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UNIVERSITY OF NIGERIA

NSUKKA

DEPARTMENT OF ECONOMICS

THE ROLE O F AGRICULTURE IN ECONOM IC GROWTH: THE

NIGERIAN EXPERIENC E.

AN M.SC. PROJECT PROPOSAL S,UBMITTED TO THEDEPARTMENT OF ECONOM ICS'

UNIVERSITY OF NIGERIA

NSUKKA

OGUCHI, CHINWEUBA BENJAMIN .

PG/M.SC/06/42027

SUPERVISOR: PROF. F.E. ONAH

JULY, 2008.

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CHAPTER ONE

1.0 : NTRODUCTION

1.1 : BACKGROUND INFORMATION

The modern world has transformed into one global village, thanks to advancementin science and technology(STM).The implication is that, events in one part of the

world have some effects on some, if not all other parts of the global community.

This is why for nearly half a century, the primary focus of the world has been on

ways to accelerate the growth rate of national incomes. Beefing up the growth rate

of national incomes, is an issue that bothers on economic growth. Hence,

economists and politicians from all nations, rich and poor, capitalist, socialist and

mixed, have w orshipped at the shrine of economic growth.

Econom ic growth is perhaps, one concept that has not lent itself to easy definition.

This development notwithstanding, Schumpeter (2005), defines it as, "a gradual

and steady changein the long-run which comes by a gradual increase in the rate of

savings and population". The gross domestic product is a major growth. (economic) indicator. This presupposes that all sectors of an economy make their

inputs to the economic growth of the economy. Agriculture certainly is one such

sector.

Agriculture in the context of the Nigerian economy, is tied with various sectors

and is essential for generating broad-based growth necessary for development. It is

fundamental to the sustenance of life and is the bedrock of economic growth,

especially in the provision of adequate and nutritious food so vital for human

development and raw materials for industry.

Economic history provides us with ample evidence that an agricultural revolutionis a fundamental pre-condition. for economic growth, especially in developing

countries (Woolf and Jones, 1969; Oluwasanmi, 1966; Eicher and Witt, 1964).

The agricultural sector has the potential to be the industrial and economic

springboard from which a country's growth can take off. The Brazilian experience

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is a striking example of how agriculture can advance beyond its primary function

of supplying food and fibre. Through its different spheres of activities at both

macro and micro levels, the agricultural sector is strategically positioned to have a

high multiplier effect on any nation's quest for socio-economic and industrial

growth. It is undisputable that a sustained agricultural growth has been highlyinstrumental to the rapid rural transformation, the empowerment of peasants and

alleviation of abject poverty in countries like Brazil,Malaysia,China, etc.

Interestingly, the Nigerian economy, like that of Brazil during the first decade

after independence, could reasonably be described as agrarian because agriculture

served as the engine of growth of the over-all economy (Ogen, 2003).

1.2: STATEMENT OF TH E PROBLEM

From the standpoint of occupational distribution and contribution to the GDP,

agriculture was the leading sector up to the sixties. During this period, Nigeria was

the world's largest producer of cocoa, largest exporter of palm kernel, largest

producer and exporter of palm oil. Nigeria was also a leading exporter of other

commodities such as cotton, groundnut, rubber and hides and skin (Alkali, 1971).

The agricultural sector contributed over 60% of the GDP in the 1960s and despitethe reliance of Nigerian peasant farmers on traditional tools and indigenous

farming methods, these farmers produced 70% of Nigeria's exports and 95% of its

food needs (Lawa l, 1997). However, the agricultural sector suffered neglect during

the hey-days of the oil boom in the 1970s. Since then, Nigeria has been witnessing

extreme poverty and insufficiency of basic food items. Historically, the roots of

the crisis in the Nigerian economy lie in the neglect of agriculture and the

increased dependence on a mono-cultural economy based on oil. The agricultural

sector now accounts for less than 5% of Nigeria's GDP (Olagbaju and Falola

1966).

