It is frequently wondered why such a affluent state as Nigeria with an estimated gross domestic merchandise of $ 339billion and income per capita of $ 2,300 in 2009 is regarded as one of the poorest in the universe ( U.S Department of State, 2010 ) . Using Nigeria as a trial instance, the survey aims at proving the empirics of growing theoretical accounts which attempts to give theoretical logical thinking for economic determinations and policies. Data provided will be analysed and explained utilizing theoretical and empirical theoretical accounts with respects to the events that happened in the state from 1950 to 2009.
EVALUATING THE GROWTH EXPERIENCE OF NIGERIA
Theory as postulated in the Solow Model argues that economic growing and development could be achieved and guaranteed when a state works towards bettering capital accretion via nest eggs and besides pursues technological sweetening which is believed to better the efficiency of inputs. Based on this theoretical logical thinking, economic and development histrions across the Earth have hailed the chase of growing docket on the footing of factor accretion.
Figure.1 shows a diminution in the center 60s which was because of the civil war, but the economic system subsequently experienced a stable growing in the seventies. Judging from the theoretical positive degree relationship between GDP and investing growing, one would hold expected that the informations would hold reflected such a relationship. However, during the 1950s this was non the instance, constantly, a bead in capital formation was accompanied by a fringy addition in GDP growing.
Majority of the state ‘s income comes from oil returns while a little sum is accounted for by agribusiness, services and industry ( Saibu n, vitamin D ) . The economic experience at the clip may hold deviated from Solow ‘s statement partially due to under use of capital accumulated and its subsequent reduced productiveness. As postulated by the theoretical account, at early phases of a state ‘s growing where capital-labour is low, it is expected that the fringy merchandise of capital be higher which in bend must impact the growing kineticss of the state during the passage period. However, this was non evident in Nigeria ‘s 1970-74 growing history, because capital accretion was below the degrees needed to reflect meaningful part to end product every bit reflected in Figure 1.
On the norm, over the last 56 old ages, existent GDP ; investing and population growing depict a positive relationship with a correlativity coefficient of 0.44, 0.23 severally.
Relationship between Real GDP, Investment and Population Growth ( 1950-2006 )
Data Source from Penn Table 6.3 from 1950-2007.
The weak correlativity between GDP and investing confirms the early averment that, factor accretion plays a minor function in explicating Nigeria ‘s economic growing. However, since correlativity does non connote causing, an effort was made to set the information into proper statement via a arrested development theoretical account in the signifier ;
logGDPt = C + A“log St + A° logNt + Et… … … … … … ..1 ; where GDP – existent GDP growing, S – investing ratio ; N-population growing adjusted with ( g+d = 0.05 ) and E is the error term.
The consequences as reported below shows that investing and population growing can explicate merely 8.3 per centum of Nigeria ‘s economic growing. However, investing has a important positive consequence on the state ‘s economic growing and that an effort towards increasing investing will be effectual for Nigeria ‘s economic lucks.
OLS, utilizing observations 1950-2006 ( T = 56 )
Dependent variable: GDP
7.1640 ( 0.175 )
0.0832** ( 0.0412 )
F ( 2,53 )
-0.0755 ( 0.2075 )
( – ) 0.3638
Due to the minimum explanatory power of our arrested development, it could be realised exclusive trust on Solow theoretical account will be inappropriate, therefore the demand to research explanatory variables.
In the late sixties and the early 70s, Nigeria experienced an accelerated growing with the rate of investing and GDP traveling up, largely as a consequence of the grosss earned from oil. Awokuse ( 2009, p.20 ) hinted that trade openness has a individual major function in accounting for Nigeria ‘s growing experiences. As a major oil exporter, trade constitutes over 80 per centum of the state ‘s existent GDP and has showed an upward tendency since 1950 as seen in Figure 2 & A ; 3. The volatility in the oil market reflects so significantly in the state ‘s GDP continuity.
Data Source from World Bank Indexs, from 1960-2009.
Prior to the 1975 oil monetary value daze, GDP galloped from 3.66 per centum in 1973 to 16.37 per centum in 1974 ( Own computation from Penn table 6.3 ) . This 1974 impressive growing got wiped off to a negative 7.89 per centum in 1975. Surprising, as an oil bring forthing economic system, one would hold expected that the oil monetary value escalation should hold translated into favorable footings of trade and hence encouragement economic growing. However, the Fe of the state of affairs is that, as a major oil exporter, Nigeria is besides a major importer of nutrient and industries. Figure 3 below reveals that imports continue to increase as exports and were even higher than exports at some point during the subsequent old ages. The oil daze which affected other trade good monetary values rose during 1974 which meant the state ‘s footings of trade instead deteriorated alternatively of bettering and in bend affected her growing negatively.
Data Source from World Bank Indexs, from 1960-2009.
Picturing a correlativity coefficient of 0.93, it can be said that, Nigeria ‘s economic growing is better related to merchandise liberalisation than it is to investing.
As argued by the Lewis theoretical account, developing states are developing because of the little urban sector which could hold stimulated nest eggs and capital enlargement. Nigeria ‘s growing quandaries can partly be accounted for by the economic system ‘s rudiment rural sector and copiousness of unemployed custodies in the economic system. The unsupportive fiscal environment in which involvement on adoption is so high coupled with high rising prices, defects capital accretion behavior of the Lewis hypothesised capitalist. It was hence believed that betterments in the fiscal sector would hold some impressive consequence on economic growing. While causing can non be inferred, empirical grounds from Nigeria ‘s liberalization effort shows assorted correlativity consequences. Akpan ( 2004 ) posited that neither domestic nest eggs nor investing increased in Nigeria as consequence of fiscal liberalization. The early 1986 Structural Adjustment Programme ( SAP ) execution aimed at fiscal and trade liberalisation had a positive consequence in economic growing, traveling the state from – 10.8 per centum GDP growing to 4.5 per centum in 1988 ( Own computation from Penn table 6.3 ) .
With high alumnuss unemployment around 70 per centum harmonizing to Iyoha ( 2008 ) , human capital has been marginally utilized in the harmonizing. In the Romer theoretical account, it is coevals and use of thoughts that sustains improved growing, so hence sing Nigeria ‘s under-utilization of human capital, it non strange the economic system is dead.
From the treatment so far, it clear that the state ‘s success narrative can be premised on openness and that the economic system ‘s quandaries could be explained by weak fiscal environment, hapless administration, corruptness and the cardinal factors of political agitation and developing establishments.
Policy Recommendation and Conclusion
In visible radiation of the foregoing, Nigeria can merely accomplish successful growing when it eventually adopts an economic policy that is private sector led and export oriented. As private sector led economic system, corruptness will be limited, free rent seeking cultural groups who believe in authorities engagement in concern will happen something productive to make. Capacity use in agribusiness should be pursued in order to diversify the economic system from oil entirely.