A STUDY OF FISCAL AND MONETARY POLICIES USED TO ENHANCE SAVINGS MOBILIZATION FOR INVESTMENT PURPOSE
TABLE OF CONTENT
Title Page………………..i
Certification………….…ii
Dedication………………iii
Acknowledgement……….iv
Table of content……...…v
CHAPTER ONE: INTRODUCTION
1.1 HISTORICAL BACKGROUND
1.2 statement of the problem
1.3 research questions
1.4 Research Hypothesis
1.5 hypothesis testing
1.6 Methodology
1.7 Method of Data Analysis of Statistical Method or Econometric Method Using E-view
1.8 plan of the study
CHAPTER TWO: LITERATURE REVIEW AND THEORETICAL FRAMEWORK.
2.1 introduction
2.2 measures and determinants of savings mobilisation
2.3 fiscal policy and savings mobilisation in nigeria
2.4 monetary policy and savining mobilisation in nigeria
2.5 economic growth and savings mobilisation
2.6 problems of savings mobilisation
2.7 theoretical framework
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 The Model
3.2 Model Specification
3.3 Method of Evaluation
3.4 Estimation Procedure
3.5 Data Required and Sources
3.6 Justification of The Model
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS OF RESULTS
4.1 introduction
4.2 data presentation for regression model
4.3 Analysis and Discussions of Results
4.4 Economic Apriori Criteria:
4.5 Statistical Criteria (First Order Test)
4.5.1 Coefficient of Multiple Determinants (R2)
CHAPTER FIVE : SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
5.2 conclusion
5.3 policy recommendation
Appendix i
Appendix ii
References
CHAPTER ONE
1.1 HISTORICAL BACKGROUND
An economy whether developing or developed is out to achieve certain
objectives which include growth in the gross domestic product, reduction in
the relit of inflation and unemployment, favorable balance of payment, and long
term Socio-economic development. The growth of output of any economy
depends on Capital accumulation; and capital accumulation requires
investment and an equivalent amount of saving to match it. Two of the most
important issues in development economics, and tor developing countries, are
how to stimulate investment, and how to bring about an increase in the level of
saving 10 fund increased investment. To this end. many less developed
countries' government have made it a point of duties to ensure proper
mobilization of domestic funds by manipulating both fiscal and monetary
policy as a tool to achieve their set objectives
For many countries, financial sector and balance of payment
liberalizations have broadened access to foreign capital to finance domestic
investment. However, many developing economies, in part because of their
high level of external indebtedness cannot benefit from foreign sources of
capital. For men. domestic savings remains the main source of funds to finance
development and to promote economic growth. However, due to low income
per head in less developed countries, a perception that poor people are too
poor to save has been prevailing for a long time and most financial
institutions still do not cater to this type of clients. It is clear that poor
ce of savings and lapping
into that source of funds is essential However in mobilization of saving,
determinants such as income level, interest rates, economic growth level, inflation
rate, fiscal balance, external debt, among other have come to play important roles. If
developing economies are to promote savings for the financing of investment, its
determinants must be clearly identified, Until recently, financial development was
assumed to enhance the saving rate. It consists of elimination of credit ceilings,
interest rate liberalization, easing of entry for foreign financial institutions, enhanced
prudential guidelines and supervision, and the development of capital markets.
Loayza and Shankar (2000) find that financial development has led the private
sector to increase the durable goods component of their assets. the effect of
financial development on saving rates can be separated into a direct short-run
impact, which is usually negative, and an indirect long-run impact, which is
generally positive (See Loayza et al, 2000). However, whether increased financial
development itself significantly increases overall propensity to save depends on me
extent of substitution between financial saving and other items in the household's
asset portfolio. Consequently, the expected signs of this relationship in the
private saving function are ambiguous (Athukora) and Sen, 2004).
This study attempts to determine the effects of fiscal and monetary
policies on saving mobilization in Nigeria. It also attempts to find influence
of other Macroeconomics variables on both domestic and mobilization as a
means of attaining economic growth and development
1.2 STATEMENT OF THE PROBLEM
Savings, a necessary engine of economic growth has been very low in
Nigeria, Gross Domestic Savings as a percentage of GDI1 in less developed
countries has been low; between 1980 and 2001, it averaged 6,4% in
Ghana, 37.4% in Botswana, 2!.4% in Cameroon, 21.6% in Nigeria, 13.9% in
Kenya and 7.3% in Malawi (WDTS 2003), He apparent low savings in Nigeria
has been due to a combination of micro and macroeconomic and political
factors such as high level of poverty, low income per head, high level of
unemployment, inefficient financial institutions, and many more. In order to
overcome the problem of low savings in Nigeria, various monetary and fiscal
policies have been pursued over the years but these have no! yielded the
required results
The objectives of monetary policy since 1986 have remained the same as
in the earlier period - the stimulation of output and employment, and the
promotion of domestic and external stability. In line with the general philosophy
of economic management under SAP, monetary' policy was aimed at inducing
the emergence of a market-oriented financial system for effective mobilization
of financial savings and efficient resource allocation. The main instrument of
the market-based framework is the open market operations. This is
complemented by reserve requirements and discount window operations. The
adoption of a market-based framework such as OMO in an economy that had
macroeconomic. legal term regulatory environment
. Fiscal policy is therefore a government policy that attempts to influence the
direction of the economy through changes in government spending (expenditure) or
taxes or simply put. fiscal policy refers to the overall effect of the budge!
