NATIONAL SAVINGS AND ECONOMIC GROWTH IN NIGERIA (1980 – 2007)
abstract
The study examined national savings and Nigerian economic growth from 1970 to 2007. The single equation model of Ordinary Least Squares (OLS) was used in the study. Using time series data over the period, the work demonstrates that National Savings is not significant at the SY level and that it granger causes real GDP. The study also demonstrates that the exchange rate has a significant impact on economic growth. The importance of investment as an explanatory variable supports the notion that most investments in Nigeria are not based on savings. According to the study, Nigeria’s economy should increase national savings through higher interest rates on deposits while also maintaining its managed floating exchange rate policy.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Saving is obviously important in the process of economic growth and development. Savings determine the country’s ability to invest and thus produce, which influences economic growth potential. Low savings rates have been identified as one of the most significant constraints to long-term economic growth. Romer (1986) and Lucas (1988) developed growth models that predict that increased savings and capital accumulation can result in a permanent increase in growth rates.
The close relationship between the economy’s savings rate and economic growth is a stylized feature that has been well documented in a number of empirical studies. Although it is emphasized that causality should be inferred, this is the result of several sensitivity analyses in the.
For examples of positive growth literature, see Leveine and Renelt (1992) and Sala-i-Martin (1993). (1997). Concurrent correlation. The close relationship between saving and growth has also been a key finding in the empirical saving literature, with early recognition of the possibility that country differences in saving rates could be explained by differences in growth rates.
According to modern saving theories, the rate of growth in aggregate real income is a critical determinant of national saving rates. Rapid growth increases the rate of saving. Increased national saving frees up resources for the investment required to sustain high growth. When investment is discouraged, both the growth rate and the saving rate fall. Prior to the Structural Adjustment Programme (SAP) in 1978, there had been a significant decline in Nigeria. External sector disequilibrium caused by a large current account deficit and capital inflows. As we saw during SAP, Nigeria’s balance of payment problems stem from a large saving and investment gap.
1.2 STATEMENT OF THE PROBLEM
Prior to the Structural Adjustment Programme (SAP) in 1987, Nigeria had a significant disequilibrium in its external sector due to a large current account deficit and capital inflows. The high saving-investment gap caused balance-of-payment issues. Between 1973 and 1985, national saving as a percentage of Nigerian GDP was 6.1%, which was insufficient to finance domestic investment, which increased to 20.5% during the same period. Between 1973 and 1985, the saving-investment gap was 14.4% of GDP (Adebiyi, 2001).
Following the SAP, Nigeria’s saving rate increased significantly, rising from 6.1% of GDP between 1973 and 1985 to 11.7% of GDP between 1994 and 1998. This was reflected in the real GDP growth rate, which increased by 1.5% between 3.7% between 1973 and 1985 to 2.7% between 1994 and 1998 (Adebayo, 2001). This demonstrates a link between savings rates and economic growth. Saving, on the other hand, may never lead to economic growth in Nigeria due to the inability of banks and financial institutions to make provision for more soft loans to Nigerians, encourage small and medium scale enterprises, and provide funds for the teeming number of unemployed youths to engage in meaningful economic activities. Instability in the savings rate would lead to low investment and output, resulting in a high demand for imported goods. As we saw during the SAP period, this will cause disequilibrium in Nigeria’s external sector. Based on the previous analysis. As a result, the following research question can be derived.
1. Is there a long-term relationship in Nigeria between saving and economic growth?
2. Is there a trade-off between saving and economic growth?
This research will attempt to answer as many of the questions raised above as possible.
1.3 RESEARCH HYPOTHESIS
1. H0 (Null Hypothesis): Saving and GDP growth rates are not correlated.
2. I H0 (Null Hypothesis): The GDP annual saving rate has no effect on GDP growth rate.
3. ii H0 (Null hypothesis): GDP growth does not increase national savings.
1.4 JUSTIFICATION OF THE STUDY
Understanding the relationship between national savings and economic growth has important implications for the Nigerian economy. Economic crisis experiences have highlighted the fact that low (and declining) savings rates have contributed to unsustainable current account deficits in many countries. In the case of Nigeria, this was prior to the 1987 Structural Adjustment Programme (SAPs). The large current account deficit and high capital inflows created a major disequilibrium in its external sector. The high saving and investment gap caused balance of payment issues. National savings, as a percentage of GDP, were 6.1% between 1973 and 1958, insufficient to finance domestic investment, which increased to 20.5% during the same period. There was a significant saving-investment gap.
Between 1973 and 1985, 14.4% of GDP was lost (Adebiyi, 2001).
Following the SAP, Nigeria’s saving rate increased significantly, rising from 6.1% of GDP between 1973 and 1985 to 11.7% of GDP between 1994 and 1998. This was reflected in the real GDP growth rate, which increased from 1.5% between 1973 and 1987 to 2.5% between 1994 and 1998. (Adebiyi, 2001). This figure depicts the relationship between the savings rate and economic growth. The importance of the national saving rate cannot be overstated. As a result, it is critical to investigate its contribution and, if any, effect. This relationship is justified because it can help policymakers decide which variables to choose and project in order to achieve higher economic growth. It could aid in the selection of a policy instrument or A variable with a large or high magnitude that has an impact on economic growth. It will also inform the policy rate at which a specific instrument or variable can be manipulated to achieve a desired level of economic growth. This research will assist our nation, Nigeria, in determining which macroeconomic variables to encourage the most in order to achieve desirable economic growth, as well as in achieving the national vision in 2020 and beyond. It is also required for further research and references in Nigeria and around the world.
SCOPE OF STUDY
The scope of this study is limited to a causality analysis of national savings and economic growth from 1970 to 2007. The sample period was chosen based on data availability.
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