THEORETICAL PROPOOR GROWTH (POVERTY TRAP) MODEL ANALYSIS

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INTRODUCTION

Macroeconometric modelling is an important part of the discipline of economics. Its empirical ability to explain the actual economy has over the years aided modellers and policy makers in their decision making; its value in formulating sound macroeconomic policies also deserves more emphasis. Sound policy decisions in a country should be based on a well-developed and explicit macroeconomic model. Macroeconometric models generally reflect the major features and structural inadequacies of an economy. It is a necessary and useful tool in any policy environment for analyzing the structure of an economy, making future predictions of the major macroeconomic indicators, and also analyzing the impact of any policy scenarios. The objective of the Millennium Development Goals (MDG) is to reduce poverty in developing and poor economies. This may not be achieved if the socio-economic impediments to domestic investment and employment creation persist. Structural constraints limit socio-economic development and discourage foreign direct investment. These constraints include the poor state of physical infrastructure in the country and the absence of an appropriate institutional framework. Developing countries find it difficult to develop sound macroeconometric models due to structural instability and the lack of inadequate data. Therefore, a reliable statistical database is necessary to develop a macroeconometric model that can be used for forecasting and policy analysis. These constraints are significant limitations of this study which are expected to be taken into consideration.

PROBLEM STATEMENT

Structural inadequacies have been the primary obstacle to the achievement of the developmental objectives in the Nigerian economy. Over the past four decades various forms of macroeconomic instabilities constrained the performance of the economy. Many of these structural inadequacies may be attributed to persistently poor governance. Poor political leadership, political instability, corruption and the mismanagement of the oil resources precluded economic policies that might have alleviated poverty. The country is faced with some fundamental issues; to address these would require an appropriate framework that will serve as a point of reference and that will also be an accurate representation of the economy. Knowledge of the underlying structure of the economy is necessary to determine the various sets of policy interventions that will correct the socioeconomic imbalances and that will also generate sustainable pro-poor economic growth. It is important to model the macroeconomy of Nigeria. This study is also unique in the sense that most structural equations do not adhere to conventional economic theory. The reason for this is that many of the relationships predicted by economic theory rely on structural factors and an institutional framework that are absent in developing economies. (Matlanyane, 2005). The models developed in this study provide both the theoretical and practical structure to address most of the fundamental socio-economic problems of the Nigerian economy.

THEORETICAL GROWTH MODEL ANALYSIS

The framework of neoclassical economics can be viewed as a summation of the various contributions of authors to the model of long-run economic growth. The neoclassical growth model (also known as the exogenous growth model) was an extension of the Harrod-Domar model, which included productivity growth as a major contributing factor. The major conclusion of the Harrod-Domar model, i.e that steady-state growth was unstable (meaning that any deviation from the long-run path will lead to further deviation from the path) was contested by Solow (1956) and Swan (1956). They refined the exogenous capital-output ratio assumed in the Harrod-Domar model and proposed a model in which the capital-output ratio acts as the adjusting variable which brings the system back to its steady-state growth path. Their work was seen as a major contribution to the growth theories, which became known as the neoclassical growth model. The implications of the neoclassical growth model (i.e Solow (1956), Tobin (1955), Pilvin (1953), and Harrod (1953)) can be viewed on a short and long-run basis. In the short-run analysis, policy measures like tax cuts will affect the steady-state level of output. This is not the case with the long-run economic growth rate. Instead, economic growth will be affected as the economy converges to the new steady-state level of output, which is determined mainly by the rate of capital accumulation. This in turn is determined by the proportion of output that is not consumed but used to create more capital (savings rate) and also the rate at which the level of capital stock depreciates. This implies that the long-run growth rate will be exogenously determined and the economy can therefore be predicted to converge towards a steady-state growth rate, which depends on the rate of technological progress and labour force growth. Therefore, a country’s economy will grow faster if it has a higher savings rate.

Sources of Economic Growth (Growth Accounting)

The unimpressive historical economic and political performance of the Nigerian economy since its Independence in 1960 has not allowed a serious transmission into substantial differences in income of its average citizens. The basic determinant of a country’s economic performance and living standards is mainly its capacity to produce goods and services with the available quantity of inputs (factors of production). However, a nation’s output of goods and services do not only depend on the availability of its inputs (capital and labour) but also on the productivity of these inputs. Empirical investigation of the various developed and the newly industrialised economies on their sources of economic growth over a long period of time have shown explicitly how much the tangible inputs and their productivity have contributed to long-term growth (Kim and Lau (1994), Lau and Park (2003), Tahari, et al. (2004), Senhadji (2000), and Dike (1995)). In the case of Nigeria, no studies exist on the sources of economic growth, except for Dike (1995). In an attempt to identify the structural changes that occurred in the Nigerian economy over the years, it is imperative to decompose the growth performance into its primary sources. The sources of the Nigerian economic growth from 1960 to 2006 ae calculated according to the effectiveness with which capital and labour were used in the production process.

TABLE OF CONTENTS :

• CHAPTER BACKGROUND AND INTRODUCTION
  • 1.1 INTRODUCTION
  • 1.2 PROBLEM STATEMENT
  • 1.3 OBJECTIVES OF THE STUDY
  • 1.4 RESEARCH METHODOLOGY
  • 1.5 OUTLINE OF THE STUDY
• CHAPTER THEORETICAL ANALYSIS: GROWTH AND POVERTY
  • 2.1 INTRODUCTION
  • 2.2 THEORETICAL GROWTH MODEL ANALYSIS
  • 2.3 THEORETICAL PROPOOR GROWTH (POVERTY TRAP) MODEL ANALYSIS
  • 2.4 GROWTH AND POVERTY EMPIRICS
  • 2.5 CONCLUSION
• CHAPTER EVALUATING THE GROWTH AND POVERTY PERFORMANCE OF NIGERIA
  • 3.1 INTRODUCTION
  • 3.2 NIGERIAN ECONOMIC GROWTH PERFORMANCE
    • 3.2.1 Wealth of the Nigerian economy
    • 3.2.2 The evolution of the Nigerian economy
    • 3.2.3 Sources of Economic Growth (Growth Accounting)
  • 3.3 NIGERIA POVERTY PERFORMANCE
    • 3.3.1 Measurement of Poverty
    • 3.3.2 Profile of poverty in Nigeria
    • 3.3.3 Poverty reduction strategies in Nigeria
    • 3.2.4: Challenges to poverty alleviation in Nigeria
  • 3.4 CONCLUSION
• CHAPTER MODEL SPECIFICATION AND ESTIMATION TECHNIQUES
  • 4.1 INTRODUCTION
  • 4.2 MODEL SPECIFICATION
  • 4.3 CORE STRUCTURAL EQUATIONS
    • 4.3.1 The real sector
    • 4.3.2 The external sector
    • 4.3.3 Monetary sector
    • 4.3.4 The government sector
    • 4.3.5 Other behavioural equations in the model
  • 4.4 ESTIMATION TECHNIQUES
  • 4.5 CONCLUSION
• CHAPTER EMPIRICAL ANALYSIS
  • 5.1 INTRODUCTION
  • 5.2 ESTIMATION RESULTS (MODEL A): SUPPLYSIDE ORIENTATED
    • 5.2.1 The real sector
    • 5.2.2 The external sector
    • 5.2.3 The monetary sector
    • 5.2.4 Other behavioural equations in the model
  • 5.3 ESTIMATION RESULTS (MODEL B): DEMANDSIDE ORIENTATED
  • 5.4 MODEL CLOSURES
  • 5.6 CONCLUSION
• CHAPTER SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS
  • 6.1 INTRODUCTION
  • 6.2 SUMMARY AND MAIN FINDINGS OF THE STUDY
  • 6.3 POLICY RECOMMENDATIONS
  • 6.4 AREAS FOR FURTHER RESEARCH
  • 6.5 FINAL CONCLUSION
• REFERENCES
  • APPENDIX
  • AN EXPOSITION OF THE DATA UTILISED IN THE MODEL
  • APPENDIX
  • ORDER OF INTEGRATION
  • APPENDIX
  • ESTIMATIONS OUTPUTS
  • APPENDIX
  • MODEL SIMULATIONS: ACTUAL AND FITTED VALUES
  • APPENDIX
  • EQUATIONS, IDENTITIES, AND ESTIMATED PARAMETERS OF THE FULL
  • SYSTEM

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MACROECONOMETRIC MODELLING FOR THE NIGERIAN ECONOMY: GROWTHPOVERTY GAP ANALYSIS