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Agriculture's contribution to GDP in selected countries with DFID

presence for the period 2000-2004

1Ghana 136.00 ISierra Leone 152-40 I

Country

Ethiopia

I I 1

Malawi 136.70 ISudan 139.19p a

I I I

141.87 1Tanzania 144.66

Value added as %

of GDP

42.33

RepublicSource: World Bank (2005)

Country

Nigeria

Co ngo democratic.

DFID: The department for International Development-- An NGO .

Value added as %

of GDY

31.18

57.88

The table above clearly shows the great disparity in the agricultural value added as

percentage of GDP with reference to Nigeria as compared to other countries

named above . Such disparity indicates the presence of an econom ic problem.

Previous studies on Agriculture and Nigeria's economic growth applied a general

equilibrium model (G TAP) which was based on the assumption of constant returns

to scale among others. Constant returns to scale is not a known feature of

agricultural productivity (Land) and therefore, constitutes a gap in research that

yearns for urgent attention. This study will adopt a methodology that will ensure

the total captivity of productivity on land--- constant, increasing or decreasingreturns to scale. This certainly, will close the gap created by earlier investigations.

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1.3: RESEARCH QUESTIONS

a) What are the effects of the neglect of agriculture on Nigeria's economic

growth?

b) What factors determine the dwindling contribution of agriculture to

Nigeria's economic growth?

1.4: OBJECTIVES OF THE STUDY

The objectives of this study include:

. a) To determine the effects of the neglect of agriculture on Nigeria's economicgrowth.

b) To identify the factors responsible for the dwindling contribution of

agriculture to Nigeria's economic growth.

1.5: HYPO THESES O F THE STUDY

Based on the objectives outlined above, the study will be guided by the

following hypotheses:

a) The neglect of the agricultural sector has no effect on Nigeria 's

economic growth.

b) Dw indling agricultural productivity doe s no t affect Nigeria's

econom ic growth.

1.6: POLICY RELEVANCE

The significance of this study is rooted in the fact that:a) Policy-makers will be sensitized on the need to accord agriculture, its

rightfbl place in the scheme of things.

b) It will beef up the existing pool of know ledge on the role of agricu lture in

economic growth.

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c) Researchers will be better equipped to grappled with problems associated

with agriculture and economic growth.

d) The findings would go a long way in providing vital information that will

guide government functionaries and policy-makers in formulating effective

macro-economic polices which can provide the leeway to economic

growth.

1 .7 : SCOPE O F THE STUDY

The country-specific study covers the period1970 to 2005. The choice of

the period is informed by availability of data. The data will be gleaned from the

bulletin of the Central Bank of Nigeria.

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CHAPTER TWO

2.0: LITERATURE REVIEW

This chapter reviews some relevant literature and is organized under the

following subheadings:

2.1 Theoretical framework2.2 Theoretical literature

2.2.1 Agriculture and economic growth

2.2.2 Agriculture and poverty reduction

2.2.3 A griculture, GDP, employment

generation and rural-urban drift.

2.2.4 The agricultural sector and growth

of the Nigerian economy

2.2.5 Summary of theoretica l literature

2.3 Empirical literature

2.3.1 Summary of empirical literature

2.4 Summary of literature reviewlgrand summary

'2.5 Limitations/motivation for further studies

2.1: THEORETICAL FRAMEWORK

Rostow 's stages of economic growth.

In his historical approach to the process of economic growth, professor

, W.W. Rostow, distinguishes five stages of economic growth:

1. The traditional society ;

2. The pre-conditions for take-o ff;

3. The take-off;4. The drive to maturity;and

5. The age of high mass-consumption.

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The take-off:

According to Rostow, the take-off is the 'great w atershed' in the life of a

society "when growth becomes its normal condition. Forces of modernization

contend against the habits and institutions. The value and interest of the traditional

society make a decisive breakthrough; and compound interest gets built into thesociety's structure". By the phrase compound interest, Rostow implies 'that

growth normally proceeds by geometric progression, such as a savings account if

interest is left to compound with principal'. In separate example, Rostow defines

the take-off "as an industrial revolution, tied directly to radical changes in the

methods of production, having their decisive consequence over a relatively short

period of time."

