The Income Levels Of Nigeria And United States Economics Essay
1.1 Brief Overview
Explaining the ground behind why there is growing in an economic system and the determiners that affect it has been a subject of argument in most economic literature. To be emphasized, the research into this subject has been one of the inspirations of the topic of economic science. The male parent of economic sciences, Adam Smith has attempted to explicate the grounds and different beginnings of wealth in a state in his book called “ An Enquiry into the nature and causes of the wealth of states ” . The relevancy of this inquiry can be shown by the simple informations represented in the below figure 1.1. This figure efficaciously illustrates the broad spread in life criterions and differences in the scope of income between states. For illustration, the per capita GDP of Nigeria is 358US dollars in 1990 in comparing to China of 391US dollars. Comparing this to recent old ages like 2011 in which both states have had a important growing over the old ages, Nigeria stands at 565dollars, and China stands at 2,639dollars. This shows that despite the increased growing degree non much has alteration as there is still great disparity in income between Nigeria and China. In fact, one may hold to reason that the spread is wider. The immense difference in GDP per capita income across states is apparent plenty to demo that some states are turning and have been keeping their growing rates while others are non turning at all ( Barro 1991 ) .
A noteworthy illustration of economic growing is given by Durlaf et Al. ( 2004 ) who emphasized the division of the universe population into minority of rich and the bulk of hapless, this consequence in the fact that UK and other western states managed to prolong their positive growing rates and others did non. For case, United States GDP per capita as at 2011 is 37,691dollars. This sustained growing was what addition per capita GDP and bit by bit these states outperformed others ensuing in the broad income spread between developed and developing states.
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Figure: 1.1 Income Levels of Nigeria and United States
Beginning: World Development Indexs 201
However, some states have shown exceeding public presentations in economic growing. In literature, they are termed as growing miracles and growing catastrophes. States that have shown growing miracles include Botswana, China, Singapore, and South Korea etc. like South Korea whose degree of income increased from 12.25 % to 47.03 % . Besides, other states of growing catastrophes include Liberia, Niger, and Republic of Congo etc. For illustration, in the Republic of Congo the income degree dropped from 2.99 % to 0.32 % in 2005. The illustrations of growing miracles and catastrophes make it clear to economic expert that a clearer apprehension of what determines growing could lend significantly to bettering the criterion of life. In response to this economic literature has shown great involvement in quantifying assorted theories of growing ( Temple 1999 ) and in analyzing deeper the determiners of economic growing. Several variables have been proposed by recent literature such as fiscal development, economic policy, population growing etc. ( Temple 1999 ) . In regard to this facet, the survey tries to make full the spread in economic literature by researching the dimensions of interaction between one of import facets of integrating into the universe economic system viz. , Foreign Direct Investment ( FDI ) and its linkage with economic growing. Furthermore, the most important factor bring oning economic growing in a state is investing which is of import to increase the degree of productiveness. A strong correlativity between investing and economic growing has been revealed by theoretical and empirical surveies by development economic experts in both development and developed economic systems of the universe. In Less developing states ; particularly Nigeria there has been low degree of capital accretion, and this is needed to increase investing ( Adofu 2010 ) . This consequences from high degree of poorness, hapless fiscal system, which can non decently mobilise financess to bring forth adequate capital for investing. Consequently, the coveted rate of economic growing has non been achieved due to the missing domestic investing and hence Foreign Direct Investment ( FDI ) has to be given due consideration. Particularly it is necessary for FDI to complement domestic investing in order to bring forth an addition in end product which is necessary to advance growing in whole but specifically to cut down the rate of rising prices, better growing in the industrial sector and stimulate acquisition of foreign engineering. FDI is a nucleus component for growing in developing economic systems in order for such states to hold entree to the benefits derived from globalisation ( Azim and Uddin 2001 ) . Furthermore, in the past old ages, FDI has attracted considerable attending in many developing states like Brazil, China, Russia and India. Different states have been able to open up assorted and new ways of investing to assist pull FDI, political, societal, economic and technological factors play a deciding function for the clime of investing which has a bearing on the operations of the concern. Puting accent in the Nigerian economic system, there has been progress in the influx of FDI in Nigeria. This is as a consequence of denationalization of Bankss, energy and telecommunication sectors and the up macroeconomic policy model although this has non been felt mostly on the economic system. The net FDI has increased to 4,982,533,937dollars in 2005 compared to past old ages and has been increasing since so ( World Bank 2012 ) . Recently, domestic investings have improved the economic system of Nigeria as the authorities has made attempt through allotment of resources particularly in the countries of finance to assist growing. There has been a turning consensus that FDI is yet to recognize its tremendous potencies. Besides, few surveies that have examined the determiners of FDI and relationship between economic growings. FDI in Nigeria was based on studies with the exclusion of Dimowo and Edo ( 2002 ) and Akinlo ( 2004 ) , while others surveies model the relationships between FDI and growing for a wide cross subdivision of states. Some surveies on developing states found a positive relationship between FDI and growing and other surveies laid accent on handiness of substructure, favourable macroeconomics conditions and administration as a determiner for FDI.
