ABSTRACT
This thesis investigated the Domestic and External Sector Correlates of Balance of Payments in Nigeria. The study which covered a period of thirty five (35) years from 1980 to 2015 proposed six (6) research objectives and Hypotheses. In order to achieve the objectives of the study, Pearson Correlation and multiple regression analyses were employed to test the proposed hypotheses. The findings of the study indicate that Balance of Payment is negatively correlated with Exchange Rate, Foreign Direct Investment, Foreign Portfolio Investment, Government Expenditure, Private consumption Expenditure and All Share Index of the Nigerian Stock Exchange. On the other hand, only two out of six independent variables indicated a negative relationship with balance of payment. Thus, a naira increase in government expenditure or private consumption is expected to lead to a commensurate decrease in balance of payment and vice versa. A positive relationship is indicated to exist between balance of payment and exchange rate, foreign direct investment, foreign portfolio investment and the all share index. This implies that a unit increase in any of the above named variables will lead to an increase in balance of payment and vice versa. Finally, none of the independent variables in the hypotheses formulated for the study were found to be statistically significant, hence the decision to accept all six null hypotheses. Based on the above findings, it was concluded that even though all external correlates of balance of payment specified for the study have a positive relationship with balance of payment, none can be relied on to provide the needed stimulation to improve Nigeria’s balance of payment position. The domestic correlates (Government expenditure, Private consumption and All share index) do not significantly contribute to the objective of improving Nigeria’s balance of payment position. Given the conclusions above, we recommend that regulatory authorities should put appropriate policies in place that will help in enhancing/improving Nigeria’s balance of payment position. Foreign investors through the vehicle of foreign direct investment and foreign portfolio investment should be encouraged to bring in additional foreign investment into the country. Fluctuations in the exchange rate should be stabilized through control of the out-flow, this will help improve balance of payment position of the country. Finally, government expenditure especially in the area of recurrent expenditure should be curtailed in order to reduce drain on government earnings. Instead attention should be given to capital expenditure that is expected to lead to increase in economic activities in the country.
INTRODUCTION
............. The external domestic sector of the Nigerian economy has undergone profound changes in recent years. Principal among these are the rapid depreciation of the naira, the accumulation of payments arrears, the external debt problem which has resulted in debt restructuring, etc. These changes, along with other aspects of international economic transaction are captured in the balance of payments (BOP), Statistics (CBN, 1998).The balance of payments account is a periodic report that summarizes the flow of economic transactions with foreigners. It provides information on the nation’s exports, earnings of domestic assets owned by foreigners, international capital movements (Quantney et al, 1990).
Prior to the introduction of the Structural Adjustment Programme (SAP) in 1986, Nigeria’s Balance of Payment (BOP) had started to show signs of disequilibrium having been managed over the years within a policy framework of direct control. The controls were in areas of credit, interest rate, exchange rate, and trade. Following the sudden collapse of international oil prices in 1980’s and the consequent fall in foreign exchange receipts, controls were tightened. However, the controls proved counter-productive as it became clear that the economy could not be managed with a policy framework that placed heavy reliance on direct controls (Olisadebe, 1993).
The period beginning from the later end of 1999 marked a turning point from a hitherto culture of fiscal indiscipline characterized by frivolous spending to a new dawn of prudent consumption and saving. This is evidence from an unprecedented accumulation in the level of reserve from USD 4.98 billion in May 1999 to USD 59.37 billion as at March 28, 2007 (CBN, 2007). These robust domestic economic performances according to Magnus (2007) were occasioned by macroeconomic fundamentals like internal reforms, complemented by favourable external conditions like the persistent and unprecedented rise in crude oil prices joined with drastic decline on external obligations like debt service.
The recent growth of external reserve is not a phenomenon that has been unique to Nigeria. Most of the South East Asian as well as Latin American economies have also been indulging in this kind of behaviour. For instance, Adam and Leonce (2007) noted that global official foreign exchange reserves rose from USD 1.2 trillion in January 1995 to USD 5.04 trillion in December 2006 and the share of developing countries in world reserves increased from 50 to 72% over the same period. These development according to Magnus (2007) consequently underscored the critical role of foreign exchange reserve in the balance sheet of Central Bank and monetary policy operation, generating renewed and ranging controversies among schools and analysts in the process. ............... FOR ACCESS TO THE FULL PROJECT WORK, USE THE ORDER NOW! BUTTON BELOW
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 4
1.3 PURPOSE OF THE STUDY 6
1.4 RESEARCH QUESTIONS 7
1.5 RESEARCH HYPOTHESIS 9
1.6 SIGNIFICANCE OF THE STUDY 9
1.7 SCOPE AND LIMITATION OF STUDY 10
1.8 DEFINITION OF TERMS 10
REFERENCES 14
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION 15
2.1 CONCEPTUAL FRAMEWORK OF BALANCE OF PAYMENT 16
2.2 THEORY OF BALANCE OF PAYMENT 19
2.3 COMPONENTS OF BALANCE OF PAYMENTS 22
2.3.1 The Current Account 23
2.3.2 The Capital Account 24
2.3.3 Official Financing Account 24
2.4 CAUSES OF BOP IMBALANCES 25
2.5 CAUSES OF BALANCE OF PAYMENTS DISEQUILIBRIUM 26
2.6 BALANCE OF PAYMENTS CRISIS 30
2.6.1 Balancing mechanisms 31
2.6.2 Rebalancing by changing the exchange rate 32
2.6.3 Rebalancing by adjusting internal prices and demand 33
2.6.4 Rules based rebalancing mechanism 35
2.7 POLICIES TO CORRECT BALANCE OF PAYMENTS DISEQUILIBRIUM 36
2.8 EXCHANGE RATE POLICY IN NIGERIA 40
2.9 THE RELATIONSHIP BETWEEN EXCHANGE RATES AND BALANCE OF PAYMENTS 45
2.10 RELATIONSHIP BETWEEN FOREIGN INVESTMENT AND BALANCE OF PAYMENTS 48
2.11 THEORY OF GOVERNMENT EXPENDITURE 51
2.11.1 Public Expenditure Policies in Nigeria 53
2.12 PERFORMANCE AND TRENDS IN NIGERIA’S BALANCE OF PAYMENTS 55
2.13 A REVIEW OF RELEVANT EMPIRICAL LITERATURE 61
2.13.1 Balance of Payment and Exchange Rate 61
2.13.2 Balance of Payment and Foreign Investment 63
2.13.4 Government Expenditure and the Economy 67
REFERENCES 70
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 INTRODUCTION 78
3.2 RESEARCH DESIGN 78
3.3 DATA COLLECTION 79
3.4 DATA ANALYSES TECHNIQUES 79
3.5.1 MODEL SPECIFICATION 80
REFERENCES 82
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.0 INTRODUCTION 83
4.2 DATA PRESENTATION 83
4.3 DATA ANALYSES AND INTERPRETATION 85
4.4 HYPOTHESES TESTING 87
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 SUMMARY AND DISCUSSION OF FINDINGS 93
5.2 CONCLUSIONS 94
5.3 RECOMMENDATIONS 94
BIBLIOGRAPHY 96
APPENDICES 104
Reference code: C048
Reference code: C048
108 Pages
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