The Impact Of Agricultural Development On Nigeria Economic Growth, 1980– 2007

The Impact Of Agricultural Development On Nigeria Economic Growth, 1980– 2007

abstract

Recently, there has been growing concern about Nigeria’s rising but volatile rate of investment. This concern stems from the fact that investment is a major driver of growth. The study builds on an overview and empirical analysis of the factors influencing investment in Nigeria.

To achieve the objectives, the hypothesis was stated with the goal of achieving current and future stable upswings in investment by re-addressing the investment problem as highlighted in the problem statement.

The dependent variable in the study was investment, and the independent variables were government expenditure, tariff, real interest rate, and capital stock. The data was analyzed using an economic model of multiple regression using the ordinary least square (OLS) technique. The t-test was used. The results show that government spending, tariffs, and the real interest rate are all increasing. At 5%, the difference is not statistically significant. As the second order test, the normality and heteroscedaticity tests were used.

TABLE OF MATERIALS

Title Page – – – – – I

Page of Approval – – – – – – ii

Dedication – – – – – – – – – iii

Acknowledgement – – – – – – – iv

Abstract – – – – – – – – – v

INTRODUCTION TO CHAPITRE ONE

1.1 Research Background – – – – 1

1.2 Statement of the Issues – – – – – 6

1.3 Research Issues – – – – – 8

1.4 Study Goal – – – – – 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 Executive Summary – – – – – 51

5.2 Summary – – – – – 51

5.3 Policy Suggestion – – – – – 53

BIBLIOGRAPHY – – –

Appendix

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

In the last two decades, the Nigerian economy has grown at a slow pace of less than 5%. Various explanations have been advanced for this development, but the most obvious has been the economy’s poor investment climate, which has been attributed to a lack of investable funds.

Sustaining economic growth requires a balance of investments in physical and financial assets, human and social capital, and natural and environmental capital.

Nigeria has been classified as a low savings and even lower investment economy (Ajakaiye 2002). Fostering sustained economic growth was a primary goal of the Nigerian government under the 1999 democratic dispensation. Over the years, the government has been in charge of growth.

The financial system. However, history has shown that the government cannot effectively regulate the economy. A typical example is the recommendation in the National Economic Empowerment and Development Strategy (NEEDS) to restructure and deepen the financial system. According to some economists, such as Mckinnon and Shaw (1973), rising investment alone is insufficient to generate growth, and the role of financial institutions is critical. The viewpoint expresses, in particular, that the role of capital fund is critical to the success of any endeavor (World Bank 1998). In this regard, it is critical to investigate the determinants of economic investment over the last three decades.

Economic growth is derived from investment in such an economy.

Investment is regarded as a key driver of economic growth. Investment in various sectors of the economy stimulates aggregate employment, output, and demand income, which also increases government revenue for further provision of basic industrial and agricultural inputs for an economy’s growth and development. As a result, the investment multiplier raises national income, which raises savings for investment, consumption, and aggregate demand. The result will be an increase in the average person’s standard of living, which is a major impediment to economic growth and development.

In rural Nigeria, the banking sub-sector has remained foreign. However, the establishment of community banks (now micro finance banks) has recently increased. Their presence in rural areas. With government assistance, these banks make loans and mobilize savings from rural areas for further investment in Nigeria. Furthermore, the government has attempted to provide necessary infrastructure in rural areas in order to reduce the rate of rural-urban migration in order to compel the rural population to take agriculture to greater heights as it has in the previous 38 years. The government’s main goal, however, has been to diversify the various sectors of the economy. This is done to increase employment, which increases income and savings for future investment. However, the process has been insufficient thus far due to political instability and policy inconsistency, which range from corruption of political administrators to the negative impact of transitional government.

Diversification of key sectors of the economy such as agriculture and industry raises employment, incomes, consumption, savings, demand, and, in general, aggregate investment levels, which broadens and deepens the society’s standard of living. However, economists have expressed concern about most African countries’ dismal growth records in comparison to other regions of the world (World Bank, 1998).

This is because the rate of growth in most African countries, including Nigeria, is frequently not proportional to the level of investment.

Nigeria, for example, experienced tremendous growth as a result of the oil boom in the early and late 1970s.

This resulted in increased investment, particularly in the public sector. However, following the collapse of oil market prices in the early and mid-1980s,

Investment dries up, causing economic growth to slow. During the investment boom, for example, gross investment as a percentage of GDP was 16.8% and 31.4% in 1974 and 1976, respectively, before falling to 9.5 and 8.7 percent in 1984 and 1985 due to the depression.