1.2 Problem Statement
In most underdeveloped states, FDI is a tool to better growing in the state. Nigeria, a state with a turning population was last reported in 2011 by World Bank 2012 to hold about 163million people. The criterion of life of its citizens has non improved despite the flow of FDI into the state and the huge investing authorities has added in bettering growing. Other states such as South Korea, Thailand, China, Singapore, Costa Rica, and Chile amongst others have shown an upward motion in growing of the economic system has a consequence of the influx of FDI ( Nagesh Kumar 2001 ) . The Nigerian authorities has been endeavoring to advance FDI, but due to the challenges such as authorities and macroeconomic instability, low growing, weak substructure, hapless administration, inhospitable regulative environments and misguided investing selling schemes have affected the influx of FDI ( Dupasquier and Osakwe 2006 ) . Despite the challenges environing the economic system, chances to hold improved the influx of FDI has non been to the full utilised. Several surveies have shown a high grade of success in the influx of FDI, many of this surveies province the demand to look at some factors, peculiarly available substructure of the state in inquiry of which some of this has been addressed to an extent and others still presently being addressed in Nigeria. Like the instance of power handiness, the authorities has been undergoing reforms to assist increase distribution of power. Besides, building of roads and other societal comfortss have improved. While macroeconomic factors such as rising prices, exchange rate has been comparatively stable in recent old ages and besides the political system remains volatile but better. As a consequence of this general betterment, it is necessary to find if the influx of FDI in recent old ages has increased economic development in Nigeria. Therefore, we critically need to analyse the impact of FDI on economic growing at this clip.
1.3 Research Questions/Objectives of the survey
The part of this proposed survey is both at an empirical degree and factual appraisal of the function of Foreign Direct Investment inflows into the state, and its positive effects on Nigerian economic growing. Emphasis will be on recent old ages where the FDI influxs were the highest and the state experienced robust economic growing. Particularly, concentration will be on the undermentioned research inquiries:
1. Make FDI hold a positive consequence on the Nigerian economic growing? And
2. How can the influx of FDI be used to better economic growing in Nigeria? If s
3. What can the authorities do to pull more FDI to ease growing in the economic system?
Broadly this survey seeks to analyze the motives for FDI in Nigeria and the extent to which FDI contributes to economic growing ; specifically, the research:
1. Analyze the relationship between FDI and economic growing
2. Analyze the consequence of FDI on economic growing and
3. Shed visible radiation on appropriate policies to prosecute in order to promote higher volume of FDI and their awaited deductions for economic growing.
