ECONOMIC INTEGRATION, MONEY SUPPLY AND ECONOMIC GROWTH IN NIGERIA (1981-2015)
ABSTRACT
The management of any economy, at any point in time is aimed at the attainment of macroeconomic objectives such as economic growth, price stability, adequate money supply, equilibrium balance of payment, equitable distribution of income and reduction in poverty levels, amongst others. It is against this background that this study, set out to empirically investigate the causal link between economic integration, money supply and economic growth in Nigeria.
The study employed time series data, covering a period of thirty-five years (1981-2015) while the data used were obtained from the Central Bank of Nigeria (2015) Statistical Bulletin and World development indicators of the World Bank (2015) Statistical year book. In addition, the Ordinary least squares regression modeling approach was adopted for the data analysis, while the empirical results revealed that trade openness and money supply have destructive impacts on economic growth in Nigeria.
It was further seen that the monetary policy rate and exchange rate revealed positive impacts on the growth of the Nigerian economy. Consequent upon the foregoing, the study recommends that monetary authorities should allow the monetary policy rate to be determined by market forces. In addition, the exchange rate should be allowed to float freely and measures such as dirty floatation should be minimized or totallyavoided
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background to the study - - - - - -
1.2 Statement of the research problem - - - - -
1.3 Research questions - - - - - - -
1.4 Objectives of the study - - - - - -
1.5 Hypotheses of the study - -- - - - -
1.6 Scope and methodology of the study - -- - - -
1.7 Limitation of the study - - - - - -
1.8 Significance of the study - - - - - - - -
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - - - - -
2.2 Conceptual Clarifications - - - - - -
2.2.1 Concepts of Economic Integration, Money Supply and Economic Growth-
2.3. Review of Theoretical Literature - - - - - -
2.4. Review of Empirical Literature - - - - - -
2.5. Review Summary - - - - - - - -
2.6. A Review of Foreign Trade and the Nigerian Economy - - -
2.6.1 Nigeria's Current Trade Profile - - - - - -
2.7. Comparative Trend Analysis of Openness to Trade, Money Supply, Monetary Policy Rate, Exchange Rate and Real Gross Domestic products in
Nigeria (1981-2015)
CHAPTER THREE: THEORETICAL FRAMEWORK AND EMPIRICAL METHOD
3.1 Introduction - - - - - - - - - - -
3.2 Theoretical Framework - - - - - -
3.3 Model Specification - - - - - - -
3.4 Method of Data Collection - - - - - -
3.5 Method of Data Analysis - - - - - -
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF EMPIRICAL RESULTS
4.1 Introduction - - - - - - - - - - -
4.2 Analysis of Result- -
4.2.1 Analysis of Descriptive Statistics - - - - -
4.2.2 Analysis of the Correlation Matrix - - - - -
4.2.3 Short-Run Impacts Of The Independent Variables On The
Dependent Variable. -
4.3 Policy Implication of Findings - - - - - -
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATION
AND CONCLUSION
5.1 Introduction
5.2 Summary of Findings - -
5.3 Policy Recommendations -
5.4 Conclusion - - -
BIBLIOGRAPHY -
APPENDICES -
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The management of any economy at any point in time is aimed at the attainment of macroeconomic objectives such as economic growth and development, price stability, adequate money supply, equilibrium balance of payment, equitable distribution of income and reduction in poverty levels, among others.The above list of objectives are however not exhaustive and in order to achieve them, different economies take certain steps, one of which includes economic integration.
Essentially, an increase in welfare of its member states is one of the major objectives of economic integration and it achieves this by ensuring minimal restrictions or barriers to trade and the flow of goods and services as well as ease in exchange and supply of money through effective coordination of monetary policies.For example ECOWAS which was established in 1975, as a monetary union which is a common market with a common currency and a common central bank,set-up to ensure ; Free Movement of goods and persons boosted with the adoption of the ECOWAS Biometric Identity Card to facilitate mobility and promote security in the region,exchange rate fluctuations that used to exist between countries will disappear with a common currency and thus eliminate exchange rate uncertainty between the countries involved,a currency which has the enhanced credibility of being used in a large currency zone should be more stable against speculation than the individual currencies were,business confidence in member countries is improved as there is less of a perceived risk involved in trading among the countries,a common currency makes price differences more obvious between countries and should overtime lead to price equalizing across borders,renewed efforts to enhance the environmental governance, general environmental protection,capacity building as well as sustainable resource management for development in the Member States amongst others.
