Preview

An Empirical Analysis of Monetary Policy and Private Sector- Led Investment in Nigeria, 1986-2011.

Powerful Essays
Open Document
Open Document
5284 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
An Empirical Analysis of Monetary Policy and Private Sector- Led Investment in Nigeria, 1986-2011.
AN EMPIRICAL ANALYSIS OF MONETARY POLICY AND PRIVATE SECTORLED INVESTMENT IN NIGERIA, 1986-2011.

BY

EZIE OBUMNEKE Department of Economics Bingham University, Karu, Nasarawa State 08069430911 eobumneke@yahoo.com

1

ABSTRACT This study undertakes an empirical analysis of the impact of monetary policy measures on private sector-led investment in Nigeria between,1986-2011. In the process, a number of traditional hypotheses on nominal interest rates, nominal exchange rates and broad money supply reflecting Central Bank of Nigeria, CBN, monetary policy measures and private sector investment are statistically tested. Co-integration and unit root test conducted for the variables shows that they have a long term, or equilibrium relationship between them. The estimated log-linear multiple regression equation reveals that inadequate infrastructural facilities made returns on autonomous part of private sector investment negative. This was captured by the negative numerical value of the intercept. Another important revelation is that exchange rate depreciation raises the cost of imported goods, and since a large part of investment goods are imported in Nigeria, such depreciation dampens private sector investment. The prevailing interest rate structure encouraged private sector investments in the tertiary sector at the detriment of the primary sector due to the increase in broad money supply. Finally, the statistical significance of nominal interest rates, nominal exchange rates and broad money supply as determinants of private sector investment are all poor, thus indicating that the CBN monetary policy measures had no significant impact on private sector investment in Nigeria between 1986-2011. Suggestive from the analysis therefore are that effective policies and basic infrastructural facilities that would improve national income and productivity should be provided.

2

I.

INTRODUCTION Over the years, monetary policy objectives have remained the attainment of internal


References: Abone, O. (2001). “Private Sector and Economic Development”. Vanguard (10th July), Lagos. Abumere, S. I. (1998). “The Informal Sector in Nigeria’s Development Process.” Development Policy Centre Research Report ,N0. 1, Ibadan, Nigeria. Abumere, S. I. (2002).“Building the Nigerian Private Sector Capacity: An Assessment of Problems and Policy Options”. Development Policy Centre Research Paper ,N0.38, Ibadan, Nigeria. Ajayi, S. I. (1978). Money in a Developing Economy: A Portfolio Approach to money Supply Determination in Nigeria, Ibadan University Press, Ibadan, Nigeria. Alexander, E. W. (1995). “The Adoption of Indirect Instruments of Monetary Policy” IMF Staff Occasional Paper, Vol.32, No. 126. P. 36 Anyanwu, J. C. (1997). The Structure of The Nigerian Economy (1960-1997),Joanee Educational Publishers, Onitsha. CBN (1992). “The Evolution And Performance of Monetary Policy in Nigeria in The 1980’s”, CBN Bullion. Ekezie, E. S. (1997). The Elements of Banking in Africa, FEP-Publishers, Onitsha. P .223. Eleazu, O. O (1996). “The Enabler: Towards Private Sector Participation in Development”. Journal of the Enabling Environment Forum, Lagos, Nigeria. Vol. 8, No. 2, December. Ezie, O(2010). The Impact of Monetary Policy on Private Sector Investment in Nigeria (1986-2008). An M.Sc. Thesis,PP 11 and 82. 15 Fapohunda, O. J. (1975). “Urban Development, Income Distribution and Employment in Lagos”,Working Paper,ILO,Geneva. Giwa, R. F .(1996). “The Role of the Public and the Private Sector in Economic Development”, CBN Economic and Financial Review,Vol.3 ,No.4 Gujarati, D.N. (2004). Basic Econometrics, The Tata McGraw – Hill Companies, Inc., India. P.822 Jerome, A. (1999). “Unleashing the Private Sector in Nigeria”, Afribank Economic and Financial Review, Vol. 11, No.1 Jhingan, M.L.(2002). Macro-Economic Theory, 10th Revised and Enlarged Edition, Delhi,Vrinda Publications, Ltd., India PP 13 and 366. Jhingan, M. L. (2004). The Economics of Development and Planning, Vrinda Publications, Ltd., Delhi, India. Nemedia, C. (2006). “Elements of Macroeconomic Management: Monetary Policy” , Being a Paper Presented at the Regional Programme on Macro-econometric Modeling and Policy Analysis, organized by the West African Institute for Financial and Economic Management (WAIFEM), Lagos, Nigeria. P. 17 Nnanna, O.J. (2004). “Finance, Investment and Growth in Nigeria”, A CBN Publication, Garki, Abuja. P.65. Obadan, M. (1993).“The Working of a Free Enterprise Economy; Managing a free Economy”, Nigerian Economics Society(NES), Seminar, December. Odozi, V.A. (1993). “Current Monetary and Banking Policies in Nigeria and the Prospects in the Third Republic”, CBN Economic and Financial Review, Vol. 30. No.3. OECD. (1994). Enhancing Private Sector led Growth in Nigeria, CBN Proceedings of The 13th Annual Conference. Ojo, M.O. (1998). “The Objectives, Design and Implementation of Monetary Policy”, Being a Paper Delivered During the course on Exchange Rate Management and the Conduct of Monetary Policy Organized by the West African Institute for Financial and Economic Management (WAIFEM), Lagos, Nigeria. Olayiwola, K. (2001). “Economic Reform Programme and Private Sector Development in Nigeria”, Development Policy Centre Research Report No. 35,Ibadan, Nigeria. Otiti, A. O. G. (2007). “Essays on Recent Issues in the Nigerian Financial System”, CIBN Press Ltd., Tarton,Yaba,Lagos.P.96. 16
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Powerful Essays

