CHAPTER ONE

Background to the Study

Fiscal policy is the means by which a government adjusts its level of spending to monitor and influence a nation’s economy. It is used along with the monetary policy, which the central bank uses to influence money supply in a nation. These two policies are used to achieve macroeconomic goals in a nation. These goals include price stability, full employment, reduction of poverty levels, high and sustainable economic growth, favorable balance of payment, and reduction in a nation’s debt. Nigeria’s potential for growth and poverty reduction is yet to be realized. A key constraint has been the recent conduct of macroeconomics, particularly fiscal and monetary policies. This has led to rising inflation and decline in real incomes. National economic management became a Herculean task as the economy has to contend with volatility of revenue and expenditure. The widespread lack of fiscal discipline was further exacerbated by poor co-ordination of fiscal policy among the three tiers of government. Also, there is a weak revenue base arising from high-marginal tax rate with very narrow tax base, resulting in low tax compliance. As a result of these and other factors, serious macroeconomic imbalances have emerged in Nigeria. A review of these macroeconomic indices shows that inflation has accelerated to double-digit levels in 2000 and 2001. It increased from 6.94 to 18.87, respectively. This double-digit inflation continued up to 2005, and decreased to single digit in 2006 and 2007. In 2008, the inflation rate reverted to double digit (11.58) and continued to increase, and in 2010, it was 13.72% (International Monetary Fund [IMF], 2011). Unemployment is a major political and economic issue in most countries. In Nigeria, the years of corruption, civil war, military rule, and mismanagement have hindered economic growth of the country. Nigeria is endowed with diverse and huge resources both human and material. However, years of negligence and adverse policies have led to the under-utilization of these resources (Economic Watch, 2010), and this has contributed to the increasing unemployment rate in Nigeria. In 2000, the unemployment rate was 13.1%, and 21.10% in 2010. On the average, there has been an upward trend (CBN, 2005, 2006, 2009; Nigerian Bureau of Statistics, 2010).The use of government revenues and expenditures to influence macroeconomic variables developed as a result of the Great Depression when the previous laissez-faire approach to economic management became discredited. Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics indicated that government changes in the levels of taxation and government spending influences aggregate demand and the level of economic activity. Fiscal and monetary policy are the key strategies used by a country’s government and central bank to advance its economic objectives. The combination of these policies enables these authorities to target the inflation (which is considered “healthy” at the level in the range of 2%–3%) and to increase employment. Additionally, it is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%.This implies that fiscal policy is used to stabilize the economy over the course of the business cycle.

Fiscal Policy as a tool of macroeconomic management used by the government to control the economy via its revenue and expenditure portfolios is an important concept in economics. The revenue portfolio consists of components like tax revenue, trade surplus, and foreign aid, while the expenditure portfolio consists of recurrent and capital expenditure. In other words, fiscal policy is the government’s deliberate actions towards spending money and for levying taxes aimed at influencing macro-economic variables so as to achieve desired macroeconomic objectives. The relationship between fiscal policy and economic growth has been discussed extensively in the literature using empirical analysis. According to Tanzi and Zee (2017), there are three cardinal indicators of fiscal policy—government expenditure, taxes, and deficits. There have been macroeconomic imbalances of varying degrees in Nigeria. Inappropriate public expenditure and revenue policies, a large deficit in the public sector have been identified by experts as responsible for the macroeconomic disequilibrium (Ajisafe and Folorunso, 2015). Evidence reveals that there was a substantial increase in government spending, primary deficit, and debt in Nigeria between 1991 and 2005 (CBN Statistical Bulletin, 2012). This was a result of the oil windfall between 1991 and 1992 which was followed by rapid growth in government spending with an average of about 21 percent of GDP during that period. However, as the oil market weakened in subsequent years, oil receipts were not adequate to meet increasing levels of demands and expenditures as being reinforced by political pressures. Although the democratically-elected government in 1999 adopted policies to restore fiscal discipline, the rapid monetization of foreign exchange earnings between 2000 and 2004 and another era of oil windfall resulted in large increases in government spending. In 2005 alone, the government spending alone increased to 19 percent of GDP from 14 percent in 2000, extra-ordinary budgetary outlays not initially included in the budget increased (CBN Statistical Bulletin, 2012). The growth and development of the Nigerian economy have not been stable over the years. As a result, the country’s economy has witnessed so many shocks and disturbances both internally and externally over the decades. Internally, the unstable investment and consumption patterns, as well as the improper implementation of public policies, changes in future expectations, and the accelerator, are some of the factors responsible for it. Similarly, the external factors identified are wars, revolutions, population growth rates andmigration, technological transfer and changes, as well as the openness of the country’s economy are some of the factors responsible. Fiscal policy is a major economic stabilization weapon that involves measures taken to regulate and control the volume, cost, and availability, as well as direction of money in an economy to achieve some specified macroeconomic policy objective and to counteract undesirable trends in the Nigerian economy (Gbosi, 2016). Therefore, economic stabilization cannot be left to the market forces of demand and supply and as well, other instruments of stabilization such as monetary and exchange rate policies among others, are used to counteract the problems identified (Ndiyo and Udah, 2013). This may include either an increase or a decrease in taxes, government expenditures, as well as public debt which constitute the bedrock of fiscal policy but in reality, government policy requires a mixture of both fiscal and monetary policy instruments to stabilize an economy because none of these single instruments can cure all the problems in an economy (Ndiyo and Udah, 2013). Advocates of government intervention in economic activity maintain that such intervention can spur long term growth. They cite the government’s role in ensuring efficiency in resource allocation, regulation of markets, stabilization of the economy, and harmonization of social conflicts as some of the ways in which government could facilitate economic growth. In the context of endogenous growth, government role in promoting accumulation of knowledge, research, and development, productive public investment, human capital development, law, and order can generate growth both in the short- and long-run [Osuala& Jones, (2014), Success, Success &Ifurueze, (2012), Okafor, (2012), Rena, R. (2011)]. Opponents hold the view that government operations are inherently bureaucratic and inefficient and therefore stifle rather than promote growth. It seems then that as to whether the government’s fiscal policy stimulates or stifles growth remains an empirical question. Even so, the existing empirical findings are mixed, with some researchers finding the relationship between fiscal policy and growth either positive, negative, or indeterminate. Nations the world over device comprehensive strategies directed towards the attainment of distinctive national goals.The transformation agenda of the present government is one such step.Nigeria has always witnessed well-articulated economic and social reforms intended to launch the nation on the path of meaningful development, (Abdul-Rahamoh,  Taiwo&. Adejare, 2013). The problem with past governments in Nigeria has always been non-achieving of the required results. However, results can only be achieved when the vision is clear to all, the goals are broken down into simple manageable success milestones and responsibility delegated on the basis of competence and result periodically reviewed and laced with the implementable fiscal policy framework, (Babalola&Aminu, 2011). The transformation Agenda is achievable only if we can break from the past and chart a new course in the implementation process more especially as it concerns fiscal policy management. We must realize that the primary goal of governance is to ensure that the services of a state are properly harnessed towards achieving an optimal quality of life for the people derived from the most feasible outcome of real gross domestic products’ measurement in Nigeria otherwise called good economy.

