The Financial Liberalization For Nigeria And Ghana Economics Essay

The fiscal liberalisation thesis has experienced what Arestis and Demetriades ( 1999 ) have dubbed station hoc theoretical alterations. The annihilating consequences of liberalisations in the 1970s and 1980s induced a first unit of ammunition of alterations. It was linked to the job of macroeconomic instability and unequal bank.

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For the empirical analysis, I used a clip series informations and a panel information, both one-year information. The clip periods screens from 1975 to 2008. As I mentioned earlier, the variables that were used in transporting out the analysis includes, grade of openness, gross domestic merchandise, foreign direct investing, fiscal deepening.

Before proving transporting out the analysis, I checked for stationarity in the variables, utilizing their major trial, and they include the Augmented Dickey Fuller trial, Phillip- Perron trial and the KPSS Test. I took the first difference of the variables and found out they were stationary. In order to cognize if the variables tend to travel together in the short tally, I used the Engel Granger 2 measure methods to look into for cointegration, and the consequence showed there were carbon monoxides integrated which means that I can travel in front and run a arrested development on the variables for the information analysis.

The tabular arraies below nowadayss the unit root trial for all the variables for Nigeria and Ghana.

Unit root utilizing the augmented Dickey -Fuller trial ( Nigeria )

Variables

ADF TEST Statistics

Probability

DOP

-1.744

0.4006

FD

-2.209

0.2068

FDI

-0.063

0.9452

GDP

-1.764

0.3906

GNS

1.209

0.9981

Using the P values for all the variables at the degree, it showed that they were non stationary, at 5 % , 1 % and 10 % . Thus we do non reject the hypothesis that the variables have unit roots.

Unit root trial utilizing the Phillips Perron trial ( Nigeria )

Variables

PHILLIPS- PERRON TEST STAT

Probability

DOP

-1.526

0.5078

FD

-2.415

0.1453

FDI

-0.035

0.9483

GDP

-2.005

0.2833

GNS

1.827

0.9996

For proving the unit root utilizing the Phillips Perron trial, the standards for judgment was the P values, at 1 % , 5 % and 10 % significance, it showed that the variables are non stationary.Thus we do non reject the hypothesis that the variables have unit roots.

Unit root utilizing the KPSS trial ( Nigeria )

Variables

KPSS TEST Statistics

DOP

0.5852

FD

0.1170

FDI

0.6553

GDP

0.6713

GNS

0.1560

The ground for utilizing the KPSS trial was to look into if the consequences from the Phillips and Perron trial was really true or it makes sense, harmonizing to Brooks ( 2008 ) , to do the decision of the Augmented Dickey Fuller and Phillip- Perron trial more robust, the decision you get from these trial must be the same as the decision from the KPSS trial.

The consequence I got from the KPSS trial goes with the consequence I got from the Augmented Dickey Fuller and Phillip Perron trial.

Unit root utilizing the Augmented dickey-fuller trial ( Ghana )

Variables

ADF TEST STATICSTICS

Probability

DOP

-2.109

0.2445

FD

-2.193

0.2122

FDI

-0.382

0.9009

GDP

0.140

0.9365

GNS

1.394

0.5725

Using the P values for all the variables at the degree, it showed that they were non stationary, at 5 % , 1 % and 10 % . Thus we do non reject the hypothesis that the variables have unit roots.

Unit root utilizing the Phillips Perron trial ( Ghana )

Variables

PP Trial

PROBABILTY

DOP

2.974

0.0478

FD

2.046

0.2667

FDI

-0.274

0.9183

GDP

-0.238

0.9236

GNS

-1.2044

0.6607

For proving the unit root utilizing the Phillips Perron trial, the standards for judgment was the P values, at 1 % , 5 % and 10 % significance, it showed that the variables are non stationary.Thus we do non reject the hypothesis that the variables have unit roots.

Unit root utilizing the KPSS trial ( Ghana )

Variables

Trial Statistics

DOP

0.311

FD

0.589

FDI

0.619

GDP

0.586

GNS

0.619

The consequence I got from the kpss trial goes with the consequence I got from the Augmented Dickey Fuller and Phillip Perron trial. This means that the decision is robust.

