ABSTRACT

The research also examines the relationship between the ARDL procedure and the fully
modified OLS approach of Phillips and Hansen to estimation of cointegrating
relationship between all the variables, and economic growth, these results provide
strong evidence in favor of a rehabilitation of the traditional ARDL approach to time
Series econometric modelling. The ARDL approach has the additional advantage of
yielding consistent estimates of the long-run co-efficient that is asymptotically normal
irrespective of whether the underlying regressors are I(1) or I(0).,This research provides
an empirical analysis of the relationship between economic growth and its determinants
factors with special focus on gross domestic product, foreign direct investment and
other important factors in Nigeria, using data from the period of 1976 to 2010, we also
in employed ARDL bounds testing for the long run relationship and ECM for the short
run dynamics. The findings suggest a positive relationship between efficient real GDP
and foreign direct investment and economic growth both in short run and long run.
Money supply and inflation have negative effects on economic growth while fiscal
deficit and foreign direct investment have positive effects on growth. Foreign direct
investment is found to have significant positive effect on growth. The results are
consistent with the theoretical and empirical prediction.

TABLE OF CONTENTS

TITLE PAGE …………………………………………………………………………………………………………… i
DEDICATION ………………………………………………………………………………………………………… ii
CERTIFICATION …………………………………………………………………………………………………. iii
ACKNOWLEDGEMENTS ……………………………………………………………………………………… iv
TABLE OF CONTENTS ………………………………………………………………………………………….. v
LIST OF FIGURES ……………………………………………………………………………………………….. vii
LIST OF TABLES ……………………………………………………………………………………………….. viii
ABBREVIATIONS ………………………………………………………………………………………………… ix
ABSTRACT ……………………………………………………………………………………………………………. x
CHAPTER ONE
1.1 Introduction ………………………………………………………………………………………………….. 1
1.2 Background of the Study ……………………………………………………………………………….. 1
1.3 Statement of the Problems ……………………………………………………………………………… 3
1.4 Research Questions ……………………………………………………………………………………….. 3
1.5 Aims and Objectives of the Study …………………………………………………………………… 4
1.6 Research Hypothesis ……………………………………………………………………………………… 4
1.7 Significance of the Study ……………………………………………………………………………….. 4
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction ………………………………………………………………………………………………….. 6
2.2 Nature and Structure of the Nigerian Economy ……………………………………………….. 10
2.3 Some Factors Used to Determine Nigerian Economy ………………………………………. 14
2.4 Advantages of the ARDL Models Over Other Techniques. ………………………………. 18
CHAPTER THREE: THEORETICAL FRAMEWORK AND METHODOLOGY
3.1 Introduction ………………………………………………………………………………………………… 19
3.2 Data Sources and Description of Variables …………………………………………………….. 19
3.3 Autoregressive Distributed Lag (ARDL) Model …………………………………………….. 20
3.3.1 General Model for the ARDL ……………………………………………………………………….. 21
3.3.2 Main Features of the ARDL Approach …………………………………………………………… 21
3.4 Co-integration Test ……………………………………………………………………………………… 22
3.5 Unit Root Tests …………………………………………………………………………………………… 23
3.5.1 Augmented Dickey Fuller (ADF) Test …………………………………………………………… 24
3.5.2 Hypothesis Testing ……………………………………………………………………………………… 24
3.5.3 Kwiatkowski, Philip, Schmidt, and Shin (KPSS) Test ……………………………………… 25
vi
3.6 ARDL Bounds Test Approach ………………………………………………………………………. 26
3.6.1 The General Bound Test For ARDL Model ……………………………………………………. 27
3.7 Long Run Model …………………………………………………………………………………………. 27
3.8 Short Run Model …………………………………………………………………………………………. 28
3.9 Error Correction Model ……………………………………………………………………………….. 28
3.10 Diagnostics Test ………………………………………………………………………………………….. 30
3.11 Testing for Serial Correlation ……………………………………………………………………….. 30
3.11.1 Durbin-Watson d-Test …………………………………………………………………………………. 30
3.11.2 Breusch-Godfrey or Lagrange Multiplier Test ………………………………………………… 31
3.11.3 Stability Test ………………………………………………………………………………………………. 31
3.14 Hypothesis …………………………………………………………………………………………………. 32
3.15 Maximum Likelihood Estimation ………………………………………………………………….. 33
3.16 Software’s For The Analysis …………………………………………………………………………. 37
3.17 Model Selection Method ………………………………………………………………………………. 38
3.18 Models Specification …………………………………………………………………………………… 39
3.19 Using ARDL Model for Estimated Variables ………………………………………………….. 39
3.20 Using Unit Root Test for the Variables ………………………………………………………….. 40
3.21 Bound Test Approach ………………………………………………………………………………….. 41
3.22 Long Run Specification Model ……………………………………………………………………… 44
3.23 Short Run Specification Model ……………………………………………………………………….. 45
CHAPTER FOUR: RESULTS AND DISCUSSION
4.1 Tests for Non-Stationery ………………………………………………………………………………. 47
4.2 Results for Unit Root Test ……………………………………………………………………………. 47
4.3 Graphical Solutions of the Unit Root Tests …………………………………………………….. 49
4.4 Plot of CUSUM and CUSUMSQ (Stability Test) For LGDP as Depended
Variable ………………………………………………………………………………………………………………… 56
4.5 Analysis Using ARDL for LFDI as Depended Variable …………………………………… 58
4.5.1 Plot of CUSUM and CUSUMSQ (Stability Test) for FDI ………………………………… 61
CHAPTER FIVE: SUMMARY, CONLUSION AND RECOMMENDATION
5.1 Summary ……………………………………………………………………………………………………. 63
5.2 Conclusion …………………………………………………………………………………………………. 64
5.3 Recommendation ………………………………………………………………………………………… 64
REFERENCES …………………………………………………………………………………………… 66