Higher government expenditure finance with borrowing may or may not contribute positively to the overall performance of the economy. For instance, if the government increases borrowing in order to finance its expenditure, it will compete (crowds-out) away from the private sector, thus reducing private investment or it may spend the substantive amount on servicing its existing liabilities that can otherwise be used for investment. Furthermore, in a bid to score cheap popularity and ensure that they continue to remain in power, politicians and government officials sometimes increase expenditure and investment in unproductive projects or in goods that the private sector can produce more efficiently. Thus, government activity sometimes produces misallocation of resources and impedes the growth of national output. In such cases, unfortunately, rising public debt for ever-mounting public expenditure will not be translated into meaningful growth and development. 

Statement of the problem

Over the years, there has been expansion in deficit financing and unstable fiscal policy, driven largely by oil prices between 1991 and 1992, and 2000 and 2002; revenueand expenditure have increased sharply. This, as typically seen, followed the reductionof expenditures as oil prices substantially decline, though at times with an interval afterthe decline in oil prices. The implications of such boom-burst fiscal policies includetransmission of oil-price volatility to the stable provision of government services. Thishas added to the failure over the years of public spending and stagnancy in economicgrowth. The Nigerian economy started experiencing recession from early 1980s that ledto a depression in the mid-1980s. This depression continued until early 1990s withoutrecovering from it. As such, the government continually initiated policy measures thatwould tackle and overcome the dwindling economy. Drawing from the experience ofthe great depression, government policy measure to curb the depression was in the formof increased government spending (Nagayasu, 2003). According to Okunroumu (1993),the management of the Nigerian economy in order to achieve macroeconomic stabilityhas been unproductive and negative, hence one cannot say the Nigerian economy isperforming. This is evident in the adverse inflationary trend, government fiscal policies,rippling foreign exchange rates, the fall and rise of gross domestic product,unfavourable balance of payments as well as increasing unemployment rates which are all symptoms of growing macroeconomic instability. As such, the Nigerian economy is unable to function well in an environment where there is low capacity utilization attributed to shortage in foreign exchange as well as the volatile and unpredictable government policies in Nigeria (Isaksson, 2001). Studies have been conducted on the impact of fiscal policy on economic growth of Nigeria as seen in the literature review and it has been discovered that emphasis is laid on the relative effectiveness of the fiscal policy components. Therefore, this research study will contribute to the stock of knowledge by considering the impact of fiscal policy on economic growth from 1986 to 2012 and the relative effectiveness of the fiscal policy instruments.

Research Questions

Therefore, the following questions will be examined in this study:

1. What is the trend and pattern of government expenditureon economic growth of Nigeria?
2. What are the effects of revenue on the economic growth of Nigeria?
3. What extent does public debt affect the growth of the Nigerian economy?

Objective of the Study

The broad objective of this study is to examine the effect of fiscal policy on economic growth in Nigeria from 1994 to 2018

1. To determine the trend and pattern government expenditureon economic growth in Nigeria.
2. To evaluate the effects of Public debts on economic growth in Nigeria
3. To ascertain how revenue affect the growth of the Nigerian economy.

Research Questions

1. To what extent does public debt affect the growth of the Nigerian economy?
2. What are the determinants of government expenditures on economic growth in Nigeria?
3. To what extent does revenue affect economic growth in Nigeria?

Statement of Hypothesis

The following research hypotheses have been formulated for testing this study:

Ho1:  There is no significant relationship between public debt and Nigerian economicgrowth.

Ho2:  government expenditure does not have any significant positive impact on Nigeria economic growth.

Ho3: There is no significant relationship between revenue and the growth of the Nigerian economic.

Scope of the Study

This study focuses exclusively on fiscal policy and its relationship with gross domestic product (GDP) in Nigeria.  The study appraises the impact of fiscal policy actions of the government for the period 1994 to 2018. This period of time is chosen due to the availability of data on the subject matter and the change in the economic structure of Nigeria in the year 1994. The study would make use of key variables such as tax, government debt, and government expenditure.

Significance of the Study

The research will be of immense benefit to the following:

1. Government and her agencies (CBN): The various findings of this study would enable the government and financial authorizes to devices, modify and adopt a better fiscal policy on the economy that is policy makers of the central bank of Nigeria who issue guideline governing international trade practices.
2. Banks especially the commercial banks: importantly, this study would help banks to identify the strength and weakness of each foreign exchange system and hence adopt the policy that suits their activities. This will definitely enhance growth and development of the economy of commercial banks in Nigeria.
3. Students of financial and banking: who might take a cue from the work done have to further research into the field of exchange rate fluctuations and international trade. Hence, the study will also serve as a guide to future researchers on this subject
4. The general public: who have a right to contribute and informed to the activities of our banking institutions. It is hoped that the, findings and recommendations of this study will be of great importance to the above mentioned group.

Limitation of the Study

The study is structured to evaluate the fiscal policy as the pilot of economy growth and development. The study is therefore limited to the core economic growth in Nigeria and not the socio-political factors of the foreign exchange rate. Although there are many economic variables that operate within the Nigeria economy, this study was also faced with certain constraints such as limited time frame with which to collect all necessary data.

1. Policy Lags:

During the recent times, there is not much argument about the desirability or otherwise of a discretionary fiscal policy. The burning question in this context is related with the timing of the fiscal measures. Unless the variations in taxes and public expenditure are neatly timed, the desired counter-cyclical effects cannot be realized.

There is generally some interval between the time when a particular action is needed and the time when a fiscal measure has its impact felt. The duration of this interval determines the extent to which a specific fiscal measure can be effective. This time interval comprises of three types of lags-recognition lag, administrative lag and operational lag.

2. Forecasting:

Another most serious limitation of fiscal policy is the practical difficulty of observing the coming events of economic instability. Unless they are correctly observed the amount of revenue to be raised, the amount of expenditure to be incurred or the nature and extent of budget balance to be framed cannot be suitably planned. In fact, success of fiscal measures depends on the accurate predictions of various economic activities. In its absence, it proves to be a little bit erratic.

3. Correct Size and Nature of Fiscal Policy:

The most important necessity on which the success of fiscal policy will depend is the ability of public authority to frame the correct size and nature of fiscal policy on the one hand and to foresee the correct timing of its application on the other. It is, however, too much to expect that the government would be able to correctly determine the size, nature of composition and appropriate execution-time of fiscal policy.

4. Fiscal Selectivity:

When monetary policy is general in nature and impersonal in impact, the fiscal policy, in contrast, is selective. The former permits the market mechanism to operate smoothly. The latter, on the contrary, encroaches directly upon the market mechanism and gives rise to an allocation of resources which may be construed as good or bad depending upon one’s value judgements. A particular set of fiscal measures may have an excessively harsh impact upon certain sectors, while leaving others almost unaffected.

