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GLOBALIZATION AND ITS IMPACT ON ECONOMIC GROWTH OF THE
NIGERIAN ECONOMY
CHAPTER ONE
1.1
BACKGROUND OF THE STUDY
Generally, globalization can be viewed as the integration of
national economics through trade, capital flows and the accompanying
convergence of economic policies. It is the process whereby political, social,
economic and cultural relations increasingly take on a global scale and which
has a profound consequence for individual’s local experience and everyday lives
(Bilton, 1997). The definition above implies that globalization operates both
at global and local levels and therefore impacts on the economy and politics of
a country as well as the culture and well being of the citizens.
Globalization is rooted in multinational trading and
investments arrangements and the opening up of trade, through liberalization of
the financial sector as well as the economy as a whole. The reasoning behind
this policy thrust is that the promotion of trade enriches the wealth of
nations. For instance, trade liberalization under the Uruguay round of
multilateral trade agreement of 1995 was estimated to have provided over
100billion U.S dollars a year in net benefits accruing mainly to those
countries that have removed trade barriers (Hausters, Gerd, 2000). Financial
integration as a part of globalization therefore envisages the free flow of
loanable funds, openness of capital flows when combined with sound domestic
policies, allow countries access to be much larger pool of capital. High
capital flows leads to enhanced investment and economic growth, particularly
when the inflows are in foreign direct investments, as against potentially
volatile short term portfolio flows.
Furthermore, Foreign Direct Investment not only complements
domestic savings but also enhances the depth and efficiency of the domestic
financial markets and the absorption of foreign technologies. However, the
monetary and fiscal policy framework of the nation must be appropriate for the
economy to benefit financial globalization (Yusuf, 2001).
Globalization is not a new phenomenon, as it has progressed
throughout the course of history dating back to the late 19th century. The
history, was however, conquered and the speed slowed down until the new era of
global integration facilitated by the removal of trade barriers and capital
flows as well as the advancement in communications and computer technologies
which have made easy the collection and processing of data needed for decision
making. Consequently, the world exports of goods and services have more than
tripled between 1983 and 2005. These changes have also stimulated demand for
cross border finance, against the background of financial liberalization in
many countries, promoted a pool of global liquidity to meet such demand.
Globalization have no doubt increased opportunities for
accessing capital funds for both domestic and foreign sources more cheaply and
on better terms. This is because financial sector liberalization and product
innovations have in many countries been helped by technological advances. This
in turn enhances financial intermediation and creates a more competitive market
environment for financial institutions.
The downside of those benefits is that international capital
flows could be very volatile and thereby pass serious threat to financial and
macroeconomic stability. On the other hand, reversal of capital flows as
witnessed during the Mexican crisis of 1994 to 1995 and the Asian and Russian
crisis of 1997 to 1998 could endanger the financial stability of the individual
countries particularly where banks are weak and poorly regulated. The contagion
effect could as well threaten the stability of the internationally financial
system. There is also the risk that during the period of boom and burst, asset
prices may overshoot economic fundamentals, thereby saddling banks with non-
performing loan backed by collaterals that have lost much of their values.
Globalization influences the financial sector in different
and complex ways. Typically, capital flows, exchange rate crisis and
inflationary pressures are some of the major avenues through which the impact
of globalization can quickly be transmitted into the domestic economy. The
implication of globalization for monetary policy can be seen through two
channels. First, volatile short term capital flows and exchange rate movement
which are associated with globalization can cause an increase in the
uncertainties surrounding the outcome of monetary policies. Secondly,
globalization forces policy makers to undertake structural adjustments or
reform which changes the conditions under which monetary policy targets,
strategies and instruments. It is generally believed that the more
discretionary monetary and fiscal policies are constrained, the more open an
economy becomes.
Globalization also compels government to exercise greater
fixed discipline and to ensure sound institutional and political frameworks. In
order words, it does act as a force for stability by limiting the scope for
countries to pursue policies that are consistent with medium term financial
stability. High fiscal deficit and unsound financial policies that lead to
inflationary pressures, current account deficits and/or high real interest
rate, attracts the attention of international investors and capital market
operators. Thus, the room for fiscal rascality or unsustainable policies is
much reduced in a globalized world.
Specifically, monetary and exchange rate policies have
undergone changes in line with broad economic objectives. From independence up
till 1986, the conduct of monetary policies was mainly by direct control, which
involved the impositions of ceilings on aggregate bank credit expansion,
sectoral allocation of credit, administrative control of interest rate,
prescription of cash reserve requirement, exchange rate controls and the
mandatory holding for government securities. The financial market during this
period was mainly underdeveloped, repressed with a limited money market
instruments and fixed and inflexible interest rate. A fully developed economy
is that which have passed the various stages of development. This development
will be achieved more rapidly if foreign investors have access to the domestic
markets.
1.2
STATEMENT OF THE PROBLEM
There are problems associated with the development of the
Nigerian economy in her different sectors based on the impact of globalization.
These problems may be economic problems based on the rate of instability,
policy barriers to capital flows, inappropriate economic policies and political
instabilities. There may also be problems like market liquidity. In using
liquidity as a measure of stock market development, it seems that the Nigerian
capital market is illiquid to an extent and it has contributed very little to
the growth of the Nigerian economy (Ibrahim, 2002).
Therefore, this research work shall answer the following
questions
1. Does
globalization produce a rapid flow of foreign capital for the Nigerian economy?
2. Does
globalization significantly improve management techniques for firms operating
in Nigeria?
3. To what extent
has globalization brought about an advancement of new technologies in the
Nigerian economy?
4. Has
globalization resulted in inequality between Nigeria and the western nations?
1.3 OBJECTIVES OF THE STUDY
Specifically, the objectives of this study can be written as
1. To verify the
impact of globalization on Nigerian economy.
2. To verify the
impact of financial integration on Nigerian economy.
1.4
STATEMENT OF HYPOTHESIS
In view of the above mentioned objectives, the hypothesis of
this research would be
Ho: Globalization has no significant impact on the Nigerian
economy.
H1: Globalization has a significant impact on the Nigerian
economy.
Ho: Financial integration has no positive impact on Nigerian
GDP.
H1: Financial integration has positive impact on Nigerian
GDP.
1.5
SIGNIFICANCE OF THE STUDY
The economic relevance of studying the impact of
globalization on the economic growth in Nigeria needs not to be over
emphasized. This study is very imperative given the recent efforts by monetary
authorities in Nigeria to re-launch the banking sub-sector to glorious heights.
Globalization has brought about the rapid change in the Nigerian economy that
seeks to increase their share of financial and direct investment in the
international market. Globalization has by no doubt increased opportunities by
accessing capital funds from both domestic and financial sources. More so,
investors can now tailor their portfolio risk to their preferences.
This study is of great importance to
· Academic
institutions; globalization has played an important role in the improvement of
learning techniques. These techniques includes the use of electronic gadgets
such as computer, printers, laptops etc. which facilitate learning processes as
well as creating basis for understanding
new technological processes that will aid student academically.
· Firms; through
the help of globalization, there has been easy and accessible communication
network which facilitate production, distribution of goods and services both
domestically and internationally, as well as attracting new investors.
· Government; in
terms of governance, globalization has improved our system majorly in areas of
budget. With the help of globalization, revenue collected and expenditure made
are accounted for with little or no errors.
1.6 SCOPE
AND LIMITATIONS OF THE STUDY
This study covers the impact of globalization on the growth
of the Nigerian economy from the period of 1986-2008.
This research work was limited by:
v Insufficient fund.
v Limited time to carry out research.
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