EXAMINATION OF CAUSAL RELATIONSHIP BETWEEN TRADE OPENNESS, EXCHANGE RATE CHANGES AND MANUFACTURING CAPACITY UTILIZATION

A major policy cha//enge f or open developing economies is determination of an optimal exchange rate consistent with their economic development objectives. These economies are characterized by heavy dependence on commodity exports while relying extensively on consumer and industrial goods imports. This translates to massive outflow of fore ign exchange from developing economies to industrialized nations thereby impeding the capacity of developing nations to build a robust domestic production base. This study examines the channel of transmission of impact between manufacturing capacity utilization, exchange rate and trade openness using the Granger causality estimation technique. Interest rate and inflation rate were introduced as control variables. The study covers the period 1986-2013. The study did not produce evidence of causal relationship between exchange rate andmanufacturing capacity utilization and between trade openness and manufac turing capacity utilization. However, there is evidence of unilateral causation from inflation rate to manufacturing capacity utilization. The study recommends that policies which support moderate levels of inflation be implemente

Working Capital Management and the Performance of Consumer and Industrial Goods Sectors in Nigeria

The paper investigates the impact of working capital management on the performance of selected companies listed on the Nigerian Stock Exchange using panel data for forty (40) firms from the consumer and industrial goods sectors of the economy. Return on assets (ROA) was adopted as proxy for firm performance while cash conversion cycle (CCC), average payment period (APP), inventory collection period (ICP), and average collection period (ACP) were adopted as proxies for working capital management. Estimation of the impact of the exogenous variables (cash conversion cycle, average payment period, inventory conversion period and average conversion period) on firm performance (endogenous variable) was based on the econometric technique of the Ordinary Least Squares. The study produced evidence of significant positive impact of cash conversion cycle, average payment period, and inventory conversion period on firm performance. There is also evidence of non significant negative impact of average conversion period on the performance of the selected firms.Parameter estimates were obtained at 10 per cent level of significance. Based on the above result, the study concludes that working capital management has significant impact on the performance of firms in the consumer and industrial goods sectors of the Nigerian economy. Industry managers are therefore advised to innovate efficient strategies for managing working capital so as to optimize its potential

International Financial Reporting Standards (IFRS) Adoption and the Performance of Key Financial Ratios: Evidence from Quoted Deposit Money Banks in Nigeria

Financial ratio is one of the performance measures used by investors to determine the viability of a firm. In view of this assertion, this paper investigates the effect of IFRS on key financial ratios of 11 quoted banks in Nigeria. The study addresses the research hypotheses by comparing the key financial ratios computed under the NGAAP for the three-year period, 2009-2011 and the corresponding three-year period under IFRS regime, 2013-2015 using the Mann Whitney U-Test. The study investigates the effect of IFRS on key financial ratios of listed banks in Nigeria. Evidence from the study shows that at 5 per cent level of significance: (i) Profitability ratios of listed banks under NGAAP differ significantly from those under the IFRS regime. (ii) There is statistically significant difference between short-term solvency ratios of quoted banks under NGAAP and IFRS. (iii) Long-term solvency ratios of quoted banks under NGAAP are significantly different from those under the IFRS regime. (iv) There is significant difference between investment ratios, of listed banks, prepared under NGAAP and IFRS. Based on the above results, the study concludes that adoption of the International Financial Reporting Standard (IFRS) has significant impact on the performance of financial ratios of quoted deposit money banks in Nigeri

Financial System Development and Real Sector Performance in Nigeria

This paper examines the relationship between financial sector development and real sector pe1jormance in Nigeria using d{lta over the period 1986-2014. Owing to the dominant role of the banking sub-sector in the Nigerian financial system. it was adopted as proxy for the financial sector. Exchange rate. national sOl'ing rate, interest rate and financial depth were adopted as proxies for financial qevelopmentwhile ratio of industrial output to GDP 11~s adopted as proxy for real sector performance. Lending rate was adopted as the relevant interest rate for the study. Econometric method of the · vector error ~orrection mode/was used to estimate the magnitude and direction of the impact of the exogenous mriables on the endogenous variable as well as the speed of adjustment of the system to short-run disequilibrium. The short-run estimate shows significant negative effect of national saving rate and financial deepening on the real sector. There is no evidence of significant effect of exchange rate and lending rate on the performance of the sector during the period of the study. Estimated long·11m coefficients show significant negative impact of exchange rate and lending rate on real sector output. There is also evidence of non-significant positive impact of national sat·ing rate and non-significan/ negatire impact of financing deepening on real sector pe1jormance. This result indicates that as exchangot rate becomes more volatile during the reform period, output of the real sector is adt·ersely affected. On the other hand. though reforms associated with financial sector development in post-SAP era led to high lending rate. the real sector became more efficient in resource utili:ation and hence had higher productivity growth. Therefore, the study concludes that development of the financial system has supported real sector in Nigeria through efficiency gains from resource allocation and utili=ation