The following measure was to look into if the variables were co integrated and utilizing the Engel Granger co integrating technique, I found out that there was co integrating, which means the variables tend to travel together in the short tally. This means I can travel farther to run my arrested development and carry out my analysis.

First, I am traveling to get down with analyzing the consequence for Nigeria, utilizing ordinary least square arrested development

The following analysis will be on Ghana ‘s consequence.

LogGDP=?0+?1LogGNSt+?2LogDOPt+?3LogFDt+ LogFDIt

LogGDP= -16.01 +0.407 LogGNS- 0.091 LogDOP- 0.107 LogFD + 0.102 LogFDI

( 1.11 ) ( 0.08 ) ( 0.03 ) ( 0.05 ) ( 0.03 )

All the variables are statistically important. From the arrested development end product, it can be shown that Gross National Savings had a positive impact or influence on Gross Domestic Product, this consequence conforms to the findings of McKinnon ( 1973 ) and Shaw ( 1973 ) . It is normally believed that since economy is a beginning of support for investing which will increase Gross Domestic merchandise, any policy that is designed to excite economy, will besides excite Gross Domestic Product. Degree Of openness which measures fiscal liberalisation had a negative impact on Gross Domestic Product ; this can be as a consequence of weak fiscal system. The consequence for fiscal deepening has a negative impact on Gross Domestic Product, but foreign direct investing showed a positive relationship which shows that despite the fact the economic system is opened and with it economic instability, there are still foreign investings and this has had a positive impact in the economic system.

LogGDP=?0+?1LogGNSt+?2LogDOPt+?3LogFDt+ LogFDIt + Ut

GDP= 7.8298-.0405 LogGNS + 0.7660 LogDOP – 0.0143 LogFD + 0.2693 LogFDI

( 1.39 ) ( 0.05 ) ( 0.35 ) ( ( 0.262 ) ( 3.610 )

R2= 0.90, F-Stat=60.34076

The consequences of the equation above shows that all the variables are important except Gross national nest eggs and Financial Deepening, and I did non desire to fling the variables, because I used them for my analysis for Ghana ‘s economic system. So I tested the void hypothesis that the parametric quantities on these two variables are jointly zero utilizing an F -test. The ensuing F trial follows F ( 2, 27 ) distribution as there are two limitations. The F statistics value was 63.4379 with P- value 0.000, which means that we can reject the void hypothesis at 5 % degree of significance and they are extremely important, that means the variables will be retained.

The consequence above shows that Degree of Openness which is a step for fiscal liberalisation has a positive impact on Gross Domestic Product, which means that as fiscal liberalisation positively increases the growing of Gross Domestic Product. This in consequence is in conformance with the determination of Gallego and Loauza ( 2002 ) and besides Okpara ( 2009 ) . The snap of coefficient of Degree Of Openness was 0.766, connoting that a 1 % addition in Gross Domestic Product will take to a 0.7666 % addition in Gross Domestic Product other variables being changeless.

The following variable which is the Gross National Savings is negatively related to Gross Domestic Product, which means that national economy as a consequence of fiscal liberalisation has had a negative impact on Gross Domestic Product. The snap coefficient of Gross National Savings was 0.405, connoting that a 1 % addition in nest eggs will take to a decrease in Gross Domestic Product by 0.405 % . The consequence for Gross National Savings is in line with the findings of Bennett et Al ( 2001 ) , Ostry and Levy ( 1995 ) and Bayoumi ( 1993 ) but contradicts that of McKinnon ( 1973 ) and Shaw ( 1973 ) .

