TABLE OF CONTENTS
Title page ……………………………………………………….. ……i
Certification…………………………………………………………..ii
Dedication……………………………………………………………..iii
Acknowledgement…………………………………………………iv
Table of contents…………………………………………………..v
Abstract……………………………………………………………….viii
CHAPTER ONE
1.0 Introduction……………………………………………………1
1.1 Background
of study……………………………………..1
1.2 Statement
of problem………………………………….11
1.3 Objectives
of the study………………………………..12
1.4 Hypothesis
of the study……………………………….13
1.5 Significance
of the study……………………………..14
1.6 Scope
and limitations of the study………………14
CHAPTER TWO
2.0 Literature
review………………………………………….16
2.1 Theoretical
literature…………………………………..16
2.2 The
major balances that composes
the balance of payments……………………………..20
2.3 Nigeria’s
balance of payments……………………..28
2.4 Components
of the balance of payments……35
2.5 Approach
to a balance of payment
analysis and measurement of surpluses
and deficits……………………………………………………40
2.6 Measurement
of balance of payment
surpluses and Deficits………………………………….44
2.7 Adjustment
mechanism to correct BOP
Disequilibrium………………………………………………..47
2.8 Empirical
literature………………………………………..51
CHAPTER THREE
3.0 Research
Design and Methodology……………….55
3.1 Methodology…………………………………………………..56
3.2 Model
specification………………………………………..58
3.3 Method
of evaluation……………………………………..60
3.4 Sources
of data………………………………………………61
CHAPTER FOUR
4.0 Presentation
and Analysis of
Empirical Results……………………………………………63
4.1 Presentation
of Regression Results……………….63
4.2 Interpretation
of Regression Results…………….64
4.3 Evaluation
of the estimated parameters….....76
CHAPTER FIVE
5.0 Summary,
Conclusion and
Recommendation………………………………………….77
5.1 Summary
of the findings……………………………..77
Conclusion………………………………………………….78
5.2 Policy
Recommendations…………………………..79
Bibliography……………………………………………….82
Journal
and Newspapers……………………………84
Appendix
I
Appendix
II
ABSTRACT
This study aimed at analyzing through econometric
methodology the Determinant of Balance of payment in Nigeria. In the work, we
capture balance of payment as the dependent variable while trade openness,
external debt service and exchange rate as the explanatory variable. In the
second page of the regression estimated we observed GDP as the dependent
variable while balance of payment, trade openness exchange rate and external
debt service being the independent variable. An ordinary least square was used
to capture the relationship between the variables been the regression plane.
From the result estimated, we observed that all parameters are statistically
significant from the t-test statistics. We also realize from the F-test
estimation that the model is statistically insignificant because the T-cal <
T-tab in all the variable. The result went further in the test of
autocorrelation through the Durbin-Watson that there is absence of
autocorrelation among the variable
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background
of the Study
Trade in the primitive era was purely by barter,
means exchange of goods. This form of trade involved discrepancies in exchange
value, settlement in credit or money and this discrepancies constituted the
origin of concept of balance of payment (Growell 1986:1).
The term balance of payment itself entered the
English economic literature during the mercantilist period. After, 1570 the
balance of payments developed slowly in response to the sets of circumstances;
the first was the rise of mercantilisms and the desire on the part of English
businessmen and government officials to be informed of the quantitative aspect
of foreign commerce.
The generic meaning of the term today is the
excess of receipts over payments of any economic activity, although the concept
initially applied, to and received its greatest elaboration in the theory of
international trade. In its original usage, a “balance of payment” means an
“excess of payment over receipts and under the gold standards, this excess
means a gold outflow.
But the term soon acquired the neutral meaning of
the “state of balance of international economic covers both international
financial transactions and international trade in commodities and services.
International trade has money merits. Some of which include creation of
employment opportunities. International trade also makes room for countries to
enjoy higher standard of living.
Every nation has an international balance of
payment problem (Bowdan 1986:662) developed, developing countries of the world,
experience balance of payments problem. But the difference between the developed and developing of countries as
regards to balance of payments is that due to deterioration in their term of
trade, the developing nations suffer the impacts of balance payments deficit
more than the developed ones.
Due to the fact that most of the less developed
economics of the world have been experiencing the problem of financing then
purchases from the developed nations, many of these less developed nations
removed barriers in order to increase their sales and services to the developed
economics.