5. Inadequacy of Fiscal Measures:

In anti-depression fiscal policy, the expansion of public spending and reduction on taxes are always important elements. The question arises naturally, whether a specific variation in public spending or taxes will bear the desired results or not. In case the injections or withdrawals from the circular flow are more or less than what are required, the system will fail to move in the desired direction. This results in exaggeration of instability in the econom 

 

CHAPTER TWO/REVIEW OF RELATED LITERATURE

2.1 Conceptual Review/Framework

The term fiscal policy has conventionally been associated with the use of taxation and public expenditure to influence the level of economic activities. Fiscal policy deals with government deliberate actions in spending money and levying taxes with a view to influencing macroeconomic variables in a desired direction. This includes sustainable economic growth, high employment creation and low inflation (Microsoft Corporation, 2004). Thus, fiscal policy aims at stabilizing the economy. Increases in government spending or a reduction in taxes tend to pull the economy out of a recession; while reduced spending or increased taxes slow down a boom (Dornbusch& Fischer, 1990). Fiscal policy involves the use of government spending, taxation and borrowing to influence the pattern of economic activities and also the level and growth of aggregate demand, output and employment. Fiscal policy entails government’s management of the economy through the manipulation of its income and spending power to achieve certain desired macroeconomic objectives (goals) amongst which is economic growth (Medee&Nembee, 2011). Peter and Simeon (2011) define fiscal policy as the process of government management of the economy through the manipulation of its income and expenditure and to achieve certain desired macroeconomic objectives. Central Bank of Nigeria (2011) defined fiscal policy as the use of government expenditure and revenue collection through tax and amount of government spending to influence the economy. In finance, fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are government taxation and expenditure. Geoff (2012) contended that fiscal policy involves the use of government spending, taxation and borrowing to affect the level and growth of aggregate demand, output and jobs creation. It is the government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation‟s economy. From all these definition, it was deduced that one of the regulatory policies used by government in achieving its objectives to bring about economic growth is fiscal policy. Fiscal policy is an outgrowth of Keynesian economics; its logical analysis suggests that it offers a sure-fire means of stabilizing the economy. The goal of modern fiscal policy is to achieve economic efficiency and stability. In a modern economy, no sphere of economic life is untouched by the government. Two major instruments or tools are used by government to influence private economic activity; taxes and expenditure but not limited to these two, it may include public debt, public work among others.

Fiscal policy is undoubtedly one of the most important tolls used by government to achieve macroeconomic stability of the economy of most developing countries (Ihendinihu, Jones &Ibanichuka, 2014)). Therefore, the attempt to empirically test the efficacy of monetary and fiscal policy in an economy dates back to the pioneering studies of Friedman and Easterly and Rebelo, (1993) empirically investigated the responsiveness of general price level on economic activity represented by aggregate consumption to change in money supply and autonomous government expenditure using ordinary simple linear regression model to estimate the US data from 1897-1957. In their conclusion, they found out that a stable and predictable causal relationship existed between demand and money supply while no such significant relationship was observed for government expenditure (Abdul-Rahamoh,  Taiwo&. Adejare, 2013). Hence, there was a stable aggregate and money supply for the period. According to Ogbonna&Appah (2012), in his article unit root of variables tests confirm that the model assumed the irrelevance of anticipated monetary policy for short-run deviations of domestic output from its natural level. Therefore, only the unanticipated components of external price changes in the level of external economic activity leads to the deviation of domestic output from natural and observed that monetary tightening once anticipated in an economy would have no effect on real domestic output in the short-run. Also, Okafor,  (2012) in his study “Tax Revenue Generation and Nigeria Economic  Development” analyzed the monetary and fiscal policy implication Nigeria’s full employment level. However, on the other hand, all the fiscal variables significantly reduced unemployment in Nigeria. This except one was highly significant in reducing the level of unemployment generation in Nigeria than monetary policy measure. Also, Ajisafefolorunso (2001) in their study found out that monetary policy rather than fiscal policy exerts a great influence on economic activity in Nigeria. They therefore observed that the emphasis of government fiscal actions on the economy has led to a greater distortion of the Nigerian economy. Appah,  (2010) in his study, ‘The Relationship between fiscal policy and Economic growth in  Nigeria (1991–2005)’ also confirms that thegrowth of financial aggregates in real terms have positive impact on economic growth of development countries, irrespective of the level of economic development attained.

2.1.1 Concept of Economic growth

Growth Economic growth has long been considered an important goal of economic policy with a substantial body of research dedicated to explaining how this goal can be achieved (Fadare, 2010). Economic growth has received much attention among scholars. According to Khorravi and Karimi (2010), classical studies estimate that economic growth is largely linked to labour and capital as factors of production. The emergence of the endogenous growth theory has encouraged specialists to question the role of other factors in explaining the economic growth phenomenon (Bogdanov, 2010).

Economic growth represents the expansion of a country‟s potential GDP or output. For instance, if the social rate of return on investment exceeds the private return, then tax policies that encourage can raise the growth rate and levels of utility. Growth models that incorporate public services, the optimal tax policy lingers on the characteristic of services (Olopade&Olopade, 2010). Economic growth has provided insight into why state growth at different rates over time; and this influence government in her choice of tax rates and expenditure levels that will influence the growth rates.

 

2.2 Review of Related Theories

2.2.1 The Savers-Spenders Theory of Fiscal Policy

Savers-Spenders theory of fiscal policy was developed by Mankiw (2000) and used by Matsen, Sveen and Torvik (2008). This theory was developed because of the inconsistency of Barro-Ramsey (1974) theory of infinitely-lived families and DiamondSamuelson (1965) theory of overlapping generation respectively.  Savers-Spenders theory is the new theory developed to explain the behaviour of fiscal policy in the economy. The theory is based on some propositions (Mankiw, 2000).  The first proposition is on temporary tax changes having large effects on the demand for goods and services. This proposition states that the higher take-home pay that spenders received will be offset by higher tax payments, or by lower tax refunds. The implication is that consumers should realize that their lifetime resources were unchanged  and  therefore,  should  save  the  extra  take-home  pay  to  meet  the  upward  tax liability.

The second proposition is on government debt in relation to crowd out capital in the long-run. This proposition states that extra consumption of spenders as aresult of a tax cut financed by debt reduces investment, which in turn raises marginal product of capital and thus the interest rate. The higher interest rate therefore induces savers to save more, their higher savings continues until the marginal product of capital is driven back to their rate of time preference, thus, temporary decrease in the level of economic growth. It is to be noted that this proposition holds when tax is lump sum. The third proposition states that government debt increases steady-state inequality. This means that a higher level of debt means a higher level of taxation to pay the interest on debt. The tax will fall on both the savers and the spenders but the interest payment will go entirely to the savers. The implication of this is that a higher level of debt raises the income and consumption of the savers and lowers the income and consumption of the spenders. Thus, a higher level of debt raises the steady-state inequality in income and consumption.

