Impact of Globalization and Exchange Rate on Economic Growth in Nigeria (1986-2018).
CHAPTER ONE
Objectives of the Study
The general objective of this study was to determine the extent to which globalization and exchange rate has led to economic growth in Nigeria. To achieve this general objective, the following specific objectives will be examined.
- To examine the impact of globalization on economic growth in Nigeria.
- To examine the impact of exchange rate on economic growth in Nigeria.
- To examine any long run relationship between globalization and exchange rate on economic growth in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
Conceptual Literature
Economic Growth
Economic development has been used with other terms such as growth, modernization, westernization and industrialization. It is, in other words, a transition from a simple, low-income economy to a modern, high- income economy. Its scope includes the process and policies by which a nation improves the economic, political, and social well-being of its people. Though it is often measured by rate of change of gross domestic product, it is generally understood in terms of increase in per capita income, and attainment of a standard of living equivalent to that of industrialized countries.
Economic growth implies a change in the way goods and services are produced, not merely an increase in production achieved using the old methods of production on a wider scale. It also involves improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. In addition to increasing private incomes, economic growth also generates additional resources that can be used to improve social services such as healthcare, safe drinking water etc. (Jelilov, Gylych, Muhammad & Maimuna, 2015).
Economic growth connotes a sustained increase in a country’s national income (Jhingan, 1997). When the GNP rises eventually, it depicts a growth in the economy.
Globalization
There are numerous attempts by different authors to define the term globalization. Globalization refers to the process of the intensification of economic, political, social and cultural relations across international boundaries, which is principally aimed at “making global being present worldwide at the world stage or global arena”. It deals with the breakdown of trade barriers and increased integration of World market. It is principally concerned with the expansion of trade over the oceans and airspace, beyond traditional alliances which were restricted by old political spheres of influence (Fafowora, 1998).
In an attempt to measure globalization, Dreher (2006) developed an index of globalization covering its three main dimensions:
- Economic globalization, characterized as long distance flows of goods, capital and services as well as information about the global market exchange.
- Political globalization, characterized by a diffusion of government policies are; and
- Social globalization, characterized as the spread of idea, information, images and people.
He concluded that globalization indeed promotes growth. Among the three dimensions only economic globalization showed positive relationship with economic growth, while the other two dimensions showed negative relationship, even though these dimension’s data; social integration and political integration are based on proxies.
The Milken Institute’s Globalization of the World Economy report, highlights many of the benefits associated with globalization, while outlining some of the associated risks that governments and investors should consider. But, in aggregate, there is a consensus among economists that globalization provides a net benefit to nations around the world and therefore should be embraced on the whole by governments and individuals.
CHAPTER THREE
METHODOLOGY
Types and Sources of Data
The study used annual time series data drawn from the publications of the Central Bank of Nigeria (CBN). Annual data covering thirty-two years, from 1986 to 2018 was collected for each of the variables of the study. The variables on which the data were collected were monetary policy variable (nominal exchange rate) trade openness variables (import and export) and the real sector variable (gross domestic product [GDP]). GDP was used as proxy for total output in the real sector of the Nigerian economy while exchange rate was used as proxy for macroeconomic instability.
The choice of 1986 to 2018 for the study was on the basis that most developments in economic liberalization and exchange rate policy shift in Nigeria happened between 1986 and 2017. Such policy regimes include Structural Adjustment Programme of 1985/86, the various floating exchange rate regime from 1986, and economic liberalization from 1986, among others.
Model specification
The model to be specified in this research work is on the critical assessment of Globalization and exchange rate, its impact on economic growth in Nigeria from 1986 to 2018. In this study, it is assumed that the enhancement of economic growth is determined by trade openness and exchange rate system [Import (IMP), export (EPT) and nominal exchange rate (NER)]. The GDP is proxied for economic growth and is used as the dependent variable while IMP, EPT, NER are the independent or explanatory variables.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS OF RESULTS
Presentation of results
This chapter presents the analysis of data used in the study and the interpretation of results. Prior to data analysis however, some diagnostic tests were conducted to check the quality of the data, whether they are normally distributed, stationary or stable over the period of study. The first step, as suggested by Engle and Granger (1987), is to test for unit root, followed by lag selection criteria. The Johansen co-integration test and the vector error correction mechanism were then estimated. All the tests were carried out using E-view 10 statistical package.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
This study used time series data covering the period 1986 -2018 to evaluate the impact of globalization and exchange rate on economic growth in Nigeria. Similarly, various economic liberalization and exchange rate policy adopted by the Central Bank of Nigeria (CBN) were reviewed. Finally, two econometrics method (the Johansen co-integration) robust least square regression (RLS) were applied to estimate the dynamic interaction among the variables of the study. The results from the estimates were also compared with a view to answering the research questions.