1.4 Justification of the survey
The function of FDI in an economic system may be seen as good for development even for other sectors. Therefore, it is necessary for the determiners that influence FDI non to be overlooked in order to hike growing in the economic system. The diverse manner has been considered is to make an enabling environment for the influx of FD. The success of the influx of FDI is on the footing on the prevailing state of affairss in the economic system and factors that can heighten and better the flow of FDI. The survey is to analyze why Nigeria a state in West Africa is endowed with natural resources such as oil and others have non been able to pull immense foreign direct investing, and besides with authorities investing, non taking to a important growing. Furthermore like any other investor even Nigerians in the diaspora will merely put in an economic system that has made commissariats for an enabling and heightening environment that promotes investing. A rational investor would non put in an economic system that does non hold the necessary drivers for investing. Surely, non in Nigeria where unemployment is so high, and the largest per centum of people are non educated. In past twelvemonth, the curate of Education, lamented the decay in the state ‘s educational system, revealed 70 per centum of the alumnuss of Nigerian Institutions are unemployed, underemployed and unemployable. Even the old Governor of the Central Bank, commented along similar lines when he said that over 60 per centum of the people who apply for occupations in Nigeria are unemployable. This means the economic system has non been able to absorb Nigerians at place Lashkar-e-Taiba entirely pulling foreign investors.
In add-on, the existent sector has been awfully incapacitated by deficiency of available substructure, which led to low productiveness and capacity use. The gross that the state is doing from the high monetary value of rough oil in the international market is non being translated into accelerated industrialisation. More so a big per centum of the population particularly the hapless can non experience that there is much dynamism in the economic system. Therefore the economic system has non induced huge FDI. Other developing states have been able to pull foreign investors to better growing. Of which, Nigeria has non. By making this, we need to analyse investing in the Nigeria economic system and see what function the assorted determiner for growing can play in finding FDI and how it can help growing in the economic system.
1.5 Literature Review
1.5.1 Theoretical Literature
This subdivision describes how FDI is incorporated as a factor that influences growing. The purpose is farther to place the fortunes in which FDI stimulates economic growing. Several surveies have expressed theoretically and through empirical observation the ways FDI can add to the betterment of growing of the host states and its significance coupled with institutional and policy reforms for growing in developing economic systems ( Krishna and Artur 2009 ) .
Endogenous growing theory treats engineering as an endogenous factor, which stimulates the path manner of FDI that accelerates a state ‘s economic growing in the long tally. FDI induces new engineering used in production procedure to speed up economic growing by fueling capital accretion. Second, FDI contributes to the accretion of human capital through new direction techniques introduced and labour preparation that enhances economic growing.
direction techniques. On the contrary, the neo-classical growing theoretical account positions FDI as a factor to hold an consequence in the short tally besides through engineering. The variable is been treated as an intrinsic factor and have merely short tally effects.
Theoretically, Nigeria has to a big extent attracted FDI purportedly because of its huge natural resources particularly oil, which has attracted foreign investors into the state exactly in the export sector. Although, Ekperiware ( 2011 ) in his findings revealed that NONOIL FDI has a more positive consequence on the Nigerian economic system on mean compared to OILFDI. Policies should be put in topographic point, to promote FDI in the non-oil sector, which has more consequence on economic growing, contrary to the extractive sector that has higher FDI in the Nigeria economic system, and has less impact on economic growing. The attractive force of foreign investor to this peculiar sector has been increasing because of the gross that is generated from it, despite the macroeconomic factors and other impeding factors such as unstable political system.
However, the range to which foreign investor are attracted to put depends on how attractive the environment is that is the quality of the environment which depends on the rate of nest eggs, the grade of openness and the degree of technological development. Economies would profit on high rate of nest eggs, unfastened trade government and high technological merchandise through increased FDI ( Buckley et al. , 2002 ) . Samuel ( 2009 ) in his findings discovered that FDI helps to better the economic development of the host state by augmenting the domestic capital through transportation of engineering, managerial accomplishments, selling, invention and other best patterns introduced. He made reference that FDI has its ain cost and benefit and its impact in the host state depends on the prevalent status and policy environment in footings of the ability to diversify and absorb the chances for the linkages between FDI and economic growing. Further accents were laid ( Macaulay 2011 ) that policies to better macroeconomic stableness in the state should be implemented to better FDI.