Ensuring adequate money supply is one of the policies monetary authorities use in helping the economy attain or achieve economic growth. This is because the level of money supply in any economy ultimately affects the level of economic growth.A proponent of this view,Milton Friedman practically suggests that, in the case of economic growth which is usually characterized by a general rise in economic activities, increase output, high purchasing power of consumers to name a few. The monetary authorities should focus on maintaining stable money supply growth in the short-run, by adjusting its monetary policies to curtail economic fluctuations as the need arises, thus ensuring increase in output and employment.
1.2 Statement of the Research Problem.
Regional economic communities are basically formed because of the expected benefits from them.This is because in a competitive environment, prices get lower and the products become diversified through which consumer surplus emerges. Gains from specialization and efficiency are also further advantages of economic integration.According to Iyoha (2005), an important feature of the higher levels of economic integration is free trade among members and this free trade is expected to lead to a rapid increase of trade which in turn is likely to lead to rapid economic growth.
As Nigeria engages in trade,expenditures used to finance its imports are greater than the earnings from its exports.A glance at the Nigerian economy reveals that the economy is operating a balance of trade disequilibrium,particularly, a balance of trade deficit. ECOWAS as an economic union, was established to help member states, but the Nigeria economy has not been utilizing its benefits to their advantage. Given that as an economic body, ECOWAS aims to achieve price equalization overtime in member states through the use of a common currency, thus ensuring the harmonization of monetary policies, in order to enhance trade among its members and ultimately result to an increase in world welfare. (Nigerian Observer, 2015)
As noted by Salvatore (2006) economic integration arrangements are not characterized by strong supranational bodies and virtually all integration institutions are inter-governmental because many developing nations are not willing to relinquish their sovereignty to a supranational community body,as is required for successful economic integration.This results to limited benefits and ineffectiveness of these organizations,in most cases the main problems for limited benefits were attributed to resources similarities and overlapping membership. Overlapping membership makes it difficult for member states to implement competing strategies of different economic groupings since the majority of developing countries produce and export primary products.The formation of an economic union will not serve any purpose because they will be competing for the same world markets for their products. According to Kindleberger,they are not economically unified.They are typically more competitive than complementary, and their competitive interests makes it hard for them to form an economic union (cited in M.L. Jhingan, 2005). It is on this ground that this study seeks to examine whether there is a causal relationship between economic integration, money supplyand economic growth in Nigeria.
1.3 Research Questions
Arising from the foregoing research problems,the study therefore seeks viable solutions to the following research questions:
1. Is there any link between trade openness and economic growth in Nigeria?
2. Is there any relationship between monetary policy rate and economic growth in Nigeria?
3. Is there any relationship between money supply and economic growth in Nigeria?
4. Is there any link between the rate of exchange and economic growth in Nigeria?
1.4 Objectives of the Study
The broad objective of the study is to empirically examine the nexus between economic integration,money supply and economic growth in Nigeria,while the specific objectives include the following;
1. 1 To examine whether there is any link between trade openness and economic growth in Nigeria
2. To examine whether there is any relationship between monetary policy rate and economic growth in Nigeria
3. To evaluate the nexus between money supply and economic growth in Nigeria
4. To investigate whether there is any link between the rate of exchange and economic growth in Nigeria
1.5 Hypotheses of the Study.
For any research work to have a scientific validity, it is necessary for the researcher to make some meaningful provisional statement to guide his investigation. Consequently, the following hypotheses are postulated:
1. There is no link between trade openness and economic growth in Nigeria.
2. There is no relationship between monetary policy rate and economic growth in Nigeria.
3. There is no relationship between money supply and economic growth in Nigeria.
4. There is no link between the rate of exchange and economic growth in Nigeria.
1.6 Scope and Methodology
The leading emphasis of this research is to utilize quantitative data spanning 1981-2015. The data will be obtained from the Central Bank of Nigeria Annual Statistical Bulletin and World development indicators of the World Bank.
1.7 Limitations of the Study
A major constraint envisaged in the study is the nature of data to be utilized for empirical analysis. The data we propose to use are basically secondary in nature. Therefore, results will be reliant on the quality of the data. However, the use of high frequency data (such as daily, weekly, monthly or quarterly data) would have been desired for the analysis but such data are usually unavailable, thus compelling the necessity for annual time series data for this study.
1.8 Significance of the study
This study is deeply justified by the fact that it has both strategic, academic and policy impacts. The wide-ranging outcome of this study will be used for policy formulation by the Federal government of Nigeria and other non-governmental organizations when dealing with issues relating to economic integration, money supply and economic growth in Nigeria. It will further identify new areas requiring monetary expansion and areas requiring some measures of restraint in the Nigerian Financial Sector. For a proper design of Foreign and Monetary Policies, it becomes germane for policymakers to carefully identify what accounts for variations in National output as well as trade balances among countries.
