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The Relationship Between Foreign Debts, Corruption and Infrastructural Development in the Nigerian Economy

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The Relationship Between Foreign Debts, Corruption and Infrastructural Development in the Nigerian Economy (1980-2000).

ABSTRACT

The study, which relied on secondary data, investigated the relationship between foreign debts and Nigeria=s infrastructural development and verified the effect of corruption in the debt crisis.

The study employed both quantitative and qualitative methods in analyzing the data. This is a major gap the study filled up amidst existing literature as it adopted its own structural and working equation models peculiar to development and incorporates corruption to the study on the relationship between foreign debts and infrastructural development in the Nigerian economy.

The study identifies corruption as a major factor that undermines infrastructural development through its negative influence on investment, and its ability to lower the amount and quality of public infrastructure supplied to the nation as a whole.

Once corruption is introduced to whatever degree, the efficiency of public expenditure decreases. Corruption is a major underlying factor manifested in the form of bad roads, decaying infrastructures, inadequate medical services, falling educational standards, and the disappearance of foreign loans.

Corruption distorts the economy through waste, misallocation, and misappropriation of resources, thereby contributing to the debt problem in Nigeria.

The study showed how the relationships among the variables analyzed the impact on development namely, that the debt stock and debt servicing further reduces the lean resources available in the country for infrastructural development purposes on the one hand, while corruption diverts resources from education, health, industries, roads, etc. to private pockets on the other hand.

TABLE OF CONTENTS

Page
Declaration ……………………………………………………………………………………….. ii
Certification ………………………………………………………………………………………..iii
Acknowledgment ………………………………………………………………..iv
Dedication…………………………………………………………………………..vi
Table of Contents……………………………………………………………….vii
List of Tables ……………………………………………………………………….x
List of Figures …………………………………………………………………….xi
Abstract……………………………………………………………………………. xii

CHAPTER ONE …………………………………………………………………….1
1.1 INTRODUCTION………………………………………………………………1
1.2 STATEMENT OF THE PROBLEM………………………………………7
1.3 OBJECTIVES OF THE STUDY ………………………………………..10
1.4 RESEARCH HYPOTHESES……………………………………………11
1.5 METHODOLOGY OF THE STUDY ………………………………… 11
1.6 THE SCOPE AND LIMITATION OF THE STUDY……………….12
1.7 SIGNIFICANCE OF THE STUDY……………………………………. 14
1.8 JUSTIFICATION FOR THE MODEL OF THE STUDY…………15
1.9 OUTLINE OF THE STUDY ……………………………………………..16

CHAPTER TWO: LITERATURE REVIEW ………………………………17
2.1 REVIEW OF RELEVANT LITERATURE ……………………………17
2.1.1 Development……………………………………………………………….17
2.1.2 Causes of Mounting Debt ……………………………………………..23
2.1.3 Colonialism and Neo-colonialism …………………………………..26
2.1.4 Prices of Primary Goods ……………………………………………….28
2.1.5 Effects of Huge External Debt ……………………………………….30
2.1.6 Management of External Debts and Debt Servicing………….33
2.1.7 Alternatives to Debts…………………………………………………… 43
2.2 CORRUPTION……………………………………………………………….47

CHAPTER THREE: RESEARCH METHODOLOGY…………………..52
3.1INTRODUCTION……………………………………………………………..52
3.2 RELEVANCE OF MACRO-ECONOMIC RELATIONSHIPS
BETWEEN VARIABLES……………………………………………….56
3.2.1 Exports of Primary Produce and Debt …………………………….57
3.2.2 Imports and Debt …………………………………………………………57
3.2.3 Government Revenue, Expenditure, and Debt………………….57
3.2.4 The Price of Petroleum Exports and Debt ………………………58
3.2.5 Foreign Exchange Rate ……………………………………………….58
3.2.6 Current Account and Debt …………………………………………….59
3.2.7 Capital Account and Debt ……………………………………………..60
3.2.8 Corruption and Debt …………………………………………………….60
3.3 RESEARCH HYPOTHESIS…………………………………………….63
3.4 METHODOLOGY OF THE STUDY …………………………………64
3.5 SPECIFICATION OF THE MODEL …………………………………75
3.5.1 Estimation of the Model ……………………………………………….77

CHAPTER FOUR: ORIGIN OF NIGERIA’S EXTERNAL DEBT …81
4.1 INTRODUCTION……………………………………………………………81
4.2 ORIGIN OF NIGERIA=S EXTERNAL DEBT ………………………82
4.3 CAUSES OF NIGERIA=S EXTERNAL DEBT …………………..92
4.3.1 Endogenous Factors ……………………………………………………92
4.3.2 Exogenous Factors …………………………………………………….96
4.4 GROWTH AND FEATURES OF NIGERIA=S DEBT ………….99
4.5 EXTERNAL BORROWING POLICY……………………………….109
4.6 STRUCTURE OF NIGERIA=S EXTERNAL DEBT …………..112
4.7 CORRUPTION IN NIGERIA AND ITS EFFECTS ON DEBTS
AND ECONOMIC DEVELOPMENT ……………………………..113
4.8 EFFECTS OF CORRUPTION ON THE ECONOMY ………..118
4.9 NIGERIA=S EXTERNAL DEBT AND IMPLICATIONS FOR
ECONOMIC DEVELOPMENT……………