TITLE PAGE
GLOBALIZATION AND ITS IMPACT ON ECONOMIC GROWTH OF
THE NIGERIAN ECONOMY (1986 - 2008)
BY
ENUDI IRENE ONYEKA
EC/2006/232
DEPARTMENT OF ECONOMICS
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
CARITAS UNIVERSITY AMORJI NIKE EMENE ENUGU
AUGUST, 2010.
GLOBALIZATION AND ITS IMPACT ON THE ECONOMIC
GROWTH OF THE NIGERIAN ECONOMY
A PROJECT WRITTEN IN PARTIAL FULFILMENT OF THE AWARDS
OF BACHELORS OF DEGREE (B. Sc) IN ECONOMICS
BY
ENUDI IRENE ONYEKA
EC/2006/232
MANAGEMENT AND SOCIL SCIENCES, CARITAS UNIVERSITY
ENUGU.
AUGUST, 2010.
APPROVAL PAGE
I certify that this research was carried out by Enudi Irene Onyeka EC/2006/232 of
Economics Department Caritas University Amorji- Nike Emene Enugu.
……………………………
Mr. Ojike R.O
(Project Supervisor)
………………………………
Barr. Onwudinjo P.C
(Head of Department)
Date…………………….
Date………………………….
……………………………
Dr. C.C. Umeh
Dean, Faculty Management
and Social Sciences)
Date…………………….
……………………………….
External Supervisor
Date …………………………
DEDICATION
This project work is dedicated to God Almighty who saw me through in all life
endeavors and to my wonderful parents, Mr. and Mrs. Enudi, who saw education
as the best legacy I must acquire in order to succeed in life.
ACKNOWLEEDGEMENT
I owe a lot of gratitude to my supervisor, Mr. Ojike whose direction and well
intended supervision made this work a reality and to all my lecturers and H.O.D,
Barr. Onwudinjo, for their academic assistance rendered to me.
Special gratitude goes to my course mates, Chidinma, Glory, Ajuma, Goodness,
Emenike, Rebecca, Joan and others for the support and undying love. Also to my
friends, Usinan, Deborah, Rosetta, Amaka, Temitope, Joy, Joyce, Habibat,
Chinenye and others for their support and care throughout my stay in this
institution. Indeed you were all kind.
Finally, to God Almighty, for giving me a chance to show a part of me which has
always wanted to be viewed, making this objective attainable and Who has blessed
me beyond comparism.
TABLE OF CONTENTS
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE
INTRODUCTION
1.1. Background of the study
1.2. Statement of the study
1.3. Objectives of the study
1.4. Statement of hypotheses
1.5. Significance of the study
1.6. Scope and limitations of the study
CHAPTER TWO
LITERATURE REVIEW.
Theoretical Literature.
2.1. Globalization as a concept
2.1.2. Strands of thought of Globalization.
2.1.3. Forces of Globalization.
2.1.4. Globalization in the context of finance and capital flows and Foreign Direct
Investment.
2.1.5. Challenges of globalization for Nigeria.
2.2 Empirical Literature
2.3. Limitations of the previous study
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Model specification
3.2 Methods of evaluation.
3.2.1. Statistical Tests (First order tests)
3.2.2 Econometric Tests (Second order tests)
3.2.3. Economic Apriori Criteria.
3.3. Data required and source/ Software package.
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF RESULT
4.1. Presentation of regression result
4.2. Result interpretation
4.2.1. Evaluation based on Economic Criteria
4.2.2. Statistical test (First order test)
4.2.3. Econometric test (Second order test)
CHAPTER FIVE
SUMMARY, POLICY RECOMMENDATION AND CONCLUSION
5.1. Summary
5.2. Policy Recommendation
5.3 Conclusion.
Bibliography
Appendix
ABSTRACT
This research work Globalization and its impact on the growth of the Nigerian
economy from periods of 1986 to 2008 is basically to determine the impact of
globalization on the Gross Domestic Product of the Nigerian economy as well the
impact of financial integration on the Nigerian economy. It was found out in recent
years that the Nigerian economy has developed economically wise due to
globalization. Globalization being a process of interconnections between countries
of the world has turned out to have a positive effect on the Nigerian economy most
especially in the telecommunication and industrial sectors of the Nigerian
economy.
This work shows the impact and those variables responsible for the impact. From
evaluation and analysis of result, this work shows that only Foreign Direct
Investment proved to have a positive impact on the Nigerian economy through
globalization and hence it should be given lots of concern. Other variables used
alongside Foreign Direct Investment, in judging this impact were Real Interest rate,
Openness and Real Exchange Rate.
Also necessary recommendations were made at the concluding part of this work
(chapter five) to help boost the economic growth and development of Nigeria
based on the indices used if properly applied and implemented.
CHAPTER ONE
1.1BACKGROUND OF THE STUDY
Generally, globalization can be viewed as the integration of national economics
through trade, capital flows and the accompanying convergence of economic
policies. It is the process whereby political, social, economic and cultural relations
increasingly take on a global scale and which has a profound consequence for
individual’s local experience and everyday lives (Bilton, 1997). The definition
above implies that globalization operates both at global and local levels and
therefore impacts on the economy and politics of a country as well as the culture
and well being of the citizens.
Globalization is rooted in multinational trading and investments arrangements and
the opening up of trade, through liberalization of the financial sector as well as the
economy as a whole. The reasoning behind this policy thrust is that the promotion
of trade enriches the wealth of nations. For instance, trade liberalization under the
Uruguay round of multilateral trade agreement of 1995 was estimated to have
provided over 100billion U.S dollars a year in net benefits accruing mainly to those
countries that have removed trade barriers (Hausters, Gerd, 2000). Financial
integration as a part of globalization therefore envisages the free flow of loanable
funds, openness of capital flows when combined with sound domestic policies,
allow countries access to be much larger pool of capital. High capital flows leads
to enhanced investment and economic growth, particularly when the inflows are in
foreign direct investments, as against potentially volatile short term portfolio
flows.
Furthermore, Foreign Direct Investment not only complements domestic savings
but also enhances the depth and efficiency of the domestic financial markets and
the absorption of foreign technologies. However, the monetary and fiscal policy
framework of the nation must be appropriate for the economy to benefit financial
globalization (Yusuf, 2001).