2.2.2 The Classical Theory of Economic Growth

When  Adam  Smith  wrote  his  famous  1776  treatise  called  “An  Inquiry  into Nature  and Causes  of  the  Wealth  of  Nations”.   Some  academics  pointed  out  that  he  was  involved predominantly  with  economic  growth.   Smith hypothesized a supply-side-determined model ofgrowth. According to him, population growth was endogenous—it depends on the accessibility to life sustaining needs and it has the capacity for the increasing workforce; Investment was  also  endogenous—established  by  the  rate  of  savings  (mostly  by  capitalists);  land growth  was  reliant  on  invasion  of  new  lands  (e.g.  Colonisation)  or technological enhancement of fertility of old lands. Technological advancements could also add to overall growth. Smith’s renowned thesis that the division of labour (specialisation) enhances growth was an essential argument. Smith also saw developments in machinery and international trade as engine of growth as they aided further specialization. He also assumed that “division of labouris restricted by the size of the market”, thus speculating an economies of scale dispute. Therefore, he argued that growth was self-fortifying as it demonstrates increasing returns to scale. Lastly, because savings of capitalists is what generates investment and hence growth, he saw the allocation of income as being one of the most significant determinants of how fast (or slow) a nation would grow.  Smith’s model of growth remained the main model of Classical Growth. David Ricardo (1817) adjusted it by incorporating diminishing returns to land. Output growth demands growth  of  factor  inputs,  but,  unlike  labour, land  is  “variable  in  quality  and  fixed  in supply”.   This  means  that  as  growth  continues,  more  land  must  be  taken  into development,  but  land  cannot  be  “produced”. This has two consequences for growth: firstly, raising land owner’s rents over time (due to the limited supply of land) cut into the proceeds of capitalists from above;

Secondly, earnings from goods (from agriculture) will be rising in price over time and this then cuts into profits from below as workers require higher wages.  This,  then,  brings  in  a  quicker  limit  to  growth  than  Smith  allowed,  but Ricardo  also  asserted that  this  fall  off  can  be  freely  curbed  by  technological advancements  in  machinery  (although,  also  with  diminishing  productivity)  and  the specialization brought by trade, although he also  had static states.  Ricardo’s description is somewhat more pessimistic than Smith’s. The decisive depressing picture, however, was painted by T.R.  Malthus (1796) with his famous assertion that if population growth was not curbed, it would rapidly surpass growth and cause rising depression all around.

2.2.3 The Keynesian Theory of Economic Growth

The Keynesians are the twentieth century economists who embraced and also broadened John  Maynard  Keynes’  principle  in  the  existence  of  incessant unemployment equilibrium,  dissimilar  to  the  classical  economists  idea  on  Say’s  law  of  market  arguing that  market  economy  are  self-adjusting  therefore  there  is  no  need  for  the  government involvement in the economy. They believe that fiscal policy and not monetary policy is the most powerful policy measure to make the economy stable and move it forward. They are sometimes referred to as Demand-side

Economists. Keynes accepts that the forces of demand and supply could not attain full employment condition. Keynesians therefore  insisted that only  government  interference  (public sector) through the  use  of  unrestricted  policy  measures  would  take  the  free  enterprise  economy  out  of depression  and  ensure  steady  growth.  Variations in savings and investments are responsible for modifications in business activities and employment in an economy.

2.2.4 The Neo-Classical Theory of Economic Growth

It is not far wrong to say that the father of a modern neo-classical growth theory is Robert Solow. Solow’s (1956) idea was to clarify economic growth by taking into account technological advancement, i.e., permitting it to decide growth outside the previous so-called post-Keynesian theory, where the   interference   taken   by public sector is seen as the main engine for economic growth. Beginning from the classical economists, it has been under examination for a long time to scrutinize why growth rates differ in various countries and what are the fundamental issues in constructing economic development. The essential postulation is that the step up of factors of production is the simplest way to attain better economic growth. Traditional factors of production are: natural resources, physical capital, and labour. In neo-classical growth theory models, the postulation is that in the long run, with diminishing returns to capital, a nation’s per capita growth rate tends to be inversely related to its initial level of income per person (Barro, 1990). In other words, this would mean that countries should come together over time and thus, inequality between countries should reduce. However, empirical data does not support this assumption. According to Barro (1990), after the post-war period, per capita growth rates in 100 countries are uncorrelated with the starting level of per capita product. In neoclassical growth theories, the major dilemma is the linear ways of reasoning about how the world is being formed. If input is about to multiply, it has a direct influence on output and the impact is also positive. The fundamental rule is more resources, more outcomes.   However, it is not as easy as that. There  are  excess literature  asserting  that  the  production  procedure  cannot  be  moved  from  one  place  to another with total ease and  flexibility. This is also the explanation for why the meeting between countries, as neoclassical theories would propose, does not happen. In every case, the observable fact is associated to its environment, such as people, infrastructure, political atmosphere etc. Neo-classical growth theories also emphasized the position of technological change as an exogenous factor. Especially in Solow’s expression, technological   change is an act of economic growth, but it is an exogenous factor and hence it is called a “public good”. Besides the exogenous nature of technological alteration, Solow and neo-classicalists have many postulations, such as perfect markets, perfect knowledge in the markets, utility maximization, no spillovers, and positive and reducing marginal revenue (Solow, 1956). One could simply argue in opposition to a number of these assumptions, for example, perfect markets and perfect knowledge in the markets, but such assumptions are basic to this   model   of   study.  Solow’s   neo-classical   growth   theory   has   beenable   to practically give details on two-thirds of countries economic growth. Nonetheless, more recently, the center on studying economic development and growth, both on a national and   regional level has been more on knowledge, spillovers, and innovations.

2.2.5 The Endogenous Growth Theory

Due to the fact that Solow’s theory could not give details on all models of economic growth, new theories were developed. One of these is the new theory of growth, also known as endogenous growth theory, developed by Paul Romer. Romer’skey line of reasoning is that technological alteration is not “a manna from heaven” and its trends and degree can be directed. If this is the case, technology can then be made endogenous to growth, rather than being an exogenous factor as in Solow’s model. In addition to this, human capital and investments in innovations can then be perceived to be vital in the process. The new growth theory views knowledge as a public good (Romer, 1990). In general, the new growth theory exists in complete difference to the law of diminishing returns, due to the fact that the law of diminishing returns implies that output reduces if we increase the inputs. However, over the last 100 years, output in developed countries has increased  and  the  new  growth  theory  attributes  this  to  an  overflow  of  knowledge  and innovations.

