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CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

Capital accumulation as a component of economic growth and development in any society is the process of acquiring additional capital stock which is used in productive process. The foundation of capital accumulation is savings and it results when some portion of present income is saved and invested in order to augment future output and incomes. The extent to which the level of savings can affect capital accumulation and growth largely depends on the capacity of the economy to channel the savings into productive use. Economic growth is a key facet of most societies these days. Citizens want to enjoy a higher standard of living and policy makers are anxious to provide that higher standard through economic growth. Such growth is an important measure for the success of governments. This is why economic research and textbooks have covered this topic extensively and politicians talk about it regularly.A major factor impacting economic growth in a given society is the level of savings. Classical economists believed that the existence of savings is a necessary and sufficient condition for investment creation. They believed that if savings go up, investment increases because the interest rate and economic growth will be imminent. Even though there is an obvious relationship between savings and economic growth, the direction of causality is not assured. Does savings cause growth or vice versa? In this paper our main goal is to study the long-run two-way causal relationship between savings and economic growth. This inquiry about causality differentiates this study from others.

In finance, investment is the purchase of a financial product or other items of value with an expectation of favourable future returns. In general terms, investment means the use of money in the hope of making more money. Keynes (2007) defined investment as the production of new capital goods, plants and equipments. He also refers investment as real investment and not financial investment. Investment is a conscious act of an individual or anyentity that involves deployment of money (cash) in securities or assets issued by any financial institution with a view to obtain the target returns over a specified period of time.

It has been observed that low level of savings has negatively affected capital accumulation which is germane in the development process. Nigeria like most developing economies is blessed with both natural and human resources with a population of over 140 million, yet the economy is faced with a lot of serious problems. This is evidenced by having over 90% of national income from crude oil and the nation is close to zero in terms of agricultural performance, technological advancement and industrialization. Over the years there has not been any synergy between savings and capital accumulation in Nigeria, neither savings nor investment is encouraged. Therefore economic growth is slowed down and economic activities are neglected. This study seeks to examine the problem of low savings and capital accumulation as it relates to economic growth in Nigeria. It also addresses some of the methodological issues underlying these macroeconomic aggregates as well as identifying policy implications of the linkage between savings, capital accumulation and growth in Nigeria.

1.2      STATEMENT OF THE PROBLEM

From the foregoing, there seems to exist some sort of interactions between Inflation, Saving and Output in every economy and in Nigeria, the focal point in this study. Thus, the study seeks to explore the interrelationship between Inflation, Savings and Output in Nigeria using a Vector Auto regression (VAR) approach. It aims at using the movement of the endogenous variables within the VAR system to determine their relationship as compared to theoretical concepts.

There is also an implicit belief that the Nigerian economic environment has been unable to attract foreign direct investment to its fullest potentials, given the unstable operating environment, which is characterized by inefficient capital markets, high rate of inflation, unstable polity, stringent policies and fragile financial system, among others.

Another major problem is the element of fiscal dominance. A size of fiscal deficit has an implication for domestic savings and investment and ultimately economic growth. In Nigeria, the main factor underlying these outcomes is the volatility of government expenditure arising from the boom and burst cycle of government revenue which is derived mainly from single export commodity (oil), whose price is also volatile. To worsen the problem, these expenditures are not channeled to productive sectors of the economy, Yesuf (1996).

However, most of the scholars of economics are of the view that the problem of Nigeria’s economic growth has not been well understood thus, improperly managed.

1.3      OBJECTIVES OF THE STUDY

In the light of the above problem, the general objective of the research work is to investigate the effect of national savings and economic growth in Nigeria (1980-2014).Specifically, the study objectives are:

i)             To determine the impact of gross domestic savings on economic growth in Nigeria.

ii)           To ascertain the impact of gross domestic investment on economic growth in Nigeria.

iii)          To evaluate the impact of savings on Nigerian economic growth

iv)         To examine the impact of capital accumulation on economic growth of Nigeria

v)           To analyze the extent of the relationship between savings, capital accumulation and Nigerian economic growth.

1.4      RESEARCH HYPOTHESES

H0: Savings has no significant impact on Nigerian economic growth

H1: Savings has a significant impact on Nigerian economic growth

H0: Capital accumulation has no significant effect on Nigerian economic growth

H2: Capital accumulation has a significant effect on Nigerian economic growth

H0: There is no significant relationship between savings, capital accumulation and the growth of Nigerian economy.

H3: There is a significant relationship between savings, capital accumulation and the growth of Nigerian economy.

1.5      SIGNIFICANCE OF THE STUDY

The global economic circumstances permit that national economics should be integrated into global economic network and this is only possible through effective capital transfers appraised and monitored through research of this nature.It will provide appropriate recommendation on the ways, of national savings so as to empower the economy for self-sustained development capable of enhancing the economic wellbeing of a greater number of populations. It will also equip the policy makers with adequate tools in formulating the right policy for economic development.There is also need to meet challenges post by foreign product domination of internal market and this is supported by research work such as this study. The study can also be relevant in universities and research centers in Nigeria libraries, National Bureau of Statistic and investors will find this study highly useful.

1.6      SCOPE AND LIMITATIONS OF THE STUDY

This study centers on national savings and economic growth in Nigeria from (1980-2014). In carrying out the investigation sources of data posed a problem of its own. It is difficult to lay hands on up to data statistical data for empirical analysis especially in developing countries such as Nigeria. In any case one had to mean the best use of what was available.
Resulting from the short time limit couple with the financial constraints, the researcher was limited to primary and secondary sources.
Generally the researcher suffers frustration owing to administrative logistics. Below are some of the identifiable limitations.
1. Unpublished data were rarely made available to researcher by government officers who avoid violation of the official secrecy act.
2. Secondary data on the subject was stale and scanty in most of the libraries visited including the state library.

1.7      DEFEINITION OF TERMS

National savings:In economics, a country's national savings is the sum of private and public savings. It is generally equal to a nation's income minus consumption and government purchases.

Economic growth:Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. 

Investment: To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future, for example, investment on durable goods such as real estate for service industry and factory for manufacturing product development, which are two common types for micro-economic output in modern economy. Investment on Research and Development occurs mainly on the innovation of consumer products.

Capital accumulation:Capital accumulation (also termed the accumulation of capital) is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a return whether in the form of profitrentinterestroyalties or capital gains. The process of capital accumulation forms the basis of capitalism, and is one of the defining characteristics of a capitalist economic system.

Savings-investment gap:A savings gap is a situation where the currently level of savings is insufficient to achieve an economic objective. In the UK economy and other developed economies, a savings gap refers to the gap between current savings for retirement and that necessary to generate a desirable income from retirement.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.


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