Globalization is not a new phenomenon, as it has progressed throughout the course
of history dating back to the late 19th century. The history, was however,
conquered and the speed slowed down until the new era of global integration
facilitated by the removal of trade barriers and capital flows as well as the
advancement in communications and computer technologies which have made
easy the collection and processing of data needed for decision making.
Consequently, the world exports of goods and services have more than tripled
between 1983 and 2005. These changes have also stimulated demand for cross
border finance, against the background of financial liberalization in many
countries, promoted a pool of global liquidity to meet such demand.
Globalization have no doubt increased opportunities for accessing capital funds for
both domestic and foreign sources more cheaply and on better terms. This is
because financial sector liberalization and product innovations have in many
countries been helped by technological advances. This in turn enhances financial
intermediation and creates a more competitive market environment for financial
institutions.
The downside of those benefits is that international capital flows could be very
volatile and thereby pass serious threat to financial and macroeconomic stability.
On the other hand, reversal of capital flows as witnessed during the Mexican crisis
of 1994 to 1995 and the Asian and Russian crisis of 1997 to 1998 could endanger
the financial stability of the individual countries particularly where banks are weak
and poorly regulated. The contagion effect could as well threaten the stability of
the internationally financial system. There is also the risk that during the period of
boom and burst, asset prices may overshoot economic fundamentals, thereby
saddling banks with non- performing loan backed by collaterals that have lost
much of their values.
Globalization influences the financial sector in different and complex ways.
Typically, capital flows, exchange rate crisis and inflationary pressures are some of
the major avenues through which the impact of globalization can quickly be
transmitted into the domestic economy. The implication of globalization for
monetary policy can be seen through two channels. First, volatile short term capital
flows and exchange rate movement which are associated with globalization can
cause an increase in the uncertainties surrounding the outcome of monetary
policies. Secondly, globalization forces policy makers to undertake structural
adjustments or reform which changes the conditions under which monetary policy
targets, strategies and instruments. It is generally believed that the more
discretionary monetary and fiscal policies are constrained, the more open an
economy becomes.
Globalization also compels government to exercise greater fixed discipline and to
ensure sound institutional and political frameworks. In order words, it does act as a
force for stability by limiting the scope for countries to pursue policies that are
consistent with medium term financial stability. High fiscal deficit and unsound
financial policies that lead to inflationary pressures, current account deficits and/or
high real interest rate, attracts the attention of international investors and capital
market operators. Thus, the room for fiscal rascality or unsustainable policies is
much reduced in a globalized world.
Specifically, monetary and exchange rate policies have undergone changes in line
with broad economic objectives. From independence up till 1986, the conduct of
monetary policies was mainly by direct control, which involved the impositions of
ceilings on aggregate bank credit expansion, sectoral allocation of credit,
administrative control of interest rate, prescription of cash reserve requirement,
exchange rate controls and the mandatory holding for government securities. The
financial market during this period was mainly underdeveloped, repressed with a
limited money market instruments and fixed and inflexible interest rate. A fully
developed economy is that which have passed the various stages of development.
This development will be achieved more rapidly if foreign investors have access to
the domestic markets.
1.2STATEMENT OF THE PROBLEM
There are problems associated with the development of the Nigerian economy in
her different sectors based on the impact of globalization. These problems may be
economic problems based on the rate of instability, policy barriers to capital flows,
inappropriate economic policies and political instabilities. There may also be
problems like market liquidity. In using liquidity as a measure of stock market
development, it seems that the Nigerian capital market is illiquid to an extent and it
has contributed very little to the growth of the Nigerian economy (Ibrahim, 2002).
Therefore, this research work shall answer the following questions
1. Does globalization produce a rapid flow of foreign capital for the Nigerian
economy?
2. Does globalization significantly improve management techniques for firms
operating in Nigeria?
3. To what extent has globalization brought about an advancement of new
technologies in the Nigerian economy?
4. Has globalization resulted in inequality between Nigeria and the western
nations?
1.3 OBJECTIVES OF THE STUDY
Specifically, the objectives of this study can be written as
1. To verify the impact of globalization on Nigerian economy.
2. To verify the impact of financial integration on Nigerian economy.
1.4
STATEMENT OF HYPOTHESIS
In view of the above mentioned objectives, the hypothesis of this research would
be
Ho: Globalization has no significant impact on the Nigerian economy.
H1: Globalization has a significant impact on the Nigerian economy.
Ho: Financial integration has no positive impact on Nigerian GDP.
H1: Financial integration has positive impact on Nigerian GDP.
1.5
SIGNIFICANCE OF THE STUDY
The economic relevance of studying the impact of globalization on the economic
growth in Nigeria needs not to be over emphasized. This study is very imperative
given the recent efforts by monetary authorities in Nigeria to re-launch the banking
sub-sector to glorious heights. Globalization has brought about the rapid change in
the Nigerian economy that seeks to increase their share of financial and direct
investment in the international market. Globalization has by no doubt increased
opportunities by accessing capital funds from both domestic and financial sources.
More so, investors can now tailor their portfolio risk to their preferences.
This study is of great importance to
 Academic institutions; globalization has played an important role in the
improvement of learning techniques. These techniques includes the use of
electronic gadgets such as computer, printers, laptops etc. which facilitate
learning processes as well as creating basis for understanding new
technological processes that will aid student academically.
 Firms; through the help of globalization, there has been easy and accessible
communication network which facilitate production, distribution of goods
and services both domestically and internationally, as well as attracting new
investors.
 Government; in terms of governance, globalization has improved our
system majorly in areas of budget. With the help of globalization, revenue
collected and expenditure made are accounted for with little or no errors.
1.6
SCOPE AND LIMITATIONS OF THE STUDY
This study covers the impact of globalization on the growth of the Nigerian
economy from the period of 1986-2008.
This research work was limited by:
 Insufficient fund.
 Limited time to carry out research.