Although the rise in oil prices from 1990 to 1991 was supposed to spur investment, this was not the case in Nigeria. The Nigerian military government, for example, was inexperienced in economic policy formulation and thus delegated that task to bureaucracy (Babalola and Idoko 1996). The unit was that investment decision that was undertaken with great decline, and the government adopted the IMF World Bank Structural Adjustment Programme (SAP) in 1986 with a view to

to providing stable macroeconomic and investment environment.

To that end, previously fixed and negative in real terms interest rates were replaced with a market-driven interest rate regime.

By decontrolling interest rates, the policy shift deemphasized direct investment stimulation through low interest rates and encouraged savings mobilization (World Bank 1996). As a result, the goal of increased investment and output growth was not met, as the country’s investment fell short of the level reached in the 1970s.

Although successive governments have implemented policies and strategies to increase savings and investment, these policies have been erratic as a result of recent government changes caused by political instability.

Furthermore, the

East Asian countries’ experience suggests that an investment rate of 20 to 25 percent could result in a growth rate of 7 to 8 percent. Statistical evidence shows that Nigerian output, as measured by real GDP, experienced positive growth soon after the civil war, following the oil boom of the 1970s, with the growth rate reaching 21.3 percent in 1971. (Bage 2003. P. 17)

As a result, for Nigeria to experience increased growth and development, the pace of private investment must be increased, as was the case in Asian countries.

Finally, an examination of domestic investment necessitates a concurrent link to GDP as an aggregating factor, interest rate, and other unique variables that react. to fluctuations in investment, such as debt ratio, business environment, real exchange rate, government expenditure, and infrastructure provision, etc.

1.2     Statement of the Problems

Numerous factors have hampered domestic investment in Nigeria.

These elements include the following.

Low capital stock: If the capital stock is low, investment will fail.

The low level of capital stock has resulted from poverty, which reduces domestic savings as a result of a decline in real per capital inadequate infrastructures, investment entrepreneurial activities are discouraged even more by the absence of basic infrastructure such as electricity, good roads, and communication (Green J. and D. Villanura (1991)).

Nigeria’s economic and social infrastructures are underdeveloped. As a result, both domestic and foreign investors are wary of investing in countries where basic necessities are insufficient. Political insecurity and inconsistency in policy. Investment has been halted due to the Nigerian government’s transitional nature.

The interest rate

move inversely with investment, that is, as interest rates rise, investment falls, and vice versa, as interest rates fall, investment rises. However, Nigeria’s interest rate of around 17.6% in 2006 did not account for an increase in private investment due to ineffective administration and poverty.

Over the years, the increase in domestic and external debt has had a negative impact on the level of investment in Nigeria. Between 1977 and 2007, Nigeria’s debt burden had an impact on the economy and people’s well-being. For example, Nigeria owed the international community billion as of the end of 2007, while its total external debt stock stood at 25.77 billion dollars (US), which could have been used for more allocation of basic necessities, thereby increasing investment (Babalola).

Idoko, 1996).

Exchange rate fluctuations have also contributed to foreigners’ aversion to investing in Nigeria. This is due to low export good capital manufacturing, which would normally have increased the domestic exchange rate (Jhingan M. L. 2005).

As a result, rather than investing domestically, the majority of Nigerians prefer to invest abroad, where their money will be managed effectively.

High raw material costs and the underdeveloped nature of domestic raw materials for investment. As a result, the government should provide incentives to investors such as tax breaks and reductions in duties levied during raw material imports.

1.3     Research Questions

The research focuses on answering the following questions:

The link between national savings and national investment.

Household consumption and investment are related.

The connection between the inflation rate and investment

1.4     Objectives of the Study

The study’s objectives will be to:

Determine the investment trend, character, and profile.

To ascertain the link between investment and real gross domestic product in Nigeria.

Recommend policy measures to increase investment in Nigeria.

1.5     Statement of the Hypothesis

The following hypotheses will be used to guide the research study:

Ho: macroeconomic variables have no effect on investment.

Nigeria.

Hello, macroeconomic variables do have an impact on investment.

Nigeria.

1.6     Significance of the Study

The study’s significance stems from the fact that it will shed light on the relationship between investment and other key policy variables.

It will also investigate why Nigeria’s investment efforts have not yielded the desired results.

This research work is expected to be a resource for economic and social planners interested in the study of investment in Nigeria.

1.7     Scope /Limitation of the Study

The main limitation is the date’s quality. While public sector investment can be easily obtained from budget estimates, there is no reliable control in the case of private investment because the date series are questionable because they are derived residually.

The study relied on data series spanning the years 1977 to 2007. The availability of data and the desire to capture the periods of structural break control regime informed the choice of time.