MONETARY POLICY AND INCLUSIVE GROWTH IN NIGERIA

MONETARY POLICY AND INCLUSIVE GROWTH IN NIGERIA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Abstract

The study intends to investigate how monetary policy can enhance inclusive growth in the economy through the Central Bank of Nigeria (CBN). The ultimate objective of monetary policy is to promote sound economic performance and high living standards of the citizens. This makes monetary policy a key element of macroeconomic management and its effectiveness is crucial to the overall economic performance of Nigeria. The study constructed a theoretical yardstick for inclusive growth in Nigeria and provides the drivers of inclusive growth in the economy. It also identified and discussed major challenges to the conduct and implementation of monetary policy in Nigeria which undermine the effectiveness of monetary policy to include non-monetized Nigerian rural sector, underdeveloped money and capital markets, and large quantity of money outside the banking system.

 

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

• Background of the study

It is imperative to say that one of the uphill task that is facing modern economy is the achievement and sustenance of economic growth and development with the ultimate objective of enhancing the welfare of its citizens. This has prompted development economist to propose a generally accepted policy from Pro-Poor Growth to inclusive growth. Migap, Okwanya and Ojeka (2015) posited that growth is good and sustained high growth is better, but sustained high growth with inclusiveness is the best of all. Nigeria has long been recognized as the largest African nation, due to its estimated population of 174 million inhabitants (2012estimate), but it is only recently, that it has been acknowledged as the continent’s largest economy (Mckinsey Global Institute-MGI, 2014). However, despite strong GDP growth (productivity and per capita GDP) between 1999 and 2010, poverty did not decline materially (Migap, Okwanya and Ojeka, 2015). While the World Bank (2013) ranked Nigeria as one of the fastest growing economies of the world with GDP growth rates of 7.8%(2010), 7.4%(2011), 7.5%(2012) and 7.6%(2013), the UNDP (2013), ranked Nigeria among the countries with Low Human Development Index (HDI) of 0.471, placing the country at the 153rd position out of a total of 186 countries sampled. Growth in Nigeria in the last decade therefore has not been adequate to be accompanied by reduction in widespread poverty and unemployment. This clearly shows that the present economic growth is not inclusive enough and needs to be addressed.

Inclusive growth is defined as long-term sustained economic growth that is broad based across sectors, and is inclusive of a large part of a country’s labor force, thereby reducing unemployment as well as poverty. The issue of inclusive growth has been at the center of recent academic and policy debates. This renewed interest in the inclusiveness of the economic growth process is not unconnected with the recent growth experiences of several developing countries. Nigeria, for example, has experienced unprecedented rates of GDP growth for nearly a decade, but the rates of poverty, inequality and unemployment have also risen during the period. While the economy had grown by an average of about 6% per annum between 2005 and 2014 (World Bank, 2015), poverty and inequality have actually risen. The Gini coefficient, for instance, had risen from 0.429 in 2005 to 0.504 in 2013, suggesting a significant rise in income inequality1 , when indeed GNI per capita (2011 PPP prices) had increased by over 43%, from $3,606 in 2005 to $5,165 in 2014 (World Bank, 2015). Despite this, poverty had risen from 28.7% in 2004 to 43.3% in 2005 (UNDP, 2015). In addition, the unemployment rate has also increased from about 11.9% in 2005 to about 24% in 2014 (NBS, 2015). These statistics clearly suggest that the seemingly impressive growth in output and income over the period had excluded a significant segment of the population, the poor. Over this period, a greater majority of the country’s poor had been excluded from the economic opportunities associated with the economic growth process. Although macroeconomic policies have historically been designed and implemented for stability, and rarely applied for inclusive, broad-based growth or for any kind of redistributive justice, there is increasing recognition of the role macroeconomic policies could play in determining the nature (and inclusiveness) of the ensuing growth process (Khatiwada, 2013). For instance, it has been argued that, because macroeconomic polices in developing countries have, for too long, focused on managing public debt and keeping inflation low, the economic growth such polices engender was at the cost of development by cutting down public investment in key areas and expenditure on education and health. Where such stability-focused policies deliver economic growth, such growth has not been inclusive enough, and has not always translated into increased security of jobs and livelihoods. The growth has instead been jobless, without a corresponding growth in decent and productive employment in the formal sector. This has led to increased insecurity of livelihoods and disparities of opportunities and outcomes including incomes, assets and wealth. In developing countries where there is no effective social protection, these disparities will be increasing and self-reinforcing (Heynar, 2013). One of the potentially adverse effects of the stability-focused monetary policy on inclusive growth is well recognized in the study as the output cost of dis-inflation, and forms the basis of this study.