 

2.3 Empirical Review

Researchers have attempted to examine the effect of fiscal policy on economic growth in different countries and periods, using different techniques. Amongst many others are the following:

Khosravi and Karimi (2010) studied the relationship between monetary policy, fiscal policy, and economic growth in Iran for the period 1960 to 2006 using Autoregressive Distributed Lag (ARDL) cointegration approach and they found out that the impact of exchange rate and inflation on growth was negative, but government expenditure was found to have a significant positive impact on growth. Olawunmi and Tajudeen (2007) used solow growth model and ordinary least squares method in analyzing the impact of fiscal policy on the Nigerian economic growth between 1981 and 2004, they found out that there is no significant impact of fiscal policy variables on economic growth in Nigeria Onyemaechi (2014) studied the impact of fiscal policy components on economic growth in Nigeria using Augmented Dickey-Fuller (ADF) test model and cointegration test and he found out that government expenditure on economic services and transfer payments have not yielded positive results as regards economic growth in Nigeria though statistically insignificant, expenditures on administration as well as social and community services yielded positive results in improving economic growth in Nigeria. Ozougwo (2012) assessed the impact of fiscal policy on the economic growth of Nigerian for the period 1978 to 2011 using the Augmented Dickey-Fuller (ADF) test of stationarity and granger causality test. The result showed that taxation has an insignificant negative influence on economic growth although it granger-causes economic growth. On the other hand, deficit financing revealed an insignificant positive effect and a bi-directional causality on economic growth while government expenditure has an indisputable, significant, and positive effect (but lacks causality) on economic growth in Nigeria.

2.4 Summary of Empirical Review

S/N	Author	Year	Area	Topic	Methodogy	Variable	Finding
1.	Khosravi and Karimi (2010	1960 to 2006	Iran	Relationship between monetary policy, fiscal policy, and economic growth in Iran	Autoregressive Distributed Lag (ARDL)	monetary policy, fiscal policy	the impact of exchange rate and inflation on growth was negative
2.	Olawunmi and Tajudeen (2007)	1981 and 2004	Nigerian	the impact of fiscal policy on the Nigerian economic growth	solow growth model and ordinary least squares method	fiscal policy	they found out that there is no significant impact of fiscal policy variables on economic growth in Nigeria
3.	Onyemaechi (2014)	1999 to 2012	Nigeria	impact of fiscal policy components on economic growth in Nigeria	Augmented Dickey-Fuller (ADF) test model and cointegration test	government capital expenditure, government recurrent expenditure, public external debt and public domestic debt	he found out that government expenditure on economic services and transfer payments have not yielded positive results as regards economic growth in Nigeria though statistically insignificant, expenditures on administration as well as social and community services yielded positive results in improving economic growth in Nigeria.
4.	Ozougwo (2012)	1978 to 2011	Nigerian	the impact of fiscal policy on the economic growth of Nigerian	Secondary data the Augmented Dickey-Fuller (ADF) test of stationary and granger causality test	government capital expenditure, government recurrent expenditure, public external debt and public domestic debt	The result showed that taxation has an insignificant negative influence on economic growth although it granger-causes economic growth.
5.	Vladimirov and Neicheva (2008)	1999 to 2014	Bulgaria.	the stabilizing role of fiscal policy in Bulgaria during the period of European Union (EU) accession.	regression analysis approach	real gross domestic product	the found out that a negative relationship exists Between the discretionary expenditure interventions and the short-run output growth.
6.	Iyeli and Azubuike (2013	1970 and 2011	Nigeria	the impact of fiscal policy variables on Nigeria’s growth	co-integration and Error Correction Mechanism (ECM) techniques	real gross domestic product	The result revealed that there exists a long-run equilibrium relationship between economic growth and fiscal policy variables.
7.	Akanni and Osinowo (2013) examined	1970 to 2010	Nigeria	effect of fiscal instability on economic growth in Nigeria	The cyclical effect of fiscal spending components were measured using the HodrickPrescot (HP) where fiscal spending components and output were filtered with the correlation technique	real gross domestic product and real total fiscal spending	Results indicated that between 1970 and 1985, both real gross domestic product and real total fiscal spending were highly volatile. However, total fiscal spending appears to be counter-cyclical from 1970 to 1986. But from 1987 to 2010, the variation in total fiscal spending was relatively unstable.
8.	Ogbole et al (2011)	1970 to 2006	Nigeria	fiscal policy and economic growth in Nigeria	the Augmented Dickey-Fuller (ADF) test and Johansen’s co-integration test	. real gross domestic product (dependent variable) and government capital expenditure, government recurrent expenditure, public external debt and public domestic debt  (independent variable)	The result of the analysis showed the existence of causal relationship between the variables with a unidirectional causality running from government expenditure to GDP.
9.	Munongo (2012)	1980 and 2010	Zimbabwe	the effectiveness of fiscal policy in spurring economic growth in Zimbabwe	the Augmented Dickey-Fuller (ADF) technique after which the co integration test was conducted using the Johansen Approach and Error Correction Models were estimated to take care of short-run dynamics.	real gross domestic product (dependent variable) and government capital expenditure, government recurrent expenditure, public external debt and public domestic debt  (independent variable)	The results indicated that government consumption expenditure and income tax positively impacted economic growth during the period of coverage but capital expenditure by the government has a negative effect and a long-run relationship exists between them as confirmed by the co integration test.
11.	Appah (2010)	1991 to 2005	Nigeria	the effects of fiscal policy on the economic growth of Nigeria	he utilized multiple regression for the analysis of the data	real gross domestic product (dependent variable) and government capital expenditure, government recurrent expenditure, public external debt and public domestic debt  (independent variable)	the result indicated that a significant relationship exists between the explanatory variables taken together and the gross domestic product, and no significant relationship between the specific explanatory variables contributing to the gross domestic product except government recurrent and capital expenditures.
12.	Imoisi (2013	1970 to 2009	Nigeria	the problems surrounding the procedures of fiscal policy and their influence on economic growth in Nigeria	the Ordinary Least squares (OLS) technique of multiple regression models	real gross domestic product and government expenditure and taxes	The regression result also showed that tax was not properly significant and this could largely be credited to poor tax administration in Nigeria and over-dependence of the government earnings from crude oil in funding her projects.
13.	Okoro (2013)	1980 to 2011	Nigerian	the impact of government spending on the Nigerian economic growth.	the Ordinary least Squares (OLS) multiple regression analysis	real gross domestic product and government expenditure and taxes	the result showed that there exists a long run equilibrium relationship between government spending and economic growth in Nigeria. The short-run dynamics adjusted to the long-run equilibrium at the rate of 60 percent per annum.
14.	Egbetunde (2012)	1970 and 2010	Nigeria	causal nexus between public debt and economic growth in Nigeria	Augmented Dickey-Fuller (ADF) and Philip Perron (PP) tests	external debt value, domestic debt value, total debt value, and budget deficit figure.	the result showed that the variables are stationary at first differencing. Co-integration test was performed and the result revealed the presence of co-integration between public debt and economic growth, it showed that public debt and economic growth have long-run relationship. The findings of the VAR model revealed that there is a bi-directional causality between public debt and economic growth in Nigeria
15.	Amassoma et al (2011)	1970 to 2010.	Nigeria	the linkage between the components of government spending and economic growth in Nigeria	the Error Correction Modelling approach	external debt value, domestic debt value, total debt value, and budget deficit figure.	the result of the study showed that expenditure on agriculture had a significant influence on economic growth while expenditure on education, health, and transport and communication sectors had Insignificant influence on the economic growth of the nation.
16.	Egbetunde and Fasanya (2013)	1970 to 2010	Nigeria	the long run and short run relationships between public expenditure and economic growth in Nigeria	Auto-Regressive Distributed Lag approach	external debt value, domestic debt value, total debt value, and budget deficit figure.	The findings indicate the impact of total public spending on growth to be negative. Recurrent expenditure however was found to have little significant positive impact on growth.
17.	Ajibola and Nwakahma (2013)	1981 to 2011	Nigeria	investigated the long run relationship between government expenditures and a set of macroeconomic variables (GDP, Consumer Price Index, and Unemployment)	using Johansen multivariate co-integration for the estimation procedure	government expenditures and a set of macroeconomic variables (GDP, Consumer Price Index, and Unemployment)	They discover that there is a long run relationship between government expenditure and the specified macroeconomic variables. They also discover that an increase in capital expenditure improves economic growth, while an increase in recurrent expenditure is detrimental to growth.
18.	Umaru and Gatawa (2014)	1970 to 2011	Nigeria	examined the impact of fiscal deficit and a disaggregated government expenditure on economic growth in Nigerian	using Auto-Regressive Distributed Lagged approach	government capital expenditure ,fiscal deficit	The ARDL estimation revealed that the national output changes at a rate of 0.1005 in response to a unit change in fiscal deficit while it changes at a rate of 0.06221 in response to a unit change in government capital expenditure.
19.	Benos (2009)	2002 to 2016	Belgium, Denmark, Germany, Ireland, Greece, Italy, Luxembourg, Netherlands, Austria, Portugal, Finland, Sweden, and the United Kingdom.	examined fiscal policy and economic growth in European Union (EU) countries	Ordinary Least Squares method of multivariate regression	public expenditure, government expenditures	He found that public expenditure on infrastructure, that is, economic affairs and general public services exerted a positive impact on economic growth. He found that government outlays on property rights protection, e.g., defence, public order or security have a positive effect on per capita growth and the distortionary taxation depresses economic growth. He also found that government expenditures on human capital enhancing activities (such as education, health, housing, community amenities, environmental protection, and recreation-culture-religion) and social protection do not have significant effect on per capital growth.
20.	Medee and Nenbee (2011)	1970 and 2009	Nigeria	investigated the impact of fiscal policy variables on Nigeria’s economic growth	method of Vector Autoregression (VAR) and Error Correction Mechanism (ECM) technique.	government recurrent and capital expenditures	The result revealed that there exists a long-run equilibrium relationship between economic growth and fiscal policy variables in Nigeria.
21.	Nathan (2012)	1970 and 2010	Nigeria	evaluated the causal relationship between money supply, fiscal deficits and exports as a means of analysing the impact of policy on the growth of the Nigerian economy	the co-integrated Error Correction Mechanism (ECM)	government recurrent and capital expenditures	The study reveals that there is a significant causal relationship between GDP and the variables used in the research
22.	Fasoranti (2013)	1970 to 2009	Nigeria	examined the productivity of tax revenue and its relationship with the growth of the economy	the OLS regression method	government expenditure, tax revenue	The result showed that tax productivity was generally low as reflected in the elasticity indexes of the tax revenue showing that they are not responsive to the growth of the economy
23.	Ayuba (2014)	1993 to 2012	Nigeria	analysed the impact of non-oil tax revenue on economic growth	OLS regression analysis method and the Error Correction Mechanism.	capital and recurrent expenditures of government	The result showed that there exists a positive impact of non-oil tax revenue on economic growth in Nigeria. Also, the error correction term showed that the series is non-explosive and that long run run equilibrium is indeed attainable.

