Determinants of economic growth in nigeria: an autoregressive distributed lag (ardl) modeling approach

Project Abstract

<p> </p><p>The research also examines the relationship between the ARDL procedure and the fully<br>modified OLS approach of Phillips and Hansen to estimation of cointegrating<br>relationship between all the variables, and economic growth, these results provide<br>strong evidence in favor of a rehabilitation of the traditional ARDL approach to time<br>Series econometric modelling. The ARDL approach has the additional advantage of<br>yielding consistent estimates of the long-run co-efficient that is asymptotically normal<br>irrespective of whether the underlying regressors are I(1) or I(0).,This research provides<br>an empirical analysis of the relationship between economic growth and its determinants<br>factors with special focus on gross domestic product, foreign direct investment and<br>other important factors in Nigeria, using data from the period of 1976 to 2010, we also<br>in employed ARDL bounds testing for the long run relationship and ECM for the short<br>run dynamics. The findings suggest a positive relationship between efficient real GDP<br>and foreign direct investment and economic growth both in short run and long run.<br>Money supply and inflation have negative effects on economic growth while fiscal<br>deficit and foreign direct investment have positive effects on growth. Foreign direct<br>investment is found to have significant positive effect on growth. The results are<br>consistent with the theoretical and empirical prediction.</p><p>&nbsp;</p> <br><p></p>

Project Overview

<p> 1.1 Introduction<br>Economically developed countries have been able to reduce their poverty level,<br>strengthen their social and political institutions, improve their quality of life, preserve<br>natural environments and achieve political stability [Barro (1996); Easterly (1999);<br>Dollar and Kraay (2002a); Fajnzylber,. (2002)]. After the World War II, most of the<br>countries adopted aggressive economic policies to improve the growth rate of real gross<br>domestic product (GDP). The neoclassical growth models imply that during the<br>evolution between steady states; technology, exogenous rate of savings, population<br>growth and technical progress generate higher growth level (Solow 1956).<br>Endogenous growth model developed by Romer (1986) and Lucas (1988) argue that<br>permanent increase in growth rate depends on the assumption of constant and increasing<br>return to capita1.<br>Similarly, Barro and Lee (1992) investigate the empirical association between human<br>capital and economic growth. They seem to support endogenous growth model by<br>Romer (1990) that high light the role of foreign direct investment in the growth process.<br>Fischer (1993) argue that long-term growth is negatively linked with inflation and<br>positively correlated with better fiscal performance and factual foreign exchange<br>markets. In the context of developing countries, investment both in foreign direct<br>investment, money supply, and ability to adapt technological changes, open trade<br>policies and low inflation are necessary for economic growth.<br>1.2 Background of the Study<br>Nigeria is a West African economy with a long coastline along the Atlantic Ocean. The<br>country shares international borders with Benin, Chad, Cameroon and Niger. Nigeria<br>2<br>ranks 32 in the world in term of total area. The terrain of the country consists of<br>southern lowlands and plateaus in the central region have a mountainous surface, while<br>the North’s consist of plain. According to the 2009 estimates, the country has a total<br>population in excess of 154 million, of which almost 70% live below the international<br>poverty line; Nigerians economy is overtly depended on the petroleum sector.<br>The Nigerian economy is one of the most developed economies in Africa. According to<br>the UN classification, Nigeria is a middle-income nation with developed financial,<br>communication and transport sectors. It has the second largest stock exchange in the<br>continent.<br>The petroleum industry is central to the Nigerian economic profile. It is the 12th largest<br>producer of petroleum product in the world. The industry accounts for almost 80% of<br>the G.D.P share and above 90% of the total exports. Outside the petroleum sector, the<br>Nigerian economy is highly amorphous and lacks basic infrastructure. Several failed<br>efforts have been made after 1990 to develop other industrial sector. Owing to the surge<br>in international oil prices during 2007-08, Nigerian managed an annual G.D.P of<br>US$352.3 billion. The nation rank 33 in the world in term of G.D.P per capital of<br>US$2,400.The economic conditions of Nigerian have advanced over the last few years<br>as a result of the rapid phase of industrialization. The economy of Nigeria also<br>improved tremendously with foreign investment aided by high quality research and<br>development. Nigeria was under the British colonial rule for a considerable period of<br>time. During this phase, major raw materials and mineral were exported to foreign<br>countries along with food grain which is due course of time spear headed the rise of<br>slavery and exploitation of labor class by the Europeans.<br>3<br>After the achievement of independence in Nigeria efforts were made to revive the<br>economic growth of the country through a set of economic reforms. It’s important to<br>note that before the discovery of oil in Nigeria the country survived mainly on its<br>agricultural production. The present G.D.P growth rate has been 7% in the past few<br>years.<br>1.3 Statement of the Problems<br>Although various factors have been adduced to Nigerian economic growth performance,<br>the major problems has been adduce to the economy’s continued excessive reliance on<br>the fortunes of the oil market and the failed attempts to achieve any meaningful<br>economic diversification (Osuntogun. 1997), reflecting the effect of the so called<br>“Dutch disease” the need to correct the existing structural distortion and put the<br>economy on the path of sustainable growth is therefore compelling, this raise the<br>questions of what else need to be done in order to diversify the economy and develop<br>the various factors in order to realize the potential of the factors that determine<br>economic growth. This calls for new thoughts and initiatives, which is the essence of<br>this research.<br>1.4 Research Questions<br>According to the objectives stated bellow, the research questions that would be<br>examined in the course of the study are as follows<br>i. What has been the structure of the economic growth in Nigeria?<br>ii. What are the factors that are responsible for determine the economic growth in<br>Nigeria?<br>iii. What has been the performance of each factor on economic growth in Nigeria?<br>4<br>1.5 Aims and Objectives of the Study<br>. The specific objectives of the study are as follows<br>i. To determine the factors those are responsible for the performance of Nigerian<br>economic growth.<br>ii. To analyze and measure the contributions of each factor on economic growth in<br>Nigeria.<br>iii. Evaluate the effort of each factor on economic growth in Nigeria.<br>1.6 Research Hypothesis<br>Base on the models stated above, the hypothesis to be tested in this research is stated<br>bellow.<br>Hi: The factor has contributed significantly to the economic growth of Nigeria.<br>Ho: The factor has not contributed significantly to the economic growth of Nigeria.<br>1.7 Significance of the Study<br>The major significance of this study are as follows<br>i. It would provide an econometric assessment of the contribution of these factors<br>to the economic growth of Nigeria.<br>ii. It would provide detailed composition of these factors of Nigerian in recent time<br>apart from petroleum oil<br>5<br>1.8 Scope of the Study<br>This project focused on the factors that determine the economic growth in Nigeria as<br>necessitated by the devastating effect on the recent global economic crisis. Although<br>several attempts has been made to diversify the Nigerian economy since the<br>introduction of structural adjustment programmed (S.A.P) in 1986, no meaningful.<br>Success has been achieved. Therefore, this project would examine the trend, pattern and<br>composition of the factors responsible for Nigerian economic growth during the post<br>and pre-SAP era as well as its export profile, subsequently, the causes and consequence<br>of the neglect of the factors shall be identify. The study would also investigate the<br>contribution of all these factors to the economic growth of Nigeria with data ranging<br>from 1976to 2010<br>6 <br></p>