CHAPTER ONE

1.1 Introduction
Economically developed countries have been able to reduce their poverty level,
strengthen their social and political institutions, improve their quality of life, preserve
natural environments and achieve political stability [Barro (1996); Easterly (1999);
Dollar and Kraay (2002a); Fajnzylber,. (2002)]. After the World War II, most of the
countries adopted aggressive economic policies to improve the growth rate of real gross
domestic product (GDP). The neoclassical growth models imply that during the
evolution between steady states; technology, exogenous rate of savings, population
growth and technical progress generate higher growth level (Solow 1956).
Endogenous growth model developed by Romer (1986) and Lucas (1988) argue that
permanent increase in growth rate depends on the assumption of constant and increasing
return to capita1.
Similarly, Barro and Lee (1992) investigate the empirical association between human
capital and economic growth. They seem to support endogenous growth model by
Romer (1990) that high light the role of foreign direct investment in the growth process.
Fischer (1993) argue that long-term growth is negatively linked with inflation and
positively correlated with better fiscal performance and factual foreign exchange
markets. In the context of developing countries, investment both in foreign direct
investment, money supply, and ability to adapt technological changes, open trade
policies and low inflation are necessary for economic growth.
1.2 Background of the Study
Nigeria is a West African economy with a long coastline along the Atlantic Ocean. The
country shares international borders with Benin, Chad, Cameroon and Niger. Nigeria
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ranks 32 in the world in term of total area. The terrain of the country consists of
southern lowlands and plateaus in the central region have a mountainous surface, while
the North’s consist of plain. According to the 2009 estimates, the country has a total
population in excess of 154 million, of which almost 70% live below the international
poverty line; Nigerians economy is overtly depended on the petroleum sector.
The Nigerian economy is one of the most developed economies in Africa. According to
the UN classification, Nigeria is a middle-income nation with developed financial,
communication and transport sectors. It has the second largest stock exchange in the
continent.
The petroleum industry is central to the Nigerian economic profile. It is the 12th largest
producer of petroleum product in the world. The industry accounts for almost 80% of
the G.D.P share and above 90% of the total exports. Outside the petroleum sector, the
Nigerian economy is highly amorphous and lacks basic infrastructure. Several failed
efforts have been made after 1990 to develop other industrial sector. Owing to the surge
in international oil prices during 2007-08, Nigerian managed an annual G.D.P of
US$352.3 billion. The nation rank 33 in the world in term of G.D.P per capital of
US$2,400.The economic conditions of Nigerian have advanced over the last few years
as a result of the rapid phase of industrialization. The economy of Nigeria also
improved tremendously with foreign investment aided by high quality research and
development. Nigeria was under the British colonial rule for a considerable period of
time. During this phase, major raw materials and mineral were exported to foreign
countries along with food grain which is due course of time spear headed the rise of
slavery and exploitation of labor class by the Europeans.
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After the achievement of independence in Nigeria efforts were made to revive the
economic growth of the country through a set of economic reforms. It’s important to
note that before the discovery of oil in Nigeria the country survived mainly on its
agricultural production. The present G.D.P growth rate has been 7% in the past few
years.
1.3 Statement of the Problems
Although various factors have been adduced to Nigerian economic growth performance,
the major problems has been adduce to the economy’s continued excessive reliance on
the fortunes of the oil market and the failed attempts to achieve any meaningful
economic diversification (Osuntogun. 1997), reflecting the effect of the so called
“Dutch disease” the need to correct the existing structural distortion and put the
economy on the path of sustainable growth is therefore compelling, this raise the
questions of what else need to be done in order to diversify the economy and develop
the various factors in order to realize the potential of the factors that determine
economic growth. This calls for new thoughts and initiatives, which is the essence of
this research.
1.4 Research Questions
According to the objectives stated bellow, the research questions that would be
examined in the course of the study are as follows
i. What has been the structure of the economic growth in Nigeria?
ii. What are the factors that are responsible for determine the economic growth in
Nigeria?
iii. What has been the performance of each factor on economic growth in Nigeria?
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1.5 Aims and Objectives of the Study
. The specific objectives of the study are as follows
i. To determine the factors those are responsible for the performance of Nigerian
economic growth.
ii. To analyze and measure the contributions of each factor on economic growth in
Nigeria.
iii. Evaluate the effort of each factor on economic growth in Nigeria.
1.6 Research Hypothesis
Base on the models stated above, the hypothesis to be tested in this research is stated
bellow.
Hi: The factor has contributed significantly to the economic growth of Nigeria.
Ho: The factor has not contributed significantly to the economic growth of Nigeria.
1.7 Significance of the Study
The major significance of this study are as follows
i. It would provide an econometric assessment of the contribution of these factors
to the economic growth of Nigeria.
ii. It would provide detailed composition of these factors of Nigerian in recent time
apart from petroleum oil
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1.8 Scope of the Study
This project focused on the factors that determine the economic growth in Nigeria as
necessitated by the devastating effect on the recent global economic crisis. Although
several attempts has been made to diversify the Nigerian economy since the
introduction of structural adjustment programmed (S.A.P) in 1986, no meaningful.
Success has been achieved. Therefore, this project would examine the trend, pattern and
composition of the factors responsible for Nigerian economic growth during the post
and pre-SAP era as well as its export profile, subsequently, the causes and consequence
of the neglect of the factors shall be identify. The study would also investigate the
contribution of all these factors to the economic growth of Nigeria with data ranging
from 1976to 2010
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