• STATEMENT OF THE PROBLEM

Inclusive growth has been defined as output growth that is sustained over decades, is broad-based across economic sectors, creates productive employment opportunities for a great majority of the country’s working age population, and reduces poverty. Inclusive growth is about both the pace and pattern of economic growth. However one defines it, there is no bigger policy challenge preoccupying political leaders around the world than expanding social participation in the process and benefits of economic growth and integration. It is on these bases that the researcher intends to investigate the impact of monetary policy and inclusive growth in Nigeria.

• RESEARCH QUESTION

For the successful completion of the study, the following research questions were formulated by the researcher;

1. Are there any relationship between monetary policy and inclusive growth?
2. What is the impact of inclusive growth on economic development?

• Does central bank of Nigeria play any role in implementation of monetary policy?

1. What is the effect of inclusive growth in combating poverty in rural area?

 

 

• OBJECTIVE OF THE STUDY

The objective of the study is monetary policy and inclusive growth in Nigeria. But for the purpose of the study the following sub objectives are put forward by the researcher;

1. To ascertain the relationship between monetary policy and inclusive growth
2. To ascertain the impact of inclusive growth on economic development

• To ascertain the role of central bank in the implementation of monetary policy

1. To ascertain the impact of inclusive growth in combating poverty in Nigeria.
   • RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated;

H₀: there is no significant relationship between monetary policy and inclusive growth in Nigeria.

H₁: there is a significant relationship between monetary policy and inclusive growth in Nigeria.

H₀²: Inclusive growth has no impact on the economic development of Nigeria.

H₂: Inclusive growth has a significant impact on the economic development of Nigeria.

• SIGNIFICANT OF THE STUDY

It is believed that at the completion of the study, the findings will be useful to the management of the central bank of Nigeria, who are saddle with the responsibility of formulating and supervision of these monetary policies; to ensure that it is strictly adhered to. The study will also be of great importance to the federal executive council who are responsible for the planning and implementation of policies that will enhanced overall economic growth. The study will also be of importance to researchers’ who intend to embark on a study in a similar topic; as the study will serve as a base or reference point to them. Finally the study will be of importance to teachers, students, lecturers, academia’s and the general public as the findings will also contribute to the pool of knowledge.

• JUSTIFICATION FOR THE STUDY

The effectiveness and efficiency of any economy, lies on the quality and efficiency of policy and implementation plan. In the pass decades Nigeria has undergone transition in political, economic and financial sector; however, this transition has not settled the primary challenges of economic development. As they policy does not affect the inhabitant of the rural area which is the brain box of economic growth.

As part of my requirement for the award of masters of science degree (M.SC) in( management), this study is carried out to ascertain the impact of monetary policy and inclusive growth in Nigeria.

• LIMITATIONS OF THE STUDY

The researcher encounters the following limitation in the course of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

1.9 CHAPTER OUTLINES

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (background, of the study), statement of problem, objectives of the study, research question, research hypotheses, significance or the study, chapter outline,  and definition of terms. Chapter two highlights 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 presentation and analysis.  Chapter five deals  with summary conclusion and recommendation.

 

 

1.10 DEFINITION OF OPERATIONAL TERMS

Monetary

Monetary policy is the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Further goals of a monetary policy are usually to contribute to economic growth and stability, to lower unemployment, and to maintain predictable exchange rates with other currencies.

Growth

Growth refers to a positive change in size, and/or maturation, often over a period of time. Growth can occur as a stage of maturation or a process toward fullness or fulfillment. It can also perpetuate endlessly, for example, as detailed by some theories of the ultimate fate of the universe

Unemployment

The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. During periods of recession, an economy usually experiences a relatively high unemployment rate.

 

 

 

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