CHAPTER TWO
LITERATURE REVIEW
2.1 THEORETICAL REVIEW
2.1.1. GLOBALISATION – A CONCEPT
The Phenomenon of globalization is a multi-dimensional and multi-faceted
process that encompasses political, economic, social and cultural dimension that
have been variously explained in different terms and contexts. Viewed from a
general perspective, the notion of globalization is broad and diverse. Due to its
multi-variety nature, globalization does not lead itself to easy conceptualization,
and like other concepts in social sciences. It is not amenable to a single simple and
straight jacket definition, which perhaps explains its various connotations by
scholars of different persuasions as internalization, universalization, liberalization,
westernization etc.
Globalization is not a single unified phenomenon but rather “a syndrome of
processes and activities which embody a set of ideas and a policy frame work
organized around the global division of labour and power” (Ibrahim, 2002).
Any meaningful and relevant understanding of globalization in Africa must
go beyond the myths and ideologies of globalization to the confrontation with the
diverse but actual processes, how they unfold their relationship with themselves
and other social and economic relations and dynamics. Such an understanding
must also recognize not only the complex but varied history of the processes being
studied, but it must reject a monolithic or homogenized understanding such as that
found in the currently neo-liberal confrontation of the subject (Abubakar, 2001).
There is therefore no unanimity of opinion on what constitutes globalization;
whether is there a consensus concerning the extent its advancement as a concept.
For a thorough understanding of the concept however, there is the need to reflect
briefly on the thrust of the discourse which in literature has been classified into
three main clusters – globalization as implying global culture; globalization as the
expression of global political orders; and globalization as depicting global
economy.
Hence, globalization is generally “the process of growing interconnection
and interdependence in the modern world. It is generated by growing economic,
cultural and political cooperation and links, as well as by the need to respond
together to global problems which can be solved only on a planetary scale
(Symonides, 1998).
Globalization is “a process that results in the growing interconnectedness of
the world” and iterates the interdependence of economics, political systems and
societies on a global scale” such a process is frequently attributed and catalyzed by
the technological innovations that allow and proved for such integration. The goal
is making a global community, to “reduce barriers for trade and investment
(http://jessbcuzz.wordpress.com/2007/01/16/globalisation-and-nigeria).
Globalization “entails universalization where by the object, practices or even
values transcends geo-political boundaries, penetrating the hitherto sovereign
nation state and impacting the orientation and value system of the people. In a
broader perspective, globalization depicts “the transformation of the relations
between States, Institutions groups and individuals, the universalization of certain
practices, identifies and structures, and perhaps more significantly, the expression
of the global restructuring that has occurred in recent decades in the structure of
modern capitalists relations (Aina, 1996).
In its most generic and broadest scene, globalization is part of the movement
of history as evident in certain forces that appear to push for increasing integration
of human activities with emphasis in contemporary world focused more on the
economic aspect of the process.
It is a process of increased integration of national economics of states with
the rest of the international system in order to create a more coherent global
economy (Kwanashie, 1999). The process has been increasingly propelled by the
revolutionary trend in information technology that combines advancement in
computing, electronics, and telecommunications which has brought up “a highly
dynamic process of storing, processing transmitting and presenting information.
Globalization “refers to the tremendous revolutionary changes that have
affected our planet as a result of changes that have also taken place in information
and communication technologies- process that have, cumulatively led to the
villagisation of the globe (Yaqub, 2003).
Globalization can be defined as a multi-dimensional process of
unprecedented rapid and intensity of interconnections on a truly global scale.
(UNDP: National Human Development Report, 2000/2001).
From the foregoing, a fundamental feature of globalization states has been
highly integrated to the extent that the internationalization of trade and economic
activities has become imperative. The interdependency is profoundly informed by
enhanced international trade sustained financial flows, increased inter country
mobility as well as improved communication arising from the innovation existence
of cellular telephone, electronic mail, the internet and digital satellite television
(Lipalile, 2001).
2.1.2 STRANDS OF THOUGHT ON GLOBALISATION
There exists a plethora of works on globalization; perspectives on the subject
however differ fundamentally depending on the ideological conviction of different
scholars. In general, the Phenomenon has being conceived from two contrasting
paradigms namely globalization as interdependence and globalization as
imperialism. Scholars of globalization as interdependence are of liberal persuasion.
They see the concept as a frame work of complex and growing interdependence
among nations. The global socio-political and economic integration is viewed in
the context of interdependencies which has restructured the world into a new and
all inclusive social pattern. They associate globalization with economic
liberalization as a policy option for the development of the South through a process
of free trade, investment and capital flows between Countries.
Scholars of globalization as interdependence have consistently maintained
that globalization is the rational end point of human development, and that it is
capable of impacting positively on the life of Sate actors that integrate their
economics. Globalization is perceived as universalization of Western values.
Hence there should be a celebration of a globalized world and the unabashed
Victory of political and economic liberalism that is evidenced in the triumph of
Western idea and values and in the exhaustion of viable systematic alternatives to
Western liberalism (Fukuyama, 1992).
Globalization is not merely a buzzword; rather it is “a new paradigm in
international economic relations which apparently signals the triumph of capitalism
on a truly global scale following the end of the cold war, the collapse of the soviet
system and the dissolution of planned economics, particularly in Eastern Europe”
(Rugumamu, 1993).
Globalization is delerritorialisation or a spread of Supra-territoriality. The
Phenomena constitutes a transformation in the spatial organization of social
relations and transactions (Scholte, 2000).
Proponents of globalization as interdependency therefore see a better world
if nation states would realize and utilize to the maximum the opportunities
presented by interdependency resulting from globalization. Their belief is hinged
on the promise that interdependence has open up the world, reduced the abuse of
human rights, and eradicated to a large extent, social and economic mystics by
national governments.
Advocates of globalization as imperialism on the other hand are mainly of
the radial persuasion and political economy genre. While the interdependence
school of thought on globalization claims that independence is the reality of
globalization and that it constitutes a positive development in world affairs,
Scholars who view globalization as imperialism insist that the Phenomenon as it is
today represents nothing but capitalism and imperialism. Scholars that allude to
the same position have proclaimed that globalization is a transformatory capitalism
project; which can only serve to impoverish the underdeveloped nations on the
frange of the world capitalism.
