Assessing the Drivers of Steady State Economic Growth in Nigeria

ATOI, VICTOR NGOZI (PhD) (2023): Assessing the Drivers of Steady State Economic Growth in Nigeria.

Abstract

This study assesses the effects of foreign direct investment (FDI), government expenditures on education and health, trade openness, and initial income on steady state economic growth in Nigeria. The study utilised the Nonlinear Autoregressive Distributed Lag model with data obtained from the world bank development indicator database covering the period 2000Q1 to 2021Q4. The long run results showed evidence of asymmetric response of steady state economic growth to shocks emanating from FDI and health expenditure only. The impact of positive changes in FDI is greater than that of negative changes, while positive changes in health expenditure, although statistically insignificant, exert lesser influence than negative changes. Also, education expenditure is found to influence steady state economic growth positively. These findings are consistent with endogenous growth theory, which highlights the importance of technological innovation and human capital accumulation for sustainable growth. Furthermore, the estimated parameter of initial income is positive, indicating a possibility of convergence, however, trade openness has a marginal negative effect on steady state economic growth, reflecting the effect of unequal international trade competition. The study emphasized the need to intensify effort in attracting and retaining FDI, as well as re-evaluating trade policies to foster sustainable growth in Nigeria.

• Item Type: MPRA Paper
• Language: English
• Keywords: Steady state, asymmetry, endogenous growth
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Abdouli, M., & Hammami, S. (2017). The impact of FDI inflows and environmental quality on economic growth: an empirical study for the MENA countries. Journal of the Knowledge Economy, 8(1), 254-278.

Ajide, K. B. (2014). Determinants of economic growth in Nigeria. CBN Journal of Applied Statistics (JAS), 5(2), 8.

Akinlo, A. E. (2004). Foreign direct investment and growth in Nigeria: An empirical investigation. Journal of Policy Modeling, 26(5), 627-639.

Alam, W., Ikram, F., Kumar, P., Haseeb, M., & Ali, N. (2022). Asymmetric Effects of Foreign Direct Investment on Economic Growth: Fresh Evidence from India Using NARDL Simulation. Millennial Asia, 09763996221122205.

Amin, A., Anwar, S., & Liu, X. H. (2022). Outward foreign direct investment and economic growth in Romania: Evidence from non‐linear ARDL approach. International Journal of Finance & Economics, 27(1), 665-677.

Ampofo, G. K. M., Cheng, J., Asante, D. A., & Bosah, P. (2020). Total natural resource rents, trade openness and economic growth in the top mineral-rich countries: New evidence from nonlinear and asymmetric analysis. Resources Policy, 68, 101710.

Anda, M. I., Gabriela, B., Nicolae, E., & Rehman, A. (2023). Economic Growth Drivers in Romania: Evidence from a NARDL Analysis. Sustainability, 15(7), 5916.

Asongu, S. A., & Odhiambo, N. M. (2020). Foreign direct investment, information technology and economic growth dynamics in Sub-Saharan Africa. Telecommunications Policy, 44(1), 101838.

Atilgan, E., Kilic, D., & Ertugrul, H. M. (2017). The dynamic relationship between health expenditure and economic growth: is the health-led growth hypothesis valid for Turkey?. The European Journal of Health Economics, 18, 567-574.

Bakare, A. A., & Olubokun, S. (2011). Health care expenditure and economic growth in Nigeria: An empirical study. Journal of emerging trends in economics and management sciences, 2(2), 83-87.

Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135.

Brueckner, M., & Lederman, D. (2018). Inequality and economic growth: the role of initial income. Journal of Economic Growth, 23(3), 341–366. https://www.jstor.org/stable/48700616.

Choong, C. K., Yusop, Z., & Soo, S. C. (2005). Foreign direct investment and economic growth in Malaysia: The role of domestic financial sector. The Singapore Economic Review, 50(02), 245-268.

Daly, H. E., & Farley, J. (2011). Ecological economics: Principles and applications. Island Press.

Darku, A. B., & Yeboah, R. (2018). Economic openness and income growth in developing countries: a regional comparative analysis. Applied Economics, 50(8), 855-869.

Dobson, A., Lodge, D., Alder, J., Cumming, G. S., Keymer, J., McGlade, J., & Xenopoulos, M. A. (2006). Habitat loss, trophic collapse, and the decline of ecosystem services. Ecology, 87(8), 1915-1924.

Egoh, B. N., O'Farrell, P. J., Charef, A., Gurney, L. J., Koellner, T., Abi, H. N., & Willemen, L. (2012). An African account of ecosystem service provision: Use, threats and policy options for sustainable livelihoods. Ecosystem services, 2, 71-81.

Elwasila S. E. M. (2017a). Resource gaps, foreign capital flows and economic growth in Sudan: An empirical econometric analysis. African Journal of Economic and Sustainable Development 6: 292–316.

Farouq, I. S., Sulong, Z., Ahmad, A. U., Jakada, A. H., & Sambo, N. U. (2020). The effects of economic growth on financial development in Nigeria: Interacting role of foreign direct investment: An application of NARDL. Int J Sci Technol Res, 9, 6321-6328.

Hye, Q. M. A., & Lau, W. Y. (2015). Trade openness and economic growth: empirical evidence from India. Journal of Business Economics and Management, 16(1), 188-205.

Islam, M. S., & Alam, F. (2022). Influence of human capital formation on the economic growth in Bangladesh during 1990–2019: an ARDL approach. Journal of the Knowledge Economy, 1-18.

Jahantabi Nejad, A., & Golkhandan, A. (2023). The Effect of Positive and Negative Public Health Expenditure Shocks during Business Cycles on Health Status in Iran. Journal of healthcare management, 13(4), 87-102.

Jiang, W., & Wang, Y. (2023). Asymmetric Effects of Human Health Capital on Economic Growth in China: An Empirical Investigation Based on the NARDL Model. Sustainability, 15(6), 5537.

Jiang, Y., Batool, Z., Raza, S. M. F., Haseeb, M., Ali, S., & Zain Ul Abidin, S. (2022). Analyzing the asymmetric effect of renewable energy consumption on environment in STIRPAT-Kaya-EKC framework: a NARDL approach for China. International Journal of Environmental Research and Public Health, 19(12), 7100.

Koojaroenprasit, S. (2012). The impact of foreign direct investment on economic growth: A case study of South Korea. International Journal of Business and Social Science, 3(21).

Kumari, R., Shabbir, M. S., Saleem, S., Yahya Khan, G., Abbasi, B. A., & Lopez, L. B. (2023). An empirical analysis among foreign direct investment, trade openness and economic growth: evidence from the Indian economy. South Asian Journal of Business Studies, 12(1), 127-149.

Liang, C., Shah, S. A., & Bifei, T. (2021). The role of FDI inflow in economic growth: Evidence from developing countries. Journal of Advanced Research in Economics and Administrative Sciences, 2(1), 68-80. Lucas, R. E. (1990). Why doesn't capital flow from rich to poor countries? The American Economic Review, 80(2), 92-96.

Malam, B., Abba, B., & Hassan, A. (2018). The determinants of long run economic growth in Nigeria. Asian Economic and Financial Review, 8(1), 1-9.

Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. The Quarterly Journal of Economics, 107(2), 407-437. doi: 10.2307/2118477.

Marquez-Ramos, L., & Mourelle, E. (2019). Education and economic growth: an empirical analysis of nonlinearities. Applied Economic Analysis.

Miles, D., Scott, A. & Breedon, F (2013). Macroeconomics. Understanding the global economy. John Wiley & Sons ltd.

Mohamed, E. S. (2022). Female Human Capital and Economic Growth in Sudan: Empirical Evidence for Women’s Empowerment. Merits, 2(3), 187-209.

Mohamed, E. S. (2020). Resource rents, human development and economic growth in Sudan. Economies, 8(4), 99.

Nakhli, M. S., & Gaies, B. (2021). Political risk and financial development in Nigeria: can credit buy social peace?: evidence from NARDL approach. The Quarterly Review of Economics and Finance, 82, 55-62.

Odugbesan, J. A., Sunday, T. A., & Olowu, G. (2021). Asymmetric effect of financial development and remittance on economic growth in MINT economies: an application of panel NARDL. Future Business Journal, 7(1), 39.

Ojo, T. J., & Ojo, S. I. (2022). Health expenditure, education and economic growth in Nigeria. Open J Soc Sci Humanities (ISSN: 2734-2077), 3, 01-17.