 

2.5 Gap in Literature

Several research works have been carried out to investigate the relationship between fiscal policy and economic growth in Nigeria. These studies however do not lay emphasis on the relative effectiveness of the fiscal policy components. Having found this gap, this study would therefore fill such gap by examining the effect of fiscal policy on the economic growth of Nigeria from 2004 to 2018 and the relative effectiveness of the fiscal policy instruments.

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Abstract

This study examines the effect of cashless policy on the Nigerian economic growth. Nigeria has continued to evolve in different realms. The economy is being reformed, the institutions are being reshaped and legislations are being re-examined so as to reposition the nation to take its rightful position in the international community. As a way of fast-tracking the Nigerian economy so as to he among the first 20 world economies come 2020, Nigeria has proposed that come 2012 it will adopt the cashless economic system. In carrying out the study the researcher adopted descriptive survey research design in order to make use of primary data using questionnaire as an instrument for data collection. The questionnaires were distributed to a sample size of 310 respondents randomly selected and the data collected were analyzed and the two hypotheses formulated were tested using non-parametric tool of chi square to determine the relationship and effect of the cashless policy on the Nigerian economy. The result of the findings have shown that cashless policy has positive relationship with and effect on Nigerian economy but it would require huge amount of capital on technology and other facilities needed for smooth operation of the policy. The researcher therefore recommended that government in collaboration with CBN and other financial institutions should provide adequate infrastructures, e-payment facilities, securities, steady power supply and adequate enlightenment of people on the benefits and proper usage of the system for effective implementation of the policy in order to ensure economic growth and development in Nigeria otherwise there would be economic decline.

CHAPTER ONE/INTRODUCTION

1.1     Background to the Study

The recent evolution of technology for financial transactions poses interesting questions for policy makers and financial institutions regarding the suitability of current institutional arrangements and availability of instruments to guarantee financial stability, efficiency and effectiveness of monetary policy. Over the course of history, different forms of payment systems have been in existence. Initially, ‘trade by barter’ was common; however, the problems of barter such as the double coincidence of wants necessitated the introduction of various forms of money (Swartz et al, 2004). Nevertheless, analysts have been predicting the complete demise of study instruments and the emergence of potentially superior substitute for cash or monetary exchanges, that is, ‘cashless society’.