Because of the advantages of international trade
discussed above, different nations engage in international trade. “Each country
keeps her own accounts of its international dealings. Their accounts are called
the balance of payment accounts”. (Chikeleze 1989:1) The balance of payment
accounts are divided into two broad account: - current account and capital
account. Current account is that part of balance of payment which summarizes
transactions in currently produced, goods and services, investment income etc,
while capital account on the other hand, is that part of balance of payments
accounts which summarizes transaction in financial assets including stocks,
bonds short-term credits and indirect purchases of foreign plants or
businesses.
Therefore, capital account covers investments and
short-term monetary flows. These accounts among other thing help each nation to
know the sources of its new foreign money and about the way they foreign money
balances are being used up. Each nation’s international balance of payments
shows their nation’s trading and financial position with the rest of the world.
“The structure of a country’s balance of payments reflects both its stage of
economic development and the pattern of each activity within the country. The
accounting balance of payment records both regular transactions and
transactions made to settle any gap between regular purchases and sales,
(Jhingan, 1986:58-60). The problem in construction of a useful operational
definition of the balance, payment is thus the problem of separating regular
transactions from setting” transaction, distinction best suited to the purposes
of the determinants of balance of payments analysis.
The growth performance of the Nigerian economy
has been determined by both domestic production and consumption activities as
well as foreign transactions in goods and services. Specifically, it has been
acknowledged that foreign trade is an engine of growth and development.
Further, in an economy that is characterized by macroeconomic stability and
favourable investment climate, attractive trade policies would encourage
foreign investment, technological advancement and exports which will inturn
attract massive inflow of foreign exchange.
Prior
to the discovery of oil in 1960s, the Nigerian government was able to execute
investment projects through domestic savings, earnings from agricultural
product exports and foreign aids. However, the capacity of the economy to
accumulate domestic savings, earnings to finance investment was limited. There
was therefore, the inability of government to generate sufficient foreign
exchange due to persistent balance of payment problem arising from the reliance
on monoproduct primary export which is not competitive at the international
market.
After
the discovery of oil and its massive exportation in the 1970s, one would expect
that more foreign exchange earning will accrue to the economy, and the economy
would be able to undertake viable investment projects that will lay a basis for
sustainable growth and development.
In an
attempt to address the various macroeconomic problems in the economy,
government adopted the demand management policy in 1982 when the problems were
perceived as demand driven. Some measure where introduced like imposition of tariffs
and application of contradictory fiscal and balance of payment equilibrium. All
these have consequences for imports, savings and investment and growth
particularly in developing countries such as Nigeria which heavily depends on
imports for its capital goods and raw materials. Total Debt – GDP ratio rose
from 9.6 percent in 1980 to 24.1 percent in 1985. With all these constraints on
domestic financial resources and the inability of the private sector to
champion the course of growth and development, the real GDP declined by 3.8
percent between 1980 and 1985.
The
persistence of the macro economic problems in the economy even after the
introduction of a number of stabilization measures made the government to adopt
the structural adjustment programme (SAP) in 1986. This was meant to further
strengthening the existing demand management policies; restructure and
diversify the productive base of the economy and reduce dependence on the oil
sector and on imports, and to achieve fiscal and balance of payments viability,
among other underlying objectives (Philips, 1987)
Further,
the SAP policy package includes trade and payment liberalization which suggests
that there was no serious balance of payments constraint during the period of
implementation of SAP compared to what is obtained before SAP. It should be
noted that with the introduction of SAP in Nigeria, the procedure hitherto used
in allocating foreign exchange and which consequently serve as a mechanism of
controlling demand for foreign exchange was abolished. Thus, the foreign
exchange market was deregulated. The policy aims at making foreign exchange
available to whoever could avoid the prevailing exchange rate.
Between
1986 and 1993, the ratio of investment to GDP ranged between 11.0 and 18.5
percent, while the ratio of savings to GDP was between 10.0 and 28.5 percent.
The savings-investment gap – GDP ratio which was negative between 1986 and 1987,
became positive in the subsequent years. This suggests that the SAP period was
characterized by relatively low level absorptive capacity of the economy since
some proportion of savings were not translated into investment (Adewuyi, 2000).
Further, the relatively low level absorptive capacity of the economy continued in the subsequent
period (after SAP) as the savings-investment gap- GDP ratio was positive, while
the external trade performance indicators did not show significant
improvements. The ratio of fiscal deficit to GDP reached a peak of 11.0 percent
in 1994, while the real GDP growth rate was less than 4.0 percent in the period
1994 to 2000.
All these is used to inform governmental authorities of the international
position of the country, to aid governmental authorities 