    Appraisal of the Economic Implication of Electronic Banking in Nigeria Banks (a Case Study of Diamond Bank Plc Nigeria)
    • 8715 Words
    • 35 Pages

    Appraisal of the Economic Implication of Electronic Banking in Nigeria Banks (a Case Study of Diamond Bank Plc Nigeria)

    Bibliography: Anyanwaokoro, M. (1999). Theory and Policy of Money and Banking, Enugu, Nigeria: Hossana Publications.…

    • 8715 Words
    • 35 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    IMPACT OF MONEY SUPPLY ON THE ECONOMIC GROWTH OF NIGERIA
    • 6897 Words
    • 28 Pages

    IMPACT OF MONEY SUPPLY ON THE ECONOMIC GROWTH OF NIGERIA

    In the critical observation of the recent Nigerian economic position, there has been a great divergence between the rate at which money is supplied and the exact impact it has on the general price level, which results in inflation and deflation on one hand, and the output growth (productivity) on the other hand. Although, it had occurred to our mind that Nigerian monetary policy continues to aim at achieving single digit inflation, a stable Naira, increase in domestic production and a stock of foreign exchange reserves equivalent of at least six months of current imports, the Central Bank of Nigeria (CBN) relies on Open Market Operation (OMO), Cash Reserve Operations, Minimum Liquidity Ratio, Discount Window Operations (OWO) etc, to control growth in monetary aggregates, changes in minimum re-discount rate (MRR) to determine interest rates, and a Dutch Unction system to determine the value of the Naira (See Anyanwu, 2003).…

    • 6897 Words
    • 28 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Role of Human Capital in Economic Development: an Empirical Study of Nigerian Case
    • 6625 Words
    • 27 Pages

    Role of Human Capital in Economic Development: an Empirical Study of Nigerian Case

    Barro, R (1991), Economic growth in a cross – section of countries. Quarterly Journal of…

    • 6625 Words
    • 27 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Effect of Interest Rate on Investment Determination in Nigria
    • 9874 Words
    • 40 Pages

    Effect of Interest Rate on Investment Determination in Nigria

    The research showed that interest rate played a negative role in investment determination in the economy. It also deduced that other variable such as economic stability, debt burden, shortage and lack of infrastructure, foreign exchange affect domestic investment. Improvement in these key macroeconomic variables is a necessary condition towards facilitating investment in Nigeria. This research work is above all a forward looking exercise intended to draw lessons for the strategic positioning of the economy as the government of Nigeria consolidates its transition to democracy.…

    • 9874 Words
    • 40 Pages
    Powerful Essays
    Read More
  • Better Essays

    Problems, Solutions and Prospects for the Development and Progress of the Banking Industry in Nigeria
    • 1199 Words
    • 5 Pages

    Problems, Solutions and Prospects for the Development and Progress of the Banking Industry in Nigeria

    • Akpan P.E (2oo6) ‘Developments in the Nigerian Banking System’, Department of Banking Supervision, Central Bank of Nigeria.…

    • 1199 Words
    • 5 Pages
    Better Essays
    Read More
  • Good Essays

    Banking Reform in Nigeria -Implication for Employees
    • 5413 Words
    • 22 Pages