Unlike the barter system which involves the exchange of one good for another, a cashless environment refers to one in which transactions are carried out with minimal exchange of physical cash. It implies that the payment instrument is not physical cash but other instruments such as cheques, electronic transfers, e-payment and so on. The rapid advancement in electronic distribution channels has produced tremendous changes in the financial industry in recent years, with an increasing rate of change in technology, competition among players and consumer needs as argued (Hughes, 2001). Since Nigeria‘s Independence in 1960, there have been different governments, constitutional reforms, change in economic policies and banking reforms, mainly directed at enhancing social welfare and achieving developmental goals but there has been no substantial positive change in Nigeria‘s Human Development Indicators. This also calls to question the effectiveness of the cash-less policy of the Central Bank of Nigeria (CBN). At the end of the 1980s, the use of cash for purchasing consumption goods in the US has constantly declined (Humphrey, 2004). Hence, most LDCs (Less Developed Countries) like Nigeria are on the transition from a pure cash economy to a cash-less ‘one for developmental purposes’. Little wonder why the Central Bank of Nigeria recently introduced a cashless policy. Thus, as part of its regulatory functions, the Central Bank of Nigeria, issued a circular dated April 20, 2011 in which it conveyed to operators and the banking public its decision to introduce a cash less banking policy into the Nigerian financial system with effect from January 1, 2012 using Lagos as the pilot programme that is the policy kick-starts from Lagos and eventually all over the other states in the nation. To enforce the implementation, the Central Bank had, in a circular April last year, declared that “commencing from June 1, 2012, a daily cumulative limit of N150,000 and N1,000,000 on free cash withdrawals and lodgements by individuals and corporate customers respectively with deposits money banks shall be imposed.” Following public outcry, the daily cash withdrawal and deposit limit was raised to N500,000 and from N1,000,000 to N3,000,000 for corporate accounts.

According to CBN, the new cashless policy was introduced for a number of key reasons, including, To drive development and modernization of our payment system in line with Nigeria‘s vision 2020 goal of being amongst the top 20 economies by the year 2020. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth. To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach and to improve the effectiveness of monetary policy in managing inflation and driving economic growth. In addition, the cash policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including: high cost of cash: high risk of using cash, high subsidy, informal economy and inefficiency & corruption (CBN, Website, 2011). Regarding this context, the study seeks examine the cashless economy by exploring its impact on the Nigerian economy.

EFFECT OF CASHLESS POLICY ON THE NIGERIAN ECONOMY (A CASE STUDY OF EBONYI STATE)

1.2     Statement of the Problem

As more payment systems have been introduced, pundits have been predicting the emergence of a cash less society’. Today, we still pay with cash and checks, but several other payment instruments, such as credit and debit cards, are widely used. The use of paper money is more declining, but at a rather slow pace. As it were, Nigeria is a country heavily dominated by cash and there are some factors that negatively affect the choice of cash over non-cash instruments, some of these include time spent in counting and verifying cash, susceptibility to loss, time spent in the banking halls, amongst others (Nnanwobu et al, 2011).

A cash-based economy is one which is characterized by the psychology to physically hold and touch cash a culture informed by ignorance, illiteracy, and lack of security consciousness and appreciation of the merit of digital payment (Ovia, 2002). Cash, as a payment system, attracts lots of negative consequences such as high cost of handling cash, risks of using cash and keeping them in houses which eventually lead to high rate robbery, financial loss in the case of fire and flooding incidents. High cash usage results in lots of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth. Also high cash usage enables corruption, leakages, money laundering, counterfeiting, mis-management, mutilation and depreciation in value if not invested. Some or most of these factors are one which exists in the Nigerian economy today thus creating gap for this current study.

In Nigeria today, infrastructure is a major problem that hinders the money deposit banks from attaining full potential in terms of certain policy implementations and its impact on financial transactions in the banking industry. The infrastructure in Nigeria over the years has not been reputable and thus has given way to ineffectiveness to the sincerity in financial transactions in the banks. The level of technology in the nation is rather poor and increasing at a slow pace and as such hasn’t given room for major development and policy implementations that may have risen. The technology available for carrying out banking transactions are not as effective as they ought to be therefore leaving people with no other choice than to keep cash in their houses in order to avoid having to spend lots of time in the banking halls due to low servers, interrupted power supply, bad internet services. Illiteracy and the low level of education of people does nothing else than leave people in the dark and therefore results into the inability of the people to understand when developments are being put into place. Many people do not see the need to keep their money in the banks or invest them due to the lack of understanding they have and also insufficient publicity and awareness measures are what have being in existence which if dealt with would at least reduce the lack of understanding of many and make them see viable reasons why they should keep their money in the banks and invest them other than keep them in their houses as a route to the safety of many lives and better growth of the economy and as such increase the standard of living. This of course, is  the motivation behind this study.

As a matter of fact, the demand for money is being taken in terms of demand deposits in banks and liquid assets outside the banks that is the average willingness of people to either hold money in cash or keep it as demand deposits in the banks effects the activities of commercial banks in controlling the amount of money in circulation, which in turn determines the hold of the CBN on the economy in terms of monetary policy implementations. The analysis of banking innovations and the response of the public towards them would help determine the hold of the Central Bank of Nigeria (CBN) on the extent to which they have been able to foster financial transactions in money deposit banks across the nation.

The introduction of E-commerce has made room for various tools in transacting business, although not all of these tools have been fully utilised. The new policy adopted is such that has been made to affect the whole economy and to put in full use all of these tools which include the monetary and fiscal policies, and in turn will maximise the effort of the e-commerce innovation.

1.3 Objectives of the Study

The general objective of this study was to examine the impact of Cashless policy on Nigerian economic growth. However, the specific objectives were:

• To determine the degree of the relationship between cashless policy and Nigerian economy.
• To ascertain empirically the impact of cashless policy on Nigeria economic growth.

1.4     Research Questions

In order to carry out this study effectively these research questions were made:

• To what degree does cashless policy relate to the Nigerian economy?
• To what extent does the policy effect the Nigeria economic growth?

1.5 Research Hypothesis

The following research hypotheses were formulated and tested for the study:

H_o– Cashless policy does not relate to the Nigerian economy.

H₁-Cashless policy relate to the Nigerian economy.

H_o -Cashless policy has no effect on the Nigeria economic growth.

H₁-Cashless policy has effect on the Nigeria economic growth.

1.6   Significance of the Study

This study will be of immense benefit to the following persons:

It would add the new knowledge generated to the existing knowledge of the researcher.

It will increase the volume of literature in the institution’s library. It will serve as a reference material to people who would want to carry out further research study on this topic in future.

It will also assist bankers, business analysts and policy makers on monetary policy formulation and effective decision making.

It will help the general public who may have time to go through the findings and recommendations of this study to gain knowledge as regard to the benefits and challenges of introducing the policy in Nigerian economy.

1.7     Scope and Limitation of the Study

This study is geographically limited to Nigeria. It would have  include both human and material resources drawn from banking sector for effective study due to large population involved, it is limited to Abakaliki metropolis in  Ebonyi State, one of the 36 States of the federation. However, the major constraints of this study are the attitudes of some respondents who deliberately and out of bias refuse to disclose some relevant information needed for successful completion of this study; there was insufficient fund to be able to gather enough data and materials needed for this study due to non-reliable source of income of the researcher and time given to carry out this empirical study was very short and therefore inadequate comparing to the nature of this empirical study. Despite that the researcher endeavoured to make effective use of the available resources at her disposal to ensure that this study became successful.