1.5.2 Empirical Evidence
Having identified chief factors that determine growing and how FDI is incorporated as a factor to act upon growing, this subdivision reviews the associated empirical literature. Empirical consequences on the intricate relationship between economic growing and FDI have been a perennial issue of deliberation even in international economic systems and development economic systems ( Zhang 2006 ) . Many empirical plants have shown the relationship between FDI and growing at assorted degrees, which include sectors, states, and parts and across states. Studies investigated this relationship at a sectorial degree like the instance of Indonesia ( Abdul and Ilan 2007 ) . They examined different impacts of FDI across sectors ; consequences showed that the composing of FDI is of import for its consequence on economic growing. Merely few sectors showed a positive impact of FDI and one other sector showed a robust negative impact of FDI influxs ( excavation and quarrying ) . Besides, ( Pinging Yu et al. , 2010 ) analyzed the interrelatedness in footings of inter-sectorial outwardnesss in China for the period of 14 old ages for 30 states utilizing panel informations analysis, and suggested that foreign capital has abated spillover consequence over clip, which added positively to China ‘s economic growing. Therefore, foreign capital adds to the formation of societal capital with the way manner flow domestic capital and contributes to the formation of societal capital.
Furthermore, Eke et al. , ( 2003 ) used causality trial to analyze the relationship by look intoing foreign private investing to GDP. Results indicated that causality runs in both waies reasoning that foreign direct investing is a relevant determiner for existent development in Nigeria. However, foreign capital influx is growing – way dependant. Haitao ( 2011 ) from his findings discovered that there is a long term stable equilibrium relationship between FDI and economic growing at first-order co-integration, and the farmer causality trial shows that a rise in FDI can advance growing, but it is non ever the consequence. Besides, ( Ogundipe et al. , 2011 ) explored the usage of farmer causality and showed that there is a causal relationship between FDI and economic growing. Likewise in the instance of Pakistan ( Ahmad 2010 ) in his findings realized that FDI plays a function in act uponing domestic investing, which promotes growing when consequences showed a long tally relationship and a positive correlativity between both variables. Akinlo ( 2004 ) in his empirical surveies indicated that private capital and lagged foreign capital has small consequence on economic growing in Nigeria. However, Adofu ( 2009 ) recognized the sensitive function of FDI in Nigeria which plays an of import function in economic growing as there is a positive relationship. Besides, Adeolu ( 2007 ) concludes on the same consequence, but the whole consequence of FDI on economic growing might be undistinguished, though the components of FDI have a positive impact. He found out that the fabrication sector FDI affects the economic system negatively because of the hapless concern environment in the state unlike the communicating sector which has the highest possible to turn the economic system and the oil sector.
Jayachandran and Seilan ( 2010 ) found a positive relationship between economic growing, trade and FDI for India over the period 1970-2007. Further emphasized by Sam ( 2011 ) , showed that there is still a great nexus between FDI and export growing. Policies should be channeled towards bettering export oriented FDI and at the same clip, geared towards bettering basic substructure, which will take down production costs thereby bettering the fight of the economic system and constantly pull more foreign direct investing into the economic system ( Abu and Achegbulu 2011 ) .
In 2009, other surveies have shown that foreign direct investings have a positive impact on current history balance in Balance of payment and exchange rate while rising prices was seen non to hold a important impact on foreign direct investing influxs. Sound economic policies should be implemented to pull the coveted degree of FDI and do the state investor friendly. Chiefly, the above reviewed empirical surveies suggest that ways in which FDI affect growing depends on the economic and technological conditions of the host state. However, in general most of the bing surveies were focused chiefly on economic systems with taking fabricating FDI.
1.6 Scope of the Study
This survey will utilize Nigeria to analyze the impact of FDI on economic growing and will cover a clip period of 21 old ages from 1990 to 2010. Besides a proper analysis of the path manner of FDI influx in old old ages into the state will be evaluated and its impact on different facets of the economic system.