Globalization is about growing structural differentiation and functional
integration in world economy; it is about growing interdependence across the
globe, it is about the nation- state coming from under pressure from the surge of
transnational phenomenon; about the emergence of a global mass culture driven by
mass advertising and technical advances in mass communication (Ake, 1995).
The rapid expansion through giant multination companies, of capitalism to
several areas of the world, including areas where it had hitherto been resisted or
put in check side by side with this expansion, is the phenomenal development of
computer technology, telecommunication and transportation. The latter serve as
the main vehicle of the former. Globalization is globalization of capitalism, not
globalization of a “neutral” economic system or globalization or post-capitalism as
the imperial intellectuals and their slaves in the underdeveloped countries would
have us believe (Madunagu, 1999).
“Globalization is a capitalist economic project that is propelled by two
contradictory movements first, the tendency of economic globalization, to create
uniformities in the entire world; and second, the tendency of marginalization and
fragmentation, which the phenomenon connotes. These two processes make it
possible for globalization to spread out its risk and losses throughout the global
arena” (Nabudere, 2000).
Thus, there is no doubt that globalization has impacted differently in the two
parts of the global system. While it strengthens the already developed advanced
world countries, it marginalizes the peripherals economy of the third world
countries.
Globalization is “the engine by which the economics of the world’s weaker
nations are being opened up and subjected to the hegemony of the developed
capitalist economics” (Nousin, 2000).
“Globalization super-imposes the values of the North on the South by
accelerating the successful penetration of capitalism and other bourgeois ethos into
the nooks and corners of Asia, Latin America and Africa and the east while noncapitalist states of Eastern Europe” (Oriakln, 2001).
His two paradigms – globalization as inter-dependence and globalization as
imperialism – generally reflect the deep ideological and political predilections of
different scholars. What is of more concern and relevance however is that
globalization, from which ever perspective it is construed, has its merits and short
comings, and as Bill Clinton, former U.S. president, contends, it is “a fact and not a
policy option” (Lipalile, 2001).
2.1.3. FORCES OF GLOBALISATION
Three main powerful forces that propel globalization in contemporary global
environment can be discerned, namely, technological revolution, economic
liberalization and democratic system of governance (Usman, 1999; Kwanashie,
1999).
Technological Revolution:
That the world is currently experiencing phenomenal images in social,
political, economic and technological spheres cannot be disputed.
One
fundamental instrument for this increasing transformation is technology, especially
computer technology, and the evolution of low cost, global communications
system which constitute major challenges that will dominate and fundamentally
shape developments in the 21st century, particularly in the economic and financial
sectors (Usman, 1999).
The evolution in computer technology, has led to the advancement of
information technology, which has in turn enhanced the level of information
transmission and business transactions across the global system. Indeed, the
revolution changes that have occurred in computer technology since the later part
of the 20th century have brought about tremendous improvement in all facets of
human endeavour.
Today, the use of computers has increasingly become quite common place in
pure scientific research, social science and especially in managerial decisions.
The significance of the strong force of technology can best illustrated by
reference to the financial system. Globalization and information technology have
thrown up formidable challenges for national economics, especially the financial
system, by reducing the world further into a global village, and as well by
providing enormous information through a wide range of inter-connectivity.
The interconnectivity (network) of computers has given rise to the
development of internet, which constitutes the largest (network) of computers has
given rise to the development of internet, which constitutes the largest network and
largest reservoir of all types of information in the global system.
Furthermore, information technology in particular has combined progress in
electronics, telecommunications and computing to bring about a highly dynamic
process of storing, transmitting, processing and presentation of information.
This has led to increasing capacity for new and efficient responses to
antiquated problems. For instance, more efficient production processes are now
possible and countries with the necessary capacity are embracing and adopting
them in a bed maintain a competitive edge with the changing world environment
(Kwanashie, 1999).
Economic Liberalization:
One dynamic and fundamental force in contemporary globalization process
is economic liberalization, which has been embraced by virtually all countries and
major international institution within the global system.
Economic liberalization “refers to the process of achieving unobstructed
economic activities and dominance of private enterprises; and aims ultimately at
the divorce of the state from the economy” (Onyekpe, 2001).
At the global level, economic liberalization attempts to make all economics
fully open for free interpretation and inter-state access.
Issues relating to the forces of economic liberalization are generally more
complicated than and not as obvious as in technology. In pursuit of economic
liberalization, the “global system is polarized into various groups. In one group,
are the industrialized? (G8) Countries that work intimately with the world financial
(IMF, World Bank) and Trade (WTO) institutions, and pursue a broad and
ambitious agenda that attempt to build international capitalism on the foundations.
In another group are the ‘Asia-Tigers’ who have through economic
liberalization process, achieved unprecedented growth in their fragile economies.
The countries in addition to economic liberalization have used other policy
instruments to expand Foreign Direct Investment (FDI) and attain higher economic
growth.
These include developing a strong production base, opening up of new
investment areas, as well as designing and implementing sound macro-economic
policies. They have also created a conducive climate and stable political and
economic environment to at out foreign investments. These policy measures have
enhanced the expansion of FDI in the countries and led to their rapid growth and
development.
Other groups of countries that have achieved momentous feat as a result of
economic liberalization include the transition economies of Eastern Europe as well
as the Latin America countries. Also include are the Africa State most which have
suffered tremendously from extreme poverty and lack of policy focus. Thus, it is
obvious that economic liberalization is now a common feature among nation states.
It can therefore be rightly concluded that no country in contemporary world
can really be an Island unto itself, either due to its vibrant economic strength e.g.
United States or because it decides to close its doors to the outside world like
China successfully did in the past. The critical message of globalization in this
context is that in the existing moment of integration of global markets, Nigeria and
other developing nations have little choice but to try and join the globalization train
despite of their disadvantaged position in the process (Akinboye, 2007).
Democratic System of Governance
The third major force of globalization in contemporary world is the general
acceptance of democratic forms of governance. In modern political system,
democracy is the preferred system of governance. This is in view of its
relationship to good governance with its inherent features including rule of law,
democratic participation, probity, integrity and transparency.