The take-off: period is supposed to be short lasting for about two decades.

Conditions for take-off: the requirements for take-off are the following three

related but necessary conditions:

1. "A rise in the rate of productive investment from, say, 5 percent or less to

over 10 percent of national incom e or net national product;

2. The development of one or more substantial manufacturing sectors with a

high rate of growth;3. The existence of quick emergence of a political, social and institutional

framework which exploits the impulses to expansion of the modern sector

and gives to growth , an outgoing character".

2.2: THEORETICAL LITERATURE:

2.2.1: Agriculture And Economic Growth

Development econom ists in general and agricultural econom ists in particular, havefocused on how agriculture can best contribute to overall economic growth and

modernization. Many early analysts (Fei and Ranis, 1961; Jogenson, 1961 ;

Hirschman, 1958; Scitovsky, 1954; Lewis, 1954; Rosenstein- Rodan, 1943), have

highlighted agriculture because of its abundance of resources and its ability to

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transfer surpluses to the more important industrial sector. The conventional

approach to the roles of agriculture in economic growth concentrated on

agriculture's important market-mediated linkages:

1. Providing labour for an urbanized industrial work force;* *

11. Providing food for expanding populations with higher incomes;i i i . Supplying savings for investment in industry;

iv. Enlarging markets for industrial output;

v. Providing export earnings to pay for imported capital goods; and

vi. Producing primary materials for agro-processing indus tries ('Timer,

2002; Delgado et al, 1994; Ravis et al., 1990; Johnston and Mellor,

196 1).

Rapid agricultural productivity growth is a p re-requisite for the market-mediated

linkages to be mutually beneficial. Productivity growth that resulted from

agricultural R a D has had an enormous impact on food supplies and food prices

and consequent beneficial impacts on food security and poverty reduction (Hazel1

and Haggblade, 1993; Binswanger, 1980; Hayami and Merdt,19 77; I'instrup-

'Anderson, 1976).

Alston et al., 1995, posit that "Because a relatively high proportion o f any incom egain made by the poor is spent on food, the income effects of research-induced

supply shifts, can have major nutritional implications, particularly if those shifts

result from techno logies aimed at the poorest producers".

Agricultural productivity growth also triggers the generation of non-market

mediated linkages between the agricultural sector and the rest of the economy.

These include the indirect contributions of a vibrant agricultural sector to: food

security and poverty alleviations; safety net and buffer role; and the supply of

environmental services (FAO, 2004a). While agriculture's direct private

contributions to farm households are tangible, easy indirect benefits tend to be

over looked in assessing rates of returns. Ignoring the whole range of economic

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and social contributions of agriculture underestimates the returns to investm ent in

the sector (Valdes and Foster, 2005).

Some empirical evidence exist on the positive relationship between agricultural

' growth and economic growth (Valdes and Foster, 2005). The transformation of

agriculture from its traditional subsistence roots induced by technical change, to amodernizing and eventually industrialized agricultural sector, is a phenomenon

observed across the developing world.

Concluding, it is clear that agricultural growth has played a historically important

role in the process of economic development. Evidence from industrialized

countries as well as countries that are rapidly developing today indicate that

agriculture was the engine that contributed to growth in the non-agricultural

sectors and to over-all economic well being. Economic growth originating in

agriculture can have a particularly strong impact in reducing poverty and hunger.

Increasing employment and incomes in agriculture stimulates demand for non-

agricultural goods and services, thereby providing a boost to non-farm rural

incomes as w ell.

2.2.2 Agriculture And Poverty Reduction.

Agriculture's contribution to poverty reduction is sometimes thought to be small,

because its relative economic importance usually falls when low income countries

successfully develop. This view is misleading. Strong agricultural growth,

particularly increased productivity, has been a feature of countries that have

successfully reduced poverty. Evidence consistently shows that agricultural

growth is highly effective in reducing poverty.