In the first chapter, the need for evaluating the efficacy of globalization and exchange rate on economic growth in Nigeria, the various trade liberalization policy and exchange rate policy regimes adopted by the CBN were briefly emphasized. The chapter also spelt out the research questions it sought to answer, the objectives of the study and the justification of the study. The main research questions of the study and their answers will be revisited in the later section of this chapter.
Chapter two was divided into three parts- the conceptual, theoretical and empirical literatures. The conceptual framework, reviewed the concept of economic growth, globalization and exchange rate. From the conceptual reviewed, it was found that the level of globalization and the value of exchange rate are weaker in the less developed economies than the advanced economies. The benefits of globalization are however dependent on whether the country is developed or emerging and on whether the naturally endowed resources are being optimally utilized for the purpose of diversification.
The second part of chapter two, the theoretical framework, reviewed the major theories of globalization [trade openness] and exchange rate. The reviewed theories differed in many respects but they also have areas where they overlapped. For example, the neoclassical growth model seemed to parallel the endogenous growth theory of the same concept but they overlapped in their policy recommendations. However, this study found more evidence in support of the endogenous growth line of argument on human capital investment, innovation and knowledge, and as such adopted the endogenous growth theory to guide the study.
The last part of chapter two, the empirical literature, concentrated on previous studies, their methodologies and their findings in a related topic. From the empirical reviewed, it was found that multiple regressions, co-integration and ECM were widely used in most studies. There was also a substantial difference between the findings of the studies. Some studies submitted that globalization and nominal exchange rate impact positively on economic growth, however, other studies could not find relevance in their relationships but did so globalization. These latter studies were those conducted mostly in Nigeria.
While chapter three focused on the estimation procedures and methods of data analysis such as co-integration, chapter four dwelled on the presentation of results and discussion of major findings. Chapter four begins with stationarity test and this was followed by lag selection criteria for the test of co-integration rank, vector error correction model. The concluding part of data analysis in chapter four was devoted to discussing the major findings from the estimated results.
Conclusion
In essence, this study is one of the recent attempts to link globalization and exchange rate to economic growth in Nigeria and also evaluates the efficacy of each channel in impacting to the real sector of economy. In addition, it assess the evolution of various trade policy regimes and exchange rate policy regimes adopted by the CBN over the years and compared the strength of the various regimes in addressing economic growth. These were done to enable the research provides answers to the research questions. The impact of globalization and exchange rate as revealed by the result suggests that trade and exchange rate policy measures, through import and export channel, have significant influence on the output of the real sector of the Nigerian economy, all other things being equal. The study also finds evidence of a long-run relationship among the channels of trade openness variables and exchange rate variable in Nigeria.
Recommendations
For globalization and exchange rate to be a pivotal force for economic growth in Nigeria, the following suggestions or recommendations were put forward.
- Government should embark on trade policy measures to balance the external sector since globalization [trade openness] have significant impact on Nigeria economic growth under the period reviewed.
- Government should embark on exchange rate policy measures to balance the financial sector, since exchange rate have significant impact on Nigeria economic growth.
- Government should embark on trade and exchange rate policy measures to balance the external sector and the financial sector since trade openness and exchange rate have significant impact on Nigeria economic growth. Also, government should expand the external market through bilateral negotiations with other countries since trade is a main engine of development strategies,
Suggestion for Further Research
This study has researched on the impact of globalization and exchange rate on economic growth. Further research can be done on the following:
- Globalization, exchange rate volatility and foreign trade performance in Nigeria
- Impact of globalization and exchange rate on balance of payment in Nigeria.
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