It is also preferred because it posts and insists that power springs from and
therefore belongs to the people and that those who exercise power should use it in
the interest of the people, or at least the majority of the people (Yusuf, 1994). In
addition, democracy demands unequivocally that while the majority should rule
and even in most cases, have its way, the minority must be able to have its say and
its say must be listened to while its rights must be respected and protected.
Preference for democracy also springs from the fact that it demands that people
should be availed equal opportunities to participate in the administrative and
decision making machinery of the states; and that there should exist a free, fair and
independent judiciary; equality of all before the law; supremacy of the law; and
fundamental rights for the people.
While there has previously been virulent anti-democratic tendencies and
suppression of democratic rights of the people; the pendulum is
contemporanciously swinging in favour of democracy and democratic governance.
Democracy, although varied in form, has in contemporary global system, become
widely accepted as the form of governance that advances the interest and
aspirations of the majority of the people. This is underscored by the failure of
various authoritarian regimes including the erstwhile military and civilian
dictatorship in many parts of the world, as well as the collapse of the communist
system that provided for usurpation of power by a small clique of bureaucratic over
everyone else in the society (Usman, 1999).
The manner of rejecting and isolating non-democratic regimes globally also
attests to the changing fortune of decorously as a formidable force and most
acceptable system of governance in the global system.
2.1.4. GLOBALISTION IN THE CONTEXT OF FINANCE AND CAPITAL
FLOWS AND FOREIGN DIRECT INVESTMENT.
According to Mr. Stanley Fischer, first Deputy Managing Director of the
International Monetary Fund (IMF), at a conference on globalization held in
Cameroon; “globalization is multifaceted, with many important dimensions –
economic, and social, political and environmental, cultural and religious which
affect everyone in some way. Its implications range from the trade and investment
flows that interest economists to changes that we see in our everyday lives the ease
with which we can talk to people all over the world; the ease and speed with which
data can be transmitted around the world; the ease of travel; the ease with which
we can see and hear news, and cultural events around the world; and most extraordinarily, the internet which gives us the ability to access the stores of knowledge
in virtually all the world’s computers (Fischer, 2001).
Fischer proposed that a nation can attract capital flows through sound
macro-economic policies, better governance, legal and financial reform,
privatization, price liberalization and infrastructure investments. Much of these
can be achieved through legislation, regulations and instruments such as national
policy documents.
It is perhaps pertinent to observe that the Nigeria energy industry is, in terms
of the participants, already global. This indicates that the investment conditions in
Nigeria as regards the energy industry are attractive in global terms. What is
required is to make the industry more efficient – in terms of productivity,
regulation, transparency, procedures for startup etc. to enhance profitability.
2.1.5. CHALLENGES OF GLOBALISATION FOR NIGERIA
Nigeria, at independence in 1960, was largely a producer and net exporter of
primary products. The six major agricultural products then were cocoa, rubber,
palm oil, groundnut, cotton and palm kernel.
Although there existed mining and quarrying activities, these were of
negligible percentage and never counted for the economy as a whole. In order
words, agricultural produce and raw materials constituted the sole foreign
exchange earner for the country. Specially, the Nigeria state as an exporter of
agricultural goods had 69.4% of its total GDP for the year 1963/64 comprising the
six aforementioned agricultural commodities (Olaloku, 1979).
The trend of having agriculture as the main foreign exchange earner for
Nigeria stopped in the 1970s when the country was suddenly awash with petrol
dollars arising from the quadruple increase in the price of oil in the world market.
From 1972 onwards, oil gained ascendancy over all other commodities as the
largest contributor to the GDP, and also as a major foreign exchange earner. There
are substantial increases in the global market price of high grade crude oil from
low price of $3.8 per barrel in October 1973 to a skyrocketing price of $14.7 per
barrel in 1974. This trend contained till 1981 when the price of crude oil attained a
high level of $38.77 per barrel. Within the same period, total revenue from oil rose
correspondingly from N1 billion to N4 billion while external reserves increased
from N180 million to N3.4 billion in 1975 (Osaghae 1998).
The increase in national wealth resulted in the governance of the day
embarking on rapid expansion of public sector and squandering of wealth on
expanding distributive instead of productive capacity; and on increased
dependence on external goods and inputs. By 1978, oil (Petroleum and Associated
Components) composed a total of 89.1% of Nigeria’s exports as against
agriculture, which had plummeted in its contribution to export to 6.8% in the same
year. The fact of the matter is that Nigeria’s commodity pattern has since the
advent of oil, been a ‘mono-cultural’ one with the product being the only one the
country depends upon for its foreign exchange earnings – a situation that has
constrained the pace of its developmental efforts. Thus, it can be unequivocally
asserted that Nigeria’s development importance cannot be solely attributed to
colonialism, but also to its own weak domestic economic structure. There is
therefore the necessity for the country to diversity its economic base in order to
confront the challenges of contemporary globalization process and remain relevant
in the scheme of world event. The economics of South East Asia countries
especially the Asia Tigers namely; Taiwan, Hong Kong, Singapore and South
Korea as well as Thailand, Malaysia and Vietnam are successful stories of how
diversification has enhanced their economic developments. The success recorded
by these newly industrialized countries (NIC) can be duplicated by Nigeria in its
current efforts toward economic transformation (Akinboye, 2007).
For instance, as a means of liberalizing its economy, revitalizing its financial
sector and generating foreign exchange earnings, Thailand placed top priority on
exports. Its economy was liberalized. Thus encouraging foreign investors.
The country’s manufacturing sector has emerged as a formidable engine of
development in the kingdom with traditional exports in the agricultural sector
performing quite successfully.
In 1996, in the kingdom with traditional exports in the agricultural sector
performing quite successful. In 1996, Thailand export US $9 billion worth of
goods to the European Union alone, and by 1997, the country’s exports had
become highly competitively priced for foreign buyers (Akinbola, 1999).
Similarly, in the manufacturing sector, there has been a phenomenal increase
in the exports categories. A dramatic development has been the automatic industry
in which several big automobile makers have set up production lines in Thailand,
this making country to become a regional leader in the production and exportation
of automotive.
In 1996, automotive exports to the European Union alone amounted to US
$205 million signifying an increase of 38%. Over the preceding year (Akinbola,
1999).