Gallup (1997), reports that every1% increase in per capita agricultural outputleads to a 1.61% increase in the incomes of the poorest 20% of the population.

Thirtle (2001), concludes from a major cross- country analysis that, on the

average, every 1% increase in agricultural yield reduces the number of people

living on less than US$1 a day by 0.83%. Smith& Hadda (2002) are of the view

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that rapid increase in agricultural output, brought about by increasing land and

labour productivity, have made food cheaper, benefiting both the urban and rural

poor, who spend much of their income on food. Bangladesh provides an excellent

example. Between 1980 and 2000, the real wholesale price of rice in Dhaka's

markets fell from 20 to 11 in Taka per kg, bringing major benefits to poor

consumers.

Nugent (2000), supports the above view by stating that poor households typically

spend 5 0 4 0 % o f their income on food including many poor farmers.

FAOSTAT (2004), posits that, with the right conditions, increasing agricultural

productivity has increased the incomes of both small and large farmers and

generated employment opportunities. These increases in income are particularly

important because the proportion of people mainly dependent on agriculture for

their income remains high, ranging from 45% in East and south East Asia, to

52.2% in south Asia and 63.5% in Sub Saharan African.

Lele and Aganva l (1989); Lipton and Longhurst (1989), opine that a large body of

evidence shows that higher agricultural productivity in Asia, consistently raised

'farmers' incomes despite declining market prices resulting from increased output.

A survey in the 90s in India concluded that the average real income of small, farmers rose by 90% (Dev. 1998). Haggblade (et-al., 2004), believe that,

Agriculture's historical importance to poverty reduction goes far beyond its impact

on agriculture-based livelihoods. Where agriculture has grown rapidly, higher

rural incom es and cheaper food hav e increased the demand for goods and services

produced outside agriculture.

Th e strong linkages or "multipliers" between growth in agriculture and that in the

wider economy have allowed poor countries to diversifjr their economies to

sectors where growth is generally faster and labour productivity and wages are

higher.

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2.2.3 Agricultnre, G DP, Employment Generation and

Rural-Urban Migration

A DFID policy paper on the role of agriculture on economic growth and poverty

reduction (2005), explains that, agriculture accounts for a significant proportion of

G D P in countries where the agency works. Over time, the "structural

transformation" of poor countries' economies away from dependence on

agriculture lies at the heart of sustained poverty reduction. This relationship is

greatest when countries are least developed. At this early stage of growth,

agriculture typically accounts for a large share of total employment. Also, food

.represents a major part of poor people's spending. As the non-farm sector

develops, and economies become progressively less dependent on agriculture, the

relationship becomes less important eventually, but remains significant in some

parts of these econom ies where the non- farm sector is least developed.

Hazel1 and Ramasamy (1991), reveal that increased agricultural productivity has

also created em ployment opportunities on farms, although this did not necessarily

result in higher wages.

Mellor (2001a), supports the above view through cross-country studies which

estimate that for every 1% increase in agricultural output, farm employment isincreased by between 0.3 and 0.6%.

Kydd et a1 (2004), explains that the development of non-farm opportunities will be

uneven between regions and over time. To es.cape poverty, people may have to

leave their home areas, either for the season or permanently. Some times they may

even return to agriculture if growth in the non-farm sector stalls (for eg, in

Indonesia, during the financial crisis of the 90s). People may also combine

agriculture and non-farm work.

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2.2.4 Th e Agricultural Sector And G rowth Of Th e Nigerian Econom y

Jones and Woolf, 1969; Oluwasanmi, 1966; Eicher and Witt, 1964, believe that

the agricultural sector has the potential to be the industrial and economic

springboard from which a country's development can take off.

Stewarte, 2001, is of the view that more often than not, agricultural activities are

usually concentrated in the less developed rural areas where there is a critical need

for rural transformation, redistribution, poverty alleviation and socio-economic

development.