1.7 Theoretical Framework and Research Methodology
The chief intent of the survey is to assess/quantify the impact of FDI on economic growing in Nigeria. The information in this thesis starts from twelvemonth 1990 to 2010, based on the evidences that Nigeria started having a important sum of FDI influxs after the 1990s. The dataset will embrace 21 old ages of one-year informations. Secondary informations will be obtained in order to accomplish the identified aims of the undertaking ; the informations to be collected is an one-year clip series informations. The information for GDP, FDI, authorities size and trade openness will be sourced from Central Bank of Nigeria ‘s Statistical Bulletin and substructure and human capital is sourced from World Development Indicators 2004. Access to necessary information has been granted. The theoretical model is traveling to be based on the theoretical theoretical accounts of the neoclassical and endogenous growing. We adopt an augmented Solow production map ( Solow 1956 ) that makes the end product a map of stocks of capital and labour. The theoretical account has been extensively used in econometrics surveies to gauge the impacts of trade and FDI influx. It assumes that ‘conventional inputs ‘ of capital and labour are used in the neoclassical production map and ‘unconventional input ‘s like FDI and trade can be incorporated into the theoretical account to analyze their impact on economic growing. So we besides include trade as Nigeria has had an active trading activities and FDI is introduced as an extra input. Further, other exogenic factors are included. The augmented production map has the undermentioned signifier:
Yt= At KtI± LtI?
Yt= At KtI± LtI? FDItI» XMtI?
Where Yt is the flow of end product, K represent capital and L represent labour, XM is entire trade and FDI is Foreign Direct Investment.
An expressed map is specified after taking the natural logs as follows:
In Yt = c + I± InKt +I? InLt + I» In FDIt + I? InXMt + Iµt
Frequently included determiner of growing will be added. The theoretical account is based on the endogenous growing theory, as developed by ( Balasubramanyam, Salisu, and Sapsford, 1996 ) and ( Borensztein, Gregorio, & A ; Lee 1998 ) . The theoretical account is based on the premise that FDI contributes to economic growing straight through new engineerings and other inputs every bit good as indirectly through bettering human capital, substructure, and establishments and the degree of a state ‘s productiveness depends on the FDI, trade, domestic investing.
The Methodology will be used in order to accomplish the research aims, and it would be based on quantitative research through the usage of appropriate statistical tools that will be used for the presentation, reading and analysis of collected information. The methodological analysis to be employed is a arrested development theoretical account which is specified to analyze the effects of FDI on the growing of the economic system. We estimate these effects of by ordinary least squares ( OLS ) method and the informations will be tested for unit root ( nonstationarity ) by utilizing the Augmented Dickey-Fuller ( ADF ) . Further, if the variables are non stationary at the degree or it will be stationary at different degrees so co-integration will be used to use the OLS Then, to capture the impact of most of the critical variables, it does non account for the possibility of bidirectional relationship between growing and FDI highlighted in the recent literature. The technique of Granger-causality is employed to capture these possible temporal causality relationships ( Granger, 1969, 1980 ) . First, we test the consequence of FDI on economic growing in the period 1990-2010 utilizing the method of bi-variate arrested development. The empirical growing literature has identified a figure of variables that are typically correlated with economic growing. This includes Infrastructure development, Openness of the host economic system to merchandise, Government size, Human capital and Inflation rate. The specification of the theoretical account is:
RGDP = I?0 + I?1FDI + I?2XM +I?3GS + I?4INFL +I?5INFRA + I?6HUMCAP + U
RGDP = Real GDP per capita,
FDI = influx of foreign direct investing influxs
XM = the amount of entire export and import ( merchandise openness )
GS = authorities concluding outgo ingestion
INFL = rate of rising prices
INFRA= measured as electricity production per kW
HUMCAP= measured as entire labour force
Error term =U.
Our methodological analysis will assist us in gauging our empirical theoretical account and produced empirical analysis
1.8 Organization of survey
This paper is structured as follows: in chapter two the stylized fact about FDI sector in Nigeria is briefly discussed giving background cognition and a distinct analysis of the public presentation of FDI on the Nigerian economic system. Chapter three explains the impact of FDI on trade, passage in the economic system and economic growing following the theories and methodological analysis to be used is explained. Chapter four gives detailed analysis and reading of consequences. The paper ends in chapter five where some concluding comments are drawn from the chief findings.