It is interesting to note however, that in spite of Thailand’s of high
technology, the country has remarried deeply committed to its agricultural base
and has indeed emerged as one of the world’s leaders in agro business. In general,
Thailand had confronted the challenge of globalization by liberalizing its economy,
embracing internationalization of capital and opening new markets across the
length and breadth of the world. Hence, Thai’s products (Manufacturing and
Agricultural) are found all over American European, Asia and African countries.
Nigeria can tremendously benefit from Thailand’s experience. The Nigerian
economy must be completely diversified rather than remaining mono-cultured.
Furthermore, there is the need to ensure a free competitive economy, and
this liberalizing its economy for foreign investors. Today, there exists Taiwan,
foreign investments in construction, power generation, oil refining, real estate,
telecommunications and gas stations. In concrete terms, foreign investment has
been quite staggering. For instance, United States accumulated investment in
Taiwan amount to US $7billion representing about 30% of total approved foreign
investment in the country.
Taiwan has huge foreign investments in South East Asia countries and all
over the globe. The country also has a large chunk of human resources ready to be
utilized by foreign firms. All these have been made possible because of the
country’s dynamic efforts towards a free competitive economic structure.
2.2 EMPIRICAL LITERATURE
Some empirical literature has been carried out by some great thinkers to
help simplify the researcher(s) work in the field of investigation on the
impact of globalization on the growth of the Nigerian economy.
Stanley Fisher, the deputy managing director to IMF, sees globalization
as multifaceted with many important dimensions-economic and social,
political and environmental, cultural and religious which affect everyone
in some way. He said this during the globalization conference held in
Cameroon. He went on further elaborating that a nation can attract
capital flows only through sound macroeconomic policies, better
governance, legal and financial reforms, privatization, price
liberalization and infrastructural development.
According to Aina (1996), globalization entails universalization
whereby the object, practices or even values transcends geo-political
boundaries, penetrating the hitherto sovereign nation state and impacting
the orientation and value system of the people. He thus examined
globalization as depicting the institutions, groups and individuals the
universalization of certain practices, identifies, structures and perhaps
more significantly, the expression of the global restructuring that has
occurred in recent decades in the structure of modern capitalist
economic relations.
Also Bill Clinton, former president of USA, sees globalization as a
fact and not a policy option. He says USA is a product of globalization
which was achieved through the use of monetary and fiscal policies.
Greenville (1999) assumes the existence of solid financial
infrastructures and sound financial institutions in the financial markets.
This was done to explain the reasons why East Asia economies were
able to weather the episodes of financial turbulence in 1997 and 1998
despite close trade link between those economies in crisis.
Based on the findings of Borda. E. and Kim (1998), there was a
relatively high degree of co-integration over the periods of 1980 to 1994
and 1983 to 1998 between the United Kingdom and France. This was
due to the degree of long run co-integration of real interest rates.
Varian (1985) assumed that trading volume has a positive
association with the dispersion of prior beliefs.
Kim and Verechia (1991) models suggestion are conformed in
enriched information environment where the process of the formation of
beliefs by investors in descended. This implies that trade increases with
the heterogeneity of investors’ revision of beliefs around an information
event.
2.3 LIMITATIONS OF THE PREVIOUS STUDY
The limitations of the previous study were based on the fact that
previous researchers failed to view the importance of openness in
estimating the impact of globalization on the growth of the Nigerian
economy. Therefore, this research work shall view openness as one of
the independent variable that would be used to estimate the impact of
globalization on the Nigerian economy.
Also the time frame for this work, (1986 to 2008) is an extension on the
subsequent years used by the previous researchers. Hence, the recent
impact of globalization on the Nigerian economy shall be seen and
reviewed in this research work.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 MODEL SPECIFICATION
Model specification is expressing or showing the mathematical and
econometric relationship that exists between the independent variables and
dependent variable, which will be included in the model as well as aprior expected
of the size and sign of the parameters of the function.
As evidence by literature, there are some other macroeconomic variables which
serve as influence on the growth of the Nigerian economy other than exchange
rate. They include Foreign Direct Investment, Openness, Interest rate amongst
others.
The model in recognition of the fact that it will be intellectually, statistically and
economically unreasonable to assume that Gross Domestic Product is explained
single handedly by interest rate is a multi regression model and is stated thus:
RGDP=f (FDI + RIR + OPN + RER)
It can be further stated thus:
RGDP=β0+β1FDI+β2RIR+β3OPN+β4RER+µt
Where;
RGDP= Real Gross Domestic Product.
FDI= Foreign Direct Investment.
RIR= Real Interest Rate.
OPN= Openness.
RER= Real Exchange Rate.
µt= Stochastic or Error term.
β1- β2= Regression coefficients.
β0 = Intercept of the function (constant term)
t= time (1986 to 2008)
3.2 METHODS OF EVALATION.
3.2.1. Statistical tests (First Order tests)
The aims of the evaluation of the statistical reliability of the estimated
parameters. In this case, coefficient of multiple determination (R2) T-statistics, Fstatistics and Durbin-Watson statistics are used.
Coefficient of Multiple Regressions (R2)
The R2 is used to test for the goodness of fit of the model in the economy.
That is, to show the percentage of total variation in dependent variables explained
by the regression plane. The R2 values ranges from 0 and 1. R2 is expressed
mathematically as;
R2= β1£1 +β2£2+β3£3+……..βn£n
£Y2
The higher the values of R2, the higher the percentage of variation of the dependent
variables that is explained in the regression plane. That is the better the goodness
of fit of the regression plane to the sample observation, while the closer to zero, the
worse the goodness of fit.
T- Statistics
It is used to test the significance of the parameter estimate at a certain level of
significance. It can test for null hypothesis against the alternative hypothesis. If the
probability at which T is significant in our regression results for any independent is
less than or equal to our chosen level of significance (0.05), we reject the null
hypothesis (Ho) which states that the independent variable in question is not
significant. This invariably means accepting the alternative hypothesis (H1) which
states that the independent variable in question is statistically significant in our
model.
F- Statistics.
The F statistics is used to test for the overall significance of the regression model.
It can also test for claimed relationships between the dependent and independent
variables. When F- ratio is greater than the critical value, the decision is to reject
the null hypothesis and if not vice- versa.