Ozturk, I. (2008). The role of education in economic development: a theoretical perspective. Available at SSRN 1137541.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.

Pesaran, M. H., Smith, R. J., & Im, K. S. (2014). Nonlinear panel unit root tests and panel cointegration models. In Econometrics and Economic Theory: Essays in Honour of Takeshi Amemiya (pp. 139-165). Cambridge University Press.

Pesaran, M.H., Shin, Y. & Smith, R.J. (1997). Estimating long-run relationships in dynamic heterogeneous panels. DAE Working Papers Amalgamated Series 9721. Available at http://www.eprg.org.uk/faculty/pesaran/ardl.pdf.

Qi, D., Ali, A., Li, T., Chen, Y. C., & Tan, J. (2022). An empirical analysis of the impact of higher education on economic growth: The case of China. Frontiers in Psychology, 13, 959026.

Raghupathi, V., & Raghupathi, W. (2020). Healthcare expenditure and economic performance: insights from the United States data. Frontiers in public health, 8, 156.

Rahman, P., Zhang, Z., & Musa, M. (2023). Do technological innovation, foreign investment, trade and human capital have a symmetric effect on economic growth? Novel dynamic ARDL simulation study on Bangladesh. Economic Change and Restructuring, 56(2), 1327-1366.

Rodrik, D. (1998). Why do more open economies have bigger governments?. Journal of Political Economy, 106(5), 997-1032. Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002-1037.

Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98(5, Part 2), S71-S102. doi: 10.1086/261725 Schorderet, Y. (2003). Asymmetric Cointegration. University of Geneva, Switzerland.

Sethi, N., Mohanty, S., Das, A., & Sahoo, M. (2020). Health Expenditure and Economic Growth Nexus: Empirical Evidence from South Asian Countries. Global Business Review, 0(0). https://doi.org/10.1177/0972150920963069.

Sohail, H. M., & Li, Z. (2023). Nexus among foreign direct investment, domestic investment, financial development and economic growth: a NARDL approach in Pakistan. International Journal of Economics and Business Research, 25(2), 249-269.

Solow, R. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94. doi: 10.2307/1884513.

Squalli J, & Wilson K (2011) A new measure of trade openness. World Econ 34(10):1745–1770.

Sriyana, J., & Afandi, A. (2020). Asymmetric effects of trade openness on economic growth in selected ASEAN countries.

Supattra, M. & ÖZER, M. (2018). Determinants of Economic Growth in Southeast Asian Countries: Bayesian Model Averaging Approach. 4TH International students Social Sciences Congress

Suryandaru, R. A. (2023). The Relationship Between Public Debt, Trade Openness, and Economic Growth in Indonesia: Symmetric and Asymmetric Analysis. Thailand and The World Economy, 41(1), 35-60.

Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, 32(2), 334-361. doi: 10.1111/j.1475-4932.1956.tb00434.x

Tchamyou, V. S., Asongu, S. A., & Odhiambo, N. M. (2019). The Role of ICT in Modulating the Effect of Education and Lifelong Learning on Income Inequality and Economic Growth in Africa. African Development Review, 31(3), 261–274. doi:10.1111/1467-8268.12388.

Udeagha, M. C., & Ngepah, N. (2021). The asymmetric effect of trade openness on economic growth in South Africa: a nonlinear ARDL approach. Economic Change and Restructuring, 54(2), 491-540.

Wacziarg, R., & Welch, K. H. (2008). Trade liberalization and growth: New evidence. The World Bank Economic Review, 22(2), 187-231.

Xia, L., Ali, A., Wang, H., Wu, X., & Qian, D. (2022). A dynamic analysis of the asymmetric effects of the vocational education and training on economic growth, evidence from China. Frontiers in Psychology, 13, 888969.

Yu, C., Nataliia, D., Yoo, S. J., & Hwang, Y. S. (2019). Does trade openness convey a positive impact for the environmental quality? Evidence from a panel of CIS countries. Eurasian Geography and Economics, 60(3), 333-356.

Zainal, N. E., Salleh, S. A., Hasnorrul Hadi, N. A., Roslan, N. I. S., Abd Aziz, A. H., & Ahmad Fadzil, A. S. (2023). Exploring the drivers of poverty line income in Malaysia.