outcome on economic activity. With the other main type of economic policy, like
the monetary policy which attempts to stabilize the economy by controlling
interest rates and the supply of money, budgetary actions that raise the growth of
government expenditures, reduce the growth of revenues and either increase the
deficit or reduce the surplus are the sort of fiscal policies that tend to stimulate
short-term growth and capital formation through savings mobilization in the
economy. Actions that reduce expenditures; increase government revenues and
shrink the deficit or increase the surplus tend to dampen short-term economic
growth. The three possible stances of fiscal policy are neutral, expansionary and
Contractionary: A neutral stance of fiscal policy implies a balanced budget where
G = T (Government spending - Tax revenue). An expansionary stance of fiscal
policy involves a net increase in government spending (G > T) through EL rise in
government spending or a fall in taxation revenue or a combination of the two.
Contractionary fiscal policy (G < T) occurs when net government spending is
reduced either through higher taxation revenue or reduced government spending or
a combination of the two. The findings of this study will provide answer to these
and many more questions that would be raised in the count of the study.
1.3 RESEARCH QUESTIONS
This research question was asked and answered:
1. What are the fiscal and monetary policies that can be used to enhance
savings mobilization for investment purpose?
2. What are the key variables explaining effective mobilization of savings?
3. What arc the problems encountered in the process of taxing mobilization?
4. What policy option have been formulated to correct these problems and to
sustain savings mobilization process?
1.4 Research Hypothesis
To effectively achieve the above mentioned objectives we adopt a null hypothesis:
HO: The monetary policy instrument does not have significant impact on National
Savings
HI: The monetary policy instruments have significant impact on National Savings
1.5 HYPOTHESIS TESTING
HYP. 1 HQ: The monetary policies do not have significant
effect on national savings
HI: The monetary policies have significant effect on
national savings
HYP. 2 HQ: The fiscal policies do not have significant
effect on national savings
HI: The fiscal policies have significant effect on
national savings
1.6 Methodology
This aspect of the research work aims at giving detailed information about the
method used in gathering relevant and useful data for the study. Basically, the methods
used in this research work are analytical. The work is based on data collected from
secondary sources such as Statistical Bulletin of Central Banks of Nigeria (CBN) and
annual reports of Nigerian Deposit Insurance Corporation (NDIC). The data collected are
in form of statistical data and tables which are analyzed to arrive at a conclusion.
1.7 Method of Data Analysis of Statistical Method or Econometric Method Using
E-view
To be able to exhaust the subject matter of this study that is, the effects of
fiscal and monetary policies on savings mobilization in Nigeria, the study will cover
the period of 1981 to 2013. The finding(s) of this study will only be limited, consistent and applicable to Nigerian economic system.
1.8 PLAN OF THE STUDY
Domestic resources serve as a vital engine of growth and poverty
reduction. However, the effective mobilization of domestic resources depends on
an efficient and well developed financial market Capital formation is a
prerequisite for development. However, in Third World countries the inadequacies
of the financial systems often prevent the accumulation of financial resources. These
systems need to fulfill their role as agents between (abundantly available)
savings and investments to a greater extent.
Economic development in Third World countries means growth and the
participation of the poor in such growth. This requires large investments and thus
capital. This is not something that has been discovered recently but something that was
already recognized at the start of development co-operation about 40 years ago.
However, nowadays many development aid organizations are bemoaning cash
shortages. Moreover, capital aid within the scope of development cooperation has
often led to the recipient country becoming over borrowed. Is it possible to promote
capital formation in less developed countries through the use of its fiscal and
monetary policies? When economists address this subject, they like to point out that
a national economy can only invest to the same extent as it also saves - and saving
mean forgoing consumption. Statistics show there are major differences from
country to country when it comes to their ability to forego consumption. For
example, between 1980 and 2000 the national savings rates were between 23% and 58% in Singapore, between 34% and 42% in The People's Republic of China,
between -5% and 24% in Ghana and between -4% and 14% in Senegal.
The rationale behind this study emanated from the desire to examine how
government policies particularly fiscal and monetary policies has affected
mobilization of savings in the economy and to clarify issues that can manifest in the
process. Besides many studies have been conducted on fiscal and monetary
policies in the past but little have been done to relate these studies to savings
mobilization in Nigeria. Because of the importance of capital formation on
economic growth and development it is very essential to study the effect of these
macroeconomic policies on saving mobilization.
Thus, to design policy instruments through which savings mobilization can
be enhanced and sustained through fiscal and monetary policies and to be able to
channel it to appropriate capital investment, remains the important rationale
behind this study.
.