Humbert, 2001, posits that the agricultural sector has the potential to shape the

landscape, provide environmental benefits such as land conservation, guarantee

the sustainable management of renewable natural resources, preserve biodiversity,

and contribute to the viability of many rural areas. It is undebatable that a

sustained agricultural growth has been highly instrumental to Brazil's rapid rural

transformation, the empowerment of Brazilian peasants and the alleviation of

abject poverty.

Ogen, 2003: Interestingly, the Nigerian economy, like that of Brazil, during the' first decade after independence could reasonably be described as an agricultur~1

economy because agriculture served ,as the engine of growth of the overalleconomy. From the standpoint of occupational distribution and contribution to

GDP, agriculture was the leading sector.

Alkali, 1997, writes that Nigeria in the 60's was the world's second largest

producer of cocoa, largest exporter of palm kernel and largest producer and

exporter of palm oil. The sector contributed over 60 percent of theGDP despite

the reliance of Nigerian peasant farmers on traditional tools.

Lawal, 1997, explains that these farmers produced 70 percen t of Nigeria's exports

and 95 percent of its food needs.

Olagbaju and Falola (1996)' are of the view that the agricultural sector now

accounts for less than5 percen t of Nigeria's GDP.

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2.2.5: Summ ary of Theoretical Literature

A cursory look at the theoretical literature reveals that beyond the supply of food

and fibre, agriculture has provided important market-mediated linkages by

providing labour for an urbanized industrial workforce, enlarging markets for

industrial output and prov iding export earnings to pay for imported capital goods.

I There is also a lot of evidence to buttress the fact that apart from being a major

contributor to the GDP in the sixties the sector has facilitated the growth of the

Nigerian economy by enhancing poverty alleviation, employment and income

generation, as well as a reduction in rural-urban migration.

2.3: EMPIRICAL LITERATURE

Tsigas, M and Ehui, S, in a general equilibrium analysis, applied a general

equilibrium model (G TAL) based on common assumptions as perfect com petition,

constant returns to scale, and no changein the economy-wide employment of

resources. Each regional economy was made up of several economic agents as

follows:' a. On the demand side of the model, a utility-maximizing household

purchases commodities (for private and government use) and it saves partof its income, which consists of returns to primary factors and net tax

collections.

b. On the production side of the model, cost-minimizing producers employ

primary factor services and intermediate inputs to supply commodities.

The analysis was based on data consisting of 19 regions and 31

sectors/comm odities. Nigeria and 12 other economies cover sub-saharan Africa;

other economics are North America, the European Union, Japan, Indonesia, Rest

of Asia and the-rest-of the world (ROW). Twelve sectors cover primary

agriculture; nine sectors cover processed foods; the rest of natural resource

industries, manufac tures, and serv ices are covered with ten sectors .

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They ran series of simulations to assess the impact of productivity improvements

and policy changes on Nigeria's growth. In particular, they simulated:

Sector-specific Hicks-neutral technical change (augmenting the returns to

all productive factors equally);

Factor-biased technological change (e.g. land-specific productivity

improvem ents vs capital-specific productivity improvements);

Improvem ents in domestic and foreign trade transportation; and

Trade liberalization by Nigeria

Their findings were as follows:

a. A percentage technological progress in the oil sector gives large we lfare

benefits in dollar terms,$142.72million. No other sector in Nigeria gives

larger welfare gains.

b. When compared to Indonesia, Zimbabwe and Uganda, comparable

investments would yield higher returns in some agricultural sectors than in

oil.

c. Technological improvements related to unskilled labor produce, by far, the

highest returns in Agriculture: cattle, other livestock, fruits and vegetables

have the highest returns. In manufacture, the highest returns are obtainedfrom technological improvements related to capital.

d. International transportation improvements lower the cost of both Nigerian

exports and imports.

2.3.1: Summary of Empirical Literature

The study revealeda lot of interest in m odernizing Nigerian agriculture. However,

it went on to underscore the insufficiency of knowledge about the growth potential

of agriculture. In the course of applying general equilibrium model to estimate

growth potential of agriculture in N igeria, Tsigas et.al found that a few agricultural

sectors may outperform several m anufacturing sectors.

