector. The monetary authority should try to allow for coordination of fiscal and monetary policies for effective control of inflation in Nigeria. In other words, one of the problems that militate against the effectiveness of the monetary policy in achieving overall stability in Nigeria is lack of coordination between the monetary and other macroeconomic policies in the country.

Again, the monetary authority should trap disconnect between the formal and the informal credit sectors of economy. Due to the dualistic nature of Nigerian economy, the flow of credit and interest rate mechanism in the informal sector is not accounted for by the monetary authorities and this is most cases lead to counter effect to monetary policies in Nigeria.

Finally, relevant authorities should endeavor to make the financial sector less volatile and more viable as it is in developed countries. This will allow for smooth execution of the Central Bank monetary policies. Laws relating to the operation of the financial institutions could be made a bit less stringent more favourable for the operators to have room to operate more freely.


5.3 Conclusion

The role of the Central Bank in regulating the liquidity of the economy which affects some macroeconomic variables such as the output, employment and prices cannot be overemphasized. The central bank of Nigeria over the years has adopted different monetary policy management techniques to keep the economy in a stable state. However, despite all of these, the attainment of the desired objectives of the monetary policy has been affected by a lot of macroeconomic factors. Nonetheless if the relevant authorities will adopt and pursue with vigour as well as patriotism some of the recommendations expressed in this study, Nigeria will in no little measure improve in the achievement of some of her macroeconomics objectives.


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