3.2.2 Econometric Tests (Second order test)
This is used to test for the presence of auto correlation. That is, the serial
dependency of successive error terms in the regression. Auto correlation usually
indicates that an important part of the variation of the dependent variable has not
been explained. The problems of auto correlation are usually dictated by Durbin
Watson (DW) statistics and it is given thus:
DW= £ [µ-1]
(µ)2
Where
DW=Durbin Watson
£= Summation of
µ=Present period error
µ-1=Previous period errors
DECISION RULE: TABLE 3.1
No positive autocorrelation
No positive autocorrelation
No negative autocorrelation
No positive or negative autocorrelation
later
Reject
No decision
Reject
Do not reject
0< d< dl
dl≤ 𝑑 ≤du
4- dl < d < 4
du<d<4-du
Where
dl= lower limit
du= upper limit
Test for multicollinearity
This will be used to check for multicollinearity among the explanatory variables,
the basis for the test being the correlation matrix result using the correlation
coefficient between pairs of regressors.
Heterosedaticity Test
The test would be conducted to ascertain whether the error term µi, in the
regression model has common or constant variables. The white Heterosedaticity
test (with no cross terms) will be adapted.
3.2.3. Economic Apriori Criteria
This shows whether each independent variables in the equation is comparable
with the postulation of economic theory (that is if the signs follows with the
postulation of economic theory).
Using the Ordinary Least Square (OLS) technique to estimate our model, we
expect the coefficient to appear as follows:
TABLE 3.2
COEFFICIENT
β1
β2
β3
β4
EXPECTED SIGN LEVEL
OF
SIGNIFICANCE
POSITIVE (+)
5% (0.05)
NEGATIVE (-)
5% (0.05)
POSITIVE (+)
5% (0.05)
NEGATIVE (-)
5% (0.05)
CONFIDENCE
LEVEL.
95%
95%
95%
95%
3.3. DATA REQUIRED AND SOURCE/ SOFTWARE PACKAGE
The data employed in this study is secondary data obtained from CBN and the
Federal Office of Statistics (FOS). Econometric software package (Excel, PC give
Muller 8.00) will be used to estimate the model.
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF RESULT
4.1 Presentation of Regression Result.
TABLE 4.1
Variables
Coefficient
Constant
4.0881e+005
FDI
1.1766
RIR
941.08
OPN
-144.2
RER
-759.24
Std. Error
92399
0.18664
930.54
1269.0
316.89
T-value
4.392
6.304
1.011
-1141
-2.396
T-Prob
0.0004
0.0000
0.3253
0.2688
0.277
Part. R2
0.5173
0.6883
0.0538
0.0675
0.2418
R2= 0.813525, F = (4, 18) =19.632 (0.0000)
DW= 198, RSS= 1.049114259e + 011
4.2. Result Interpretation
4.2.1 Evaluation Based on Economic Criteria.
As already pointed out in Chapter three, our parameters estimates are
expected to conform to apriori expectations. Consequently, the table below
summarizes the outcome of our model parameters on apriori ground.
Variables
FDI
RIR
OPN
RER
Expected sign
Positive (+)
Negative (-)
Positive (+)
Negative (-)
Obtained sign
Positive (+)
Positive (+)
Negative (-)
Negative (-)
Conclusion
Conforms
Do not conform
Do not conform
Conforms
The apriori expectations for the explanatory variable were not satisfied showing
that only FDI conforms with the economic acceptability of the estimates while the
rest variables did not conform to the economic acceptability of the estimates.
The coefficient of FDI (1.1766) implies that a unit change in FDI would bring
about approximately 118% increase in RGDP.
The coefficient of RIR (941.08) shows that, a unit change in RIR would bring
about 94108% increases in RGDP.
The coefficient of OPN (-1448.2) signifies that a unit change in OPN would bring
about 144820% decrease in RGDP.
The coefficient of RER (-759.24) implies that an additional increase in RER,
would cause a decrease in RGDP by 75924%.
4.2.2. Statistical Test (First order test)
The null hypothesis for the test is
Ho: βo = 0 against the alternative
H1:β1≠ 0
If the standard error is smaller than half of the numerical value of the
parameters estimates that is s(bi)< bi/2, we conclude that this estimate is
statistically significant. We therefore reject the null hypothesis that bi=0 and accept
the alternative that bi≠0 and vice versa. This conclusion of significance of b is
based on a two-tier test at 5% level of significance.
The standard error test can be summarized thus:
Table 4.2.2a
VARIABLES STD.
ERROR
Constant
92399
FDI
0.18664
RIR
930-54
OPN
1269.0
RER
316.89
½
COEFFICIENT
2.02905
0.5883
470.54
-724.1
-379.62
DECISION
CONCLUSION
s(bi)>bi/2
s(bi)>bi/2
s(bi)>bi/2
s(bi)>bi/2
s(bi)>bi/2
Not significant
Significant
Not significant
Not significant
Not significant
ii. The student T- test.
The student t- test involves comparing the t* (calculated) to its tabulated value
which defines the critical region in a two tailed table, with n-k degrees of freedom
(n= sample size and k= total number of estimated parameters).
The null hypothesis:
Ho: bi=0 is tested against the alternative
H1; bi≠0
If t* > t= 0.025, reject the Ho, otherwise accept Ho.
The summary of the student t- test is presented thus:
TABLE 4.2.2b
VARIABLE
Constant
FDI
RIR
OPN
RER
STD. ERROR ½
COEFICIENT
4.392
± 2.101
6.304
± 2.101
1.011
± 2.101
-1.141
± 2.101
-2.3196
± 2.101
DECISION
CONCLUSION
t* 2.101
t* 2.101
t* 2.101
t* 2.101
t* 2.101
Significant
Significant
Not significant
Not significant
Not significant
NOTE: df = n-k
=23-5= 18
The above results show that only Foreign Direct Investment (FDI), is significant
while Real Interest Rates, Openness and Real Exchange Rates are not significant.