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It needs be noted, that while pervious studies on the role of Agriculture in

Nigeria's economic growth used Cobb Douglas production function, this study

will use simple multiple regression model to capture its objectives.

2.4: S U M M A RY OF LITERATURE REVIEWIGRAND SUM MARY

' Sustained growth in an economy requires the continuous improvement in total

factor productivity (TFP) and this requires public expenditures for infrastructure

and human capital developments. At the very early stages, the economy needs an

..engine of growth.

While in the now developed countries, it appears that the major stimulus to early

growth was industrial innovations accompanied but not led by agricultural

innovations, there have been som e developing countries in the recent past, notably

India, China and Taiwan, where growth was led by agricultural broad-based

productivity changes. In these countries, it seems that the major source of the

demand for the increased product o f the agricultural sector was domestic,as there'were substantial levels of initial poverty. Hence, improved agricultural incomes

directly led to increases in the domestic demand for the larger quantitiesof foodproduced domestically.

The situation may well be different in many of the developing countries, such as

those in many parts of Africa, in the sense that the cost per beneficiary of

agricultural productivity improvement may be high because of low farm

population densities. This not withstanding, the bulk of evidence lends credence to

the fact that agriculture had constituted the much-needed springboard to the

growth and eventual development of many economies.

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2.5: LIMITATIONS1 MOTIVATION FOR FURTHER ST UDIES

The bulk of literature reviewed, indicate that the views and empirical findings of

different economists vary overtime. For a more acceptable and consensus result,

more studies need to be conducted in countries with different economic

cliinates/conditions. Against this backdrop, there is the need to carry out further

studies in Africa and other less developed countries.

Different case studies and different methodologies tend to produce different

results. Also, most of the studies use cross-section data on countries that may be

diverse, raising the possibility that the empirical findings could be distorted by

heterogeneity biases affecting both agricultural growth rate and the over-all

, economic growth.

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CHAPTER THREE

3.0: METHODOLOGY

3.1: THE MODEL

This study we shall employ the multiple regression model.The goal of multiple regression is to produce a model in the form of a linear

equation that identifies the best combination of independent variables like FST,

ROPS, LVST, FISHN on GDP and also OEXP, CPT, LBA, ACGSF, PFP and

PEX on the ASG DP to optionally predict the criterion variables. Its compu tational

.,procedure confo rms to the ordinary least squares solution; the so lution or model

describes a line for which the sum of the squared differences before the predicted

and actual values of the criterion variable is minimal. Akintola (2002) used OLS

multiple regression to analyze the relationship between the specific explanatory

variables and the value of food imports. Ademola and Falusi (2003) improved on

Akintola (2000) and also took a consideration on foreign exchange constraint in

estimating their food import demand for rice in Nigeria as canvassed by the

proponent of the import exchange

3.2:MODEL SPECIFICATIONS

Economic theory on factors militating against the robustness of agricultural

production in Nigeria lists certain factors. The most prominent among them will

be used in the analysis and these are specified as follows:

Functional specification

1 . GDP = f (FST, CROPS, LVST, FISH N) . l a )2. ASGDP = f (OEXP, CPI, LBA, ACGSF, PFP, PEX).. (2a)

Econom etric model specification

1 . GDP = Bo+ BIFS T +B2CROP+ B3LVST+ B4FlSHN+pi. .(lb)

2. ASGDP =ao + a20CEXP+ a2CPI + a3BUDT+ a4ACGSF+ PFP + PEX + Vi

. (2b)

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Where:

GDP = Gross D omestic Product- dependent variab le (1)

FST = Fishery

CROP = CRO P production

LVST = Livestock Production

FISHN = Fishery Production

Bo = Constant term (1)

B 1, . Bq = Population Parameterspi = Error term (l b )

.. nd!

ASGDP=

Agriculture Sector GDPOEXP = Oil Exploration

CPI = Consum er Price Index as proxy for poverty

ABUT = Agricultural Budget A llocation

ACGST = Agricultural Credit Guarantee Scheme Fund as a proxy for Poor Credit

Scheme.