Fiscal deepening has a negative relationship with Gross Domestic Product despite reform policy of the economic system, which implies the inability of fiscal establishments to efficaciously call up nest eggs for investing intents. A 1 % addition in Financial Deepening will take to a 0.014 % lessening in Gross Domestic Product. Financial deepening has been low for Nigeria ( Nzotta and Okereke, 2009, pp52 ) . The chief characteristics of the fiscal deepening sums during the 22 twelvemonth period, as evidenced from Table 2 were every bit presented below. Financial intensifying moved from 35.9 in 1986 down to 24.2 in 1992 and increased to 29.7 by 1994. This declined further to 15.3 by 1997 before lifting to 32.0 by 2004. The sum moved down to 18.0. The tendency above clearly shows that the fiscal intensifying index did non see any dramatic alterations during the period. This is despite the assorted reforms introduced from 1986 which should hold a positive consequence on fiscal deepening in Nigeria. The job with fiscal deepening was besides as a consequence of the troubles encountered after several efforts of liberalisation in Nigeria, partially because the authorities suddenly withdrew public sector sedimentations from the banking system ( Aryeetey et all,1997, pp200 ) Foreign direct investing from the arrested development end product is seen to hold had a negative positive influence on Gross Domestic Product, which means that as a consequence of the openness of the economic system, more foreign investing has been encouraged which has resulted in a positive impact tin the economic system. This consequence contradicts with the findings of Okereke ( 2009 ) , which showed that Foreign Direct Investment exhibited a negative influence on Gross Domestic Product.

PANEL DATA.

LogGDP=?0 – ?1LogDOPt + ?2LogFDt – ?3LogFDIt + Ut

LogGDP= 10.67 – 0.616 LogDOP + 0.695 LogFD – 0.120 LogFDI

Std. Error ( 0.544 ) ( 0.074 ) ( 0.113 ) ( 0.04 ) R2=0.9

T-stat ( 19.59 ) ( 8.27 ) ( 6.11 ) ( 2.44 ) F-stat= 889 P ( F-stat ) =0.0000

All the variables were important at 1 % , 5 % and 10 % degree of significance. And besides utilizing the f-test to look into the overall significance of the theoretical account, the f-stat showed that it was important at 5 % , 1 % and 10 % degree of significance, besides the p-value is less than 0.05 which besides shows that it is important. The coefficient of finding was 0.90 and the adjusted R- Squared was 0.89 which shows that over 89 % systematic fluctuation of Gross Domestic Product can be explained by all the dependent variables. This therefore is certainly a good tantrum as merely about 10 % of systematic fluctuation is left unaccounted for in the theoretical account. The staying influence must reflect some combination of measurement mistakes, random fluctuations, etc. All the variables were logged. There is a positive relationship between fiscal deepening and Gross domestic merchandise, which signifies that they are linearly related the snap coefficient of fiscal deepening is 0.69 implying that a 1 % addition will increase Gross Domestic Product by 0.69 % when other variables are kept changeless. Since the snap value of 0.69 is less than one ( 1 ) , demoing that it is inelastic, this means that a unit alteration in Financial Deepening will convey about a less than proportionate alteration in Gross Domestic Product. There is a negative relationship between Degree Of Openness and Gross Domestic Product, the snap coefficient of Degree Of Openness is -0.61, connoting that a 1 addition in Gross Domestic Product.

For foreign direct investing, the snap coefficient is -0.12, connoting that a 1 % addition in Foreign Direct Investment will diminish Gross Domestic Product by 0.120 when other variables are kept changeless. since the value of -0.120 is less than one ( 1 ) in absolute footings.

From the consequence above, the lone variable that has had a positive impact on the Gross Domestic Product as a consequence of the liberalisation of the fiscal sector is fiscal intensifying. Degree Of openness and Foreign Direct Investment has had a negative influence on the Gross Domestic Product. This means that the extent of the grade of openness has really non worked in sub-Sahara African states. Degree Of Openness negative impact does non intend that liberalisation will ne’er work in African states, or instead does non work the major ground behind this job is the fact that the fiscal system is weak, but as ( Pill and Pradhan, 1997 p7 ) puts it ; fiscal liberalisation is merely one constituent of a flourishing development scheme. Suitable macroeconomic policy, institutional development, and structural reform must travel along with fiscal liberalisation and make the stable context vital for it to win, which is non present in some African states.

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