This is a proof that FDI has an impact (positive impact) on the growth of the
Nigerian economy.
iii. F- Test
F ratio is used for joint influence of the explanatory variables on the dependent
variables. It tests for the statistical significance of the entire regression plane. It is
given mathematically as
F= R2 (k-1)
(1-R2)(n-k)
The computed F ratio, F* is compared with the theoretical F, 0.05 with N 1=k-1
and N2= n-k degrees of freedom.
Where
N1=degrees of freedom for numerator
N2=degrees of freedom for denominator
k= numbers of bs (including b0)
If F* >0.05, reject then otherwise accept Ho from our regression result F* (n, 18)
=19.632 while F 0.05 (4, 18)=2.93
Since F* =19.632 >F0.05= 2.93.
We reject Ho and conclude that with5% level of significance; the overall
regression is statistically significant. The significant nature re-affirms the validity
of the R2.
iv. R2
The standard variable explains the variation on the behavior of the dependent
variables adequately. This is evidenced in the high valve of R 2 which is 0.813525.
Showing that Foreign Direct Investment, Real Interest rate, Openness and Real
Exchange Rate jointly accounted for at least 81.4% of the variation in Gross
Domestic Product.
4.2.3. Econometric Test (second Order Test)
i. Test for Auto correlation.
One of the assumptions of OLS regression model is that errors are
independent. In the context of time series analysis, this means that an error µt is
not correlated with one or more of previous errors µt-i. The Durbin Watson d test
compares the empirical d* value calculate from regression residuals with di and du
is D-W tables with their transforms (4-dl) and (4-du).
DECISION RULE
1.
2.
3.
4.
If d*<dl, we reject the null hypothesis of no auto correlation and accept that
there is no positive auto correlation of first order.
If d* > (4-du), we accept the null hypothesis of no auto correlation.
If du < d* < (4-du), we accept the null hypothesis of no autocorrelation
If dl < d* < du or if (4-du) < d* <(4-dl), the test is inconclusive. From our
regression rule
d* =1.98
dl =0.979
du =1.873
4-dl=3.021
4-du=2.127
Hence, 1.98> 1.873<2.127.
Accept the null hypothesis and conclude that there is no autocorrelation in
the model.
ii. Test for Heterosedaticity.
This test asymptotically follows a Chi- square distribution with degrees of
freedom equals to the number of regressors (excluding the constant term)
The auxiliary model can be stated thus:
µt= β0+β1FDI+β2RIR+ β3OPN+β4RER+ β5FDI2 + β6RIR2 + β7OPN2 +
β8RER2 +vi
Where vi= pure white noise error.
This model is run and auxiliary R2 from it is obtained. The hypothesis to be
tested is
Ho: β1=β2=β3……..=β6=0 (Homosedaticity)
H1: β1≠ β2≠β3……..≠β6=0 (Heterosedaticity)
Note: The sample size (n) multiply by the R2 obtained from the auxiliary
regression asymptotically follows the chi-square distribution with degrees of
freedom equal to the number of regressors (excluding the constant term) in
the auxiliary the regression. Using PC given software package saves the
above rigors by calculating the chi- square.
DECISION RULE
Reject Ho if x2 cal > x2 tab at 5% level of significance, if otherwise, accept
Ho. From the obtained results, calculated x2 = 8.6039 while tabulated x2 =
15.5073. Since calculated x2 =8.6039, tabulated x2 0.05 (8) = 15.5073, we
reject the null hypothesis of Homosedaticity and conclude that error term
have a constant variance.
iv. Test for multicollinearity.
This test was carried out using correlation matrix. According to Barry
Feldman (1985), criteria multicollinearity is not a problem if no correlation
exceeds “0.80”.
RGDP
FDI
RIR
OPN
RER
TABLE 4.2.2
RGDP
FDI
1.000
0.8614
1.000
0.4514
0.4142
0.1555
0.2461
-0.4562 -0.3039
RIR
1.000
-0.09480
-0.02618
OPN
1.000
-0.4000
RER
1.000
M
-
Where M shows, signifies the presence of multicollinearity. The pressure of
multicollinearity exists only on FDI.
CHAPTER FIVE
SUMMARY, POLICY RECOMMENDATION AND CONCLUSION.
5.1. Summary.
This research work, the impact of globalization on the economic growth
of the Nigerian economy was aimed at determining if financial integration
has an impact on the economic growth of Nigeria and to also verify the
impact of globalization on the economic growth of Nigeria from the periods
of 1986 to 2008.
In capturing this impact, Foreign Direct Investment, Real Interest Rate,
Openness and Real Exchange Rate were used in capturing the impact of
globalization on real Gross domestic Product of the Nigerian economy.
From the evaluation derived from the presentation and analysis of result in
chapter four, only Foreign Direct Investment proved both individually and
statistically significant. Thus FDI has a significant impact on GDP. In other
words, FDI has a positive impact on the growth of the Nigerian economy.
For instance, from the regression results, a unit increase in FDI will increase
the Nigerian GDP by 118%. This thus conforms to one of the aims of
globalization which has to do with the improvement of interconnections
(improvement of political, economic, social and cultural relationships
between countries.
5.2. Policy Recommendations
Based on the findings of this research work, the following policy
recommendations should be employed in order to improve the economic
growth through globalization.
1. Government should subsidize exchange rates as this would attract more
foreign investors.
2. Government should ensure that the productiveness in the domestic sector
of the economy is increased as this would encourage infant industries to
produce capital goods for exportation. Hence the Nigerian economy has a
stand in the foreign market and GDP is increased. In other words local
investment must be improved by the government through its provision of
loans and subsidies.
3.
4.
5.
The Nigerian government should ensure that she imports of what is
needed for production and consumption and export less of her valuable
resources. This would bring about economic independence in the
Nigerian economy.
Government should employ sound macroeconomic policies that would
stabilize prices, subsidize interest rates alongside with a better
governance system free from constant political upheavals.
Government should ensure that there is an increase in technology and
also educate the masses on newly invented technologies. Awareness in
technology must also be created in the industrial sector of the economy.
This is because “Industrialization leads to growth and development” of
any country.
5.3.
Conclusion.
If all of the above mentioned policy recommendations are properly
implemented, then globalization would not only have a positive
impact on GDP, but on the Nigerian economy as a whole.