PFP = Dummy V ariable for Poor Farm Practices

PEXC = Political Exigencies- Dummy Variable.

Vi = Error term (2b)3.3: ESTIMATION PROCEDURE

3.3.1: Method of Data Analysis

As said earlier, the ordinary least square (OLS) method of estimation shall

be employed in this study. This is because of the various assumptions of the

classical least square estimation criteria, which takes care of certain qualities of

the variables. The OLS has Best Linear Unbiased estimator (BLUE). Therefore,

the BLU E are efficient, consistent, sufficient and unbiased estimators.

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Techniques for Evaluation

3.3.2: Evaluation Based on E conometric Criteria

Economic theory explains the nature of the variables in use and their relationship

with one another especially the explained variable and the explanatory variables.

The evaluation therefore is based on whether the coefficients conform to economic

postulations.

I 3.3.3: Evaluation Based on Statistical Criteria (First-order-Test).

i. The test of Goodness of fit ( R ~ )

Coefficient of determination, R2 fits the regression time. It checks the

goodness of fit of a model. TheR~ is important since the closer the observations,

the better the explanation of the variations of the dependent variable.

ii. The Adjusted R~ (R2)

Though R2 measures the goodness of fit, studies have shown that it is only

necessary but not a sufficient condition for measuring the goodness of fit.

. R~ is therefore considered which is a better measure taking into account the

cognizance of the degree of freedom.iii. T-Test & F- Test.

I The t-test will be employed to verifjr whether the variables are individually

statistical significant or not. The F- test shall be used to check the significance of

the entire model.

3.3.4: E valuation based on Econometric Criteria (Second-Order Test).

i. Norm ality Test:

Normality test is used to determine whether or not the residuals conform to the

classical assumptions the stochastic disturbance term is normally distributed with

zero mean and constant variance i.e.

P W O , 8 3

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where: p = stochas tic disturbance term or white noise.

N = Normal distribution

0 = Zero mean

ti2 = Constant V ariance

Jarque-Bera (JB) test shall also be employed to compute the skewness and

Kurtosis.

ii. Co-integ ration Test:

This test is employed to investigate the long run relationships among variab les in

I the model.

'. iii. Stationary first

The data shall be tested to check for the existence of a long term or equilibrium

relationship among the variables.

iv. Auto-correlation Test:

This shall be tested using the Durbin Watson statistics to check the presence of

aufor corre lation in the model.

v. Multicolinearity Test:

This shall be done under the pair wise correlation matrix. It shall be conducted

on the variables to investigate the level of correlation between any two of thevariables when other variables are held constant.

vi. Heteroscedasticity Test:

This will be used to ascertain whether the error term(U,) in the regression model

has a constant variance.

3.4: JUSTIFICATION

The primary advantage of using the standard model is that it presents a complete

picture of the regression outcome to researchers. If the variables were important

enough to earn a place in the design of the study, then they are given room in the

model even if they are not contributing very much to the coefficient of

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determination. That is, on the assumption that the variables were selected on the

basis of their relevance to theory or attests on the basis of hypothesis based on a

comprehensive review of the existing literature on the topic; the standard model

, provides an opportunity to see how they fore as a set in predicting the dependent

variable.

3.5: ANALYTICAL TECHN IQUES FOR EVALUATION O F RESULTS.

The model will be evaluated using OLS method. The sample consists of time

series 1970 to 2005. The work will rely on PC -Give econometric s o h a r e version

..8.0 for estimation.

3.6: DATA AND SOUR CES

The data were obtained from Central Bank of Nigeria (CBN) Statistical Bulletin,

(Various issues), CBN Annual Report,as well as National Bureau o f Statistics. All

series are annual and span the period from 1970 to 2005.

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REFERENCES

BOOKS

Alkali, R.A. ( 1997 ). The World Bank and Nigeria.: Cornucopia or Pandora Box?

Kaduna: Baraka press.

Akinbobola, A (20 01). Globalization and its impact on Emergent states: A11

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