1.8 Definition of Terms

Access Products — Products that allow consumers to access traditional payment instrument electronically, generally from remote locations.

ATM Card — An ATM(Automated Teller Machine) card is also known as a bank card, client card, key card, or cash card, is a payment card provided by a financial institution to its customers which enables the customer to use an automated teller machine (ATM) for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.

CBN- Central Bank of Nigeria.

Chip Card — Also known as an integrated circuit (IC) Card. A card containing one or more computers chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.

Electronic Data Interchange (EDI) — The transfer of information between organizations in machine readable form.

Electronic Money — Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Internet Banking- This is a product that enables the Bank leverage on the Internet Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.

Mobile Banking – This is a product that offers Customers of a Bank to access services as you go. Customer can make their transactions anywhere such as account balance, transaction enquiries, stop checks, and other customer’s service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balances, updates and history, Customer service via mobile, Transfer between accounts etc.

Payment System — A financial system that establishes that means for transferring money between suppliers and of fund, usually by exchanging debits or Credits between financial institutions. Point Of Sale (P05) Machine – A Point-of-Sale machine is the payment device that allows credit/debit cardholders make payments at sales/purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement etc.

Smart Card — A Card with a computer chip embedded, oh which financial health, educational, and security information can be stored and processed.

Transaction Alert – Our customers carry out debit/credit transactions on their accounts and the need to keep track of these transactions prompted the creation of the alert system by the Bank to notify customers of those transactions. The alert system also serves as notification system to reach out to customers when necessary information need to be communicated.

Western Union Money Transfer (WUMT) – Western union Money transfer is a product that allowed people with relatives in Diaspora who may be remitting money home for family up-keep, Project financing, School fees etc. Nigerian Communities known for having their siblings gainfully employed in other parts of the world are idle markets for Western Union Money Transfer.

EFFECT OF CASHLESS POLICY ON THE NIGERIAN ECONOMY (A CASE STUDY OF EBONYI STATE)

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Evaluation of Poverty Alleviation Programmes in selected Local Government areas of Osun State

CHAPTER ONE/INTRODUCTION

Local government exists to fill the gap, which the national government is too remote to fill. This means that local governments complements and extends the national government. It has been recognized as one important instrument for economic development, rural development and for the delivery of social services development at the grassroots level. It is therefore charged with the outrageous problem of poverty and its alleviation.

In Nigeria, local government as the third tier of government nearest to the people has been recognized as an institution capable of transforming the rural area. Consequently, there have been continuous attempts to create new local governments or restructuring the existing ones in the country with the objective of utilizing them as fulcrums for achieving economic development through series of programs which poverty alleviation is basically part of.

There has been increasing upsurge of interest in the literature of development administration and in planning circles on the positive role local government play in poverty alleviation. The emphasis is in terms of using local government as a strategic instrument for fostering, promoting and implementing economic development projects for alleviating poverty.

1.1 GENERAL BACKGROUND TO THE STUDY

Absolute poverty has to do with living below whatever is defined as poverty line based on per capita income or consumption of individuals or households in a country. Successive governments have pursued different policy initiatives with a view to mitigating the problem. In spite of large scale investment committed to poverty alleviation programmes, >50% of Nigerians still live in relative poverty with over a third of the population languishing in extreme poverty.

The local government system is set up, at least in part, to help curtail the prevalence of poverty. The paper is aimed at an evaluation of to what extent this objective is being pursued and addressed by Nigerian local governments using some selected Local Governments in Osun State as case studies. People in Nigeria like others in other sub – Saharan Africa and South Asia remain the poorest in the world. In 1992 between 45 and 50% of the approximately 525 million people in sub-Saharan Africa (Nigeria inclusive) were estimated to be living below poverty line. As once opined “The depth of poverty in sub-Saharan Africa (SSA) is typically higher than anywhere in the world” (World Bank, 1995a: 12-13). The picture is not different in Nigeria. The situation in Nigeria calls for more than mere formulation and execution of programmes and projects for poverty alleviations.

In a bid to overcome poverty, Governments initiated different policies and programmes since 1968 till date to alleviate it. These programmes include: Directorate of Food, Roads and Rural Infrastructure (DFFRI), Better Life Programme (BLP), Directorate of Employment (NDE); People’ Bank of Nigeria (PBN); Community Bank (CB); Family Support Programme (FSP); Family Economic Advancement Programme (FEAP); Poverty Eradication Programme (PEP); National Poverty Eradication Programme (NAPEP); and National Economic Empowerment Development Strategy (NEEDS), Osun State Youth Empowerment Scheme (O YES) whose aim were to ameliorate the suffering of the people by providing them employment opportunities and access to credit facilities to enable them establish their own businesses. All these programmes are done in the respective Local Governments though control by the National Government and some by State Government.

The study identified a whole gamut of factors militating against local governments contributing as they should to the issue of poverty alleviation; also examine the severity, spread and depth of poverty in the local governments. Therefore calls for deliberate conscious and well-focused efforts to poverty alleviation.

1.2  OBJECTIVES OF THE STUDY

The creation of local government by the federal or state government is to bring government closer to the people and also foster the development of the local citizenry. To this, he must look for every means possible to alleviate poverty within his domain. The broad objective of the research is to;

1. To take a look at the possible solutions to Poverty in the selected Nigerian Local Governments.
2. To also know the people’s opinion on poverty alleviation and the ways with which the Local and State Government can partake in the various poverty alleviation programmes.
3. To establish and access the impact of the previous poverty alleviation programmes in the selected Local Government Areas.

1.3  STATEMENT OF PROBLEM

From statistics, the country has between 61-80% of its total population living below 1 Dollars per day although more severe in the North than in the South. Also, the State of Osun is known to be one of the poorest in the country which habitate the selected Local Government areas under study.

1.4   SIGNIFICANCE OF THE STUDY

The study is significant as it attempt to consider the various ways of with which different government use to alleviate poverty in their jurisdiction and most especially the selected local governments. Aside this, the study will also enable us to identify the problems militating against the various poverty alleviation programmes, particularly in the selected Local Government Areas of Osun State.

1.5   LIMITATIONS OF THE STUDY

The researcher faced some limitations in undertaking this study, notably in the areas of data collection, the distance of the research areas to each other, etc. Some of these problems are as follows;

The researcher was constraint by time as time frame for the submission of this research was short for an expansive research.

The unwillingness of most of the selected Local Government area staff to supply the needed data was another major problem.

Furthermore, financial resources are another major constraint during the course of the research.

Another very important problem faced during the course of this research is transport which really affected the researcher’s mobility due to the distance between the selected Local Governments

1.6  RESEARCH QUESTIONS

The following constitute research questions for this study which include the following:–

• What are the efforts made by the selected Local and State Government to reduce poverty in their areas?
• What are the impacts of poverty and its alleviation in Nigeria?
• Which from comparison is the best way to alleviate poverty in the selected Local Government areas?
• What is the performance of the government towards alleviating poverty?

 

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