    Banking Reform in Nigeria -Implication for Employees

    Recent reforms carried out by Sanusi Lamido Sanusi, governor of the Central Bank of Nigeria (CBN), in the banking industry appear desirable. The CBN aims at ensuring the stability and soundness of Nigeria’s banking industry within the shortest possible time. However, the unintended negative effects of these present reforms of the banking sector on national economy are awful. The CBN Governor swept away chief executives of five commercial banks in Nigeria in one fell swoop. The decision took many Nigerians by surprise. At the same time, it drew diverse reactions depending on which side one stands. Whereas some people applauded the action as belated but necessary to bring sanity to the Nigerian banking sector, others chastised the apex bank boss for taking a decision that would turn round to hurt not only the banks, but the entire Nigerian economy. Sadly, in spite of the apparent lofty intentions of the reputable risk manager, there are indications that unintended negative effects of the CBN action have begun to take their toll on the banks, the real sector, Nigerians and the entire economy.…

    • 5413 Words
    • 22 Pages
    Good Essays
    Read More
  • Good Essays

    Fiscal Deficit and Inflationary Trend in Nigeria
    • 8780 Words
    • 36 Pages

    Fiscal Deficit and Inflationary Trend in Nigeria

    References: Adeyeye, E. A. and T. 0.Fakiyesi (1980):“Productivity Prices and incomes Board and Anti Inflationary Policy in Nigeria”, in the Nigerian Economy Under the Military Proceedings of the I980 Annual Conference of Nigeria Economic Society. Ibadan.…

    • 8780 Words
    • 36 Pages
    Good Essays
    Read More
  • Powerful Essays

    Impact of Financial Deepening on Nigeria Economy
    • 11669 Words
    • 47 Pages

    Impact of Financial Deepening on Nigeria Economy

    The reforms in the financial system in Nigeria which heightened with the 1986 deregulation, affected the level of financial deepening of the country and the level relevance of the financial system to economic development. Nnanna and Dogo (1998) However, the rapid globalization of the financial markets since then and the increased level of integration of the Nigerian financial system to the global system have generated interest on the level of financial deepening that has occurred.…

    • 11669 Words
    • 47 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Farmer's Credit Stock Determinants from Commercial Banks and Its Effects on Agricultural Production in Nigeria
    • 3315 Words
    • 13 Pages

    Farmer's Credit Stock Determinants from Commercial Banks and Its Effects on Agricultural Production in Nigeria

    Nigeria. Time series data, covering the periods of 1977-2007, culled basically from the Central Bank of Nigeria’s Statistical Bulletin, 2009 were…

    • 3315 Words
    • 13 Pages
    Powerful Essays
    Read More
  • Best Essays

    Domestic Debt and the Nigerian Economy
    • 4406 Words
    • 18 Pages

    Domestic Debt and the Nigerian Economy

    Abstract: The study investigates the empirical relationship between domestic debt and economic grow th in Nigeria. Using OLS regression techniques and the time series data from 1986 – 2005, the study explored the relationship betw een d ome stic deb t and economic growth in Nigeria. Our result shows that domestic debt has affected the growth of the economy negatively. In the light of the findings, the study recommend that Government domestic borrowing should be discouraged and that increasing the revenue base through its tax reform programames should be encouraged. Key w ords: Budget deficit, debt profit, domestic de bt, econom ic growth a nd pub lic expenditure INTRODUCTION The beginning of the existing market for government borrowing in Nigeria is the financial reforms introduced by the colonial government in 1958. These reforms saw to the creation of the Cen tral Bank of Nigeria (CBN) and the creation of Marketable Public Securities to finance fiscal deficit. According to paragraph 35 of the Central Bank of Nigeria (CBN) Ordinance 1958, the bank shall be entrusted with the issue and management of Federal Government Loans pu blicly issued in Nigeria upon such terms and conditions as may be ag reed w ithin the Federal Government and the Bank. Since the early 1960s, the ratio of do mestic government to Gro ss Dome stic Product (GDP) increased. A decade later by 1974 this ratio went up slightly to 6.9% of GDP. But by1984, the domestic debt to GDP ratio was over 40%. Although it declained slightly in the 1990s, it has since 2000 moved upward, Asogwa (2005). He further opine d that, N igeria has not been alone in…

    • 4406 Words
    • 18 Pages
    Best Essays
    Read More
  • Powerful Essays

    Financial Intermediation and Economic Development in Nigeria
    • 9809 Words
    • 40 Pages

    Financial Intermediation and Economic Development in Nigeria

    Financial intermediation is an important activity in the economy because it allows funds to be channeled from people who might otherwise not put them to productive use to people who will ultimately put the funds to productive uses. In line with the assumption that banking sector plays an important role in financing the investment projects, successive governments in Nigeria have carried out reforms and institutional innovations in the banking sector. The overall intention of these reforms has been to ensure financial stability so as to influence the growth of the economy and also enhance banks to play a critical role of financial intermediation in Nigeria. However, despite the fact that Nigerian banks have undergone series of restructuring/reforms aimed at strengthening the banks’ ability to efficient service delivery and fund the real sector, problems such as; inefficiency in allocating funds to the real sector, lack of long-dated funding, neglect of the core private sector in terms of credit extension, weak capacity of the banks to fund the real sector, low-level activities of banks, and illiquidity still lingers. This study therefore, examines empirically the impact of financial intermediation on the development of the Nigerian economy with the aim of determining the importance of financial intermediaries and its influence. This study found out that the financial intermediaries (banks) in Nigeria exhibit inefficiency and weak capacity in the allocation of funds to finance the some sectors. On the overall therefore, the study found that the economy Nigeria rely heavily on the banking sector to finance its activities even though the desired expectation is not met by the banks. The study therefore, concluded that financial intermediaries (banks) are important in attaining financial development. The study therefore recommend that banks should ensure greater domestic savings mobilization for investment and growth, using market-determined interest rates, and…

    • 9809 Words
    • 40 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    The Financial System in Nigeria
    • 6388 Words
    • 26 Pages

    The Financial System in Nigeria

    References: Cameron, R. (1972). Bank and Economic Development: Some Lessons of History. New York: Oxford University. Central Bank of Nigeria (2008). Annual Report and Statement of accounts, 31st December. Central Bank of Nigeria (2004). Annual Report and Statement of accounts, 31st December. National Planning Commission (2004). National Economic Empowerment and Development Strategy Abuja. Ojo, M. (1993). A Review and Appraisal of Nigeria’s Experience with Financial Sector Reforms. Central Bank of Nigeria Research Department Occasional paper. No. 8 August. Onwumere, J.U.J. (1992). The Nigerian Financial Markets: An Appraisal. Nigerian Financial Review. 5(4): 32-42. Onwumere, J.U.J. (1994). Production Functions and The Manufacturing Sector in Nigeria: An Econometric Survey. In: I.C. Okonkwo (ed). Industrial organization; Theory and Practice. Owerri: Tan Press.…

    • 6388 Words
    • 26 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Impact of Monetary Policy on Nigeria Commercial Banks
    • 11627 Words
    • 47 Pages

    Impact of Monetary Policy on Nigeria Commercial Banks

    Like in banks in most developing economic (Nigeria inclusive) the role of providing advice and issuing financial directives lies in the ministry of finance, the Nigeria deposit insurance corporation and the central bank of Nigeria. The federal government relies on these institution for the proper functioning of banks through their monetary policies, which could be concretionary or expansionary. This invariably affects the commercial banks etc. hence the need for this study.…

    • 11627 Words
    • 47 Pages
    Powerful Essays
    Read More
  • Best Essays

    Nigerian Monetary Policy
    • 1974 Words
    • 8 Pages

    Nigerian Monetary Policy

    Nigeria monetary policy has been conducted under wide ranging economic environment since its establishment in 1959, the Central Bank of Nigeria (CBN) has continued to play the traditional role expected of the central bank, which is the regulation of stock of money such a way as to promote the social welfare (Ajayi, 1999). This role is anchored on the use of monetary policy that is usually targeted towards the achievement of full-employment equilibrium, rapid economic growth, price stability, and external balance. Over the years, the major goals of monetary policy have often been the two later objectives. Thus inflation targeting and exchange rate policy have dominated CBN’s monetary policy focus based on assumption that these are essential tools of achieving stability. Commercial banks have been positively been affected through monetary policy by the federal government in other to attain a high level of government target objectives and attain high level of economic growth and stability including relatively stable price and low unemployment. Due to the present challenging conceptual and technical problem such as price instability, inflation rate, unfavorable balance of payment it is difficult for the effort of monetary policy to show there full effort or ability on the economy. But monetary policy has become a variable measuring achieving aggregate economic potential in specific environment of the 1970’s it rest on the relationship between the rate of interest in the economy that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses variety of tools to control one or both of these, to influence outcome like economic growth, inflation, exchange rates with other currencies and unemployment, where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tired to a central bank, the monetary authority has the ability to alter the money supply…

    • 1974 Words
    • 8 Pages
    Best Essays
    Read More
  • Powerful Essays

    Unemployment in Nigeria
    • 5026 Words
    • 21 Pages

    Unemployment in Nigeria

    M.A. Adawo, E.B. Essien and N.U. Ekpo Department of Economics, University of Uyo, Uyo, Nigeria…

    • 5026 Words
    • 21 Pages
    Powerful Essays
    Read More

Related Topics