Impact of Capital Market Development on the Growth of the Nigerian Economy

This paper investigates the relationship between capital market development and economic growth using data on GDP (proxy for economic growth), market capitalization ratio, value traded ratio and stock market turnover ratio (proxies for capital market development) over the period 1981-2014. Employing the econometric methodology of the vector error correction model, the study shows that in the short-run, market capitalization ratio and turnover ratio have significant negative effect on aggregate national output (GDP). The study also shows positive effect of value traded ratio as well as negative effect of inflation rate on GDP though not significant. The long-run estimate shows that all the exogenous variables have significant negative impact on GDP and that changes in market capitalization ratio, value traded ratio and turnover ratio produce more than proportionate changes in GDP. With an adjustment speed of about 91.12 per cent, the model presents an inherent capacity to overcome short-run disequilibrium. The Granger causality test shows evidence of causal impact of market capitalization ratio, value traded ratio and turnover ratio on aggregate national output. The study further shows uni-directional causality from GDP to inflation. The paper established therefore that stock market development constitutes a significant determinant of economic growth in Nigeria

Financial Decision and Poverty Nexus in Nigeria

The study examines the relationship between poverty and financial decision in Nigeria so as to ascertain if poverty has an impact on the quality of financial decisions taken by the poor and financially vulnerable individuals. The study utilised a unique methodology (truncated regression) and applied a survey data from the Afrobarometer dataset to investigate the quality of loan usage among the extreme poor in Nigeria. We allowed for the inclusion of other policy relevant variables that may likely inform the direction of new generation poverty alleviation policies like gender, education and age of the individuals. We find that the extremely poor group use more of the loans for other non-developmental issues like funeral and marriage celebrations than for productive and poverty alleviating ventures. However, the younger males engage more in this act than the females. Also, as the poor become more educated, they are able to use more of the loan for development-oriented investments like purchase of assets, building houses and even furthering their education. A major policy implication of this result is that loans should be directed towards younger individuals, and education should be a focal priority in selecting who to fund

Impact of economic liberalization on the growth of the Nigerian economy

With the introduction of a major economic reform initiative in 1986 under the Structural Adjustment Programme (SAP), the Nigerian government sought to accelerate economic growth through elimination of price distortions, promotion of competition, and making the economy more market-oriented. To achieve these objectives, the government deregulated the mechanism for management of interest and exchange rates, liberalized the conditionalities for entry into banking business and dismantled external trade barriers. Following the sub-optimal performance of the Nigerian economy, opinions were divided on whether liberalization has aided or retarded economic growth in Nigeria. This study therefore seeks to examine the nexus between economic liberalization and economic growth in Nigeria. Specifically, the study examined the extent to which changes in major economic fundamentals like exchange rate, lending rate, inflation rate, financial deepening, trade openness and saving rate affected economic growth in Nigeria. Annual data on the variables, sourced from the publications of the Central Bank of Nigeria and National Bureau of Statistics were analyzed using the econometric technique of the ordinary least square. The study produced mixed results. For instance, there was evidence of significant positive impact of financial liberalization on the growth of the real economy. Exchange rate was however shown to have non-significant effect on economic growth. Trade liberalization had non-significant positive impact on output growth in Nigeria. Finally, the result showed significant negative effect of inflation rate on economic growth.The study concluded that economic liberalization has significant impact on the growth of the Nigerian economy. The work recommended that financial deepening programme should be strengthen through consolidation of the financial liberalization programme of the Federal Government of Nigeria; and that the government should apply substantial amount of government revenue to infrastructural development with a view of reducing the cost of productions and price levels

Macroeconomic Performance and Government Fiscal Deficits - Evidence from Nigeria

Governments in most developing economies, including Nigeria, have often had to contend with issues of weak economic and social indicators vis-à-vis poor fiscal performance. In Nigeria for instance, there is evidence that between 1981 and 2014 fiscal operations have been dominated by fiscal deficits while major indicators of economic health have remained at sub-optimal levels. There has been considerable disagreement on the relationship between fiscal deficits and economic performance. As our contribution towards the resolution of this contentious issue, this study examines the relationship between the performance of key macroeconomic indicators (exchange rate, inflation rate, gross fixed capital formation and unemployment) and fiscal deficits. Data on the research variables covering the period 1981-2014 were sourced from the publications of the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). Employing the econometric methodology of the vector error correction model (VECM), the study shows significant positive effect of gross fixed capital formation as well as significant negative impact of inflation rate and unemployment on fiscal deficits in Nigeria. Though, there is evidence of negative effect of exchange rate, the study shows it is not significant. These results imply that policies aimed at enhancing the infrastructure base of the economy promote the practice of deficit budgeting, Similarly, economic policies that tend to reduce inflation (such as raising domestic output levels) and unemployment reflect in higher fiscal deficits. The causality tests show evidence of causal impact of government fiscal deficits on exchange rate, inflation rate and unemployment but failed to show evidence of causation between fiscal deficits and gross fixed capital formation. It is recommended that government should ensure prudent utilization of the proceeds of debt finance in promoting domestic production in order to strengthen the economic fundamentals required to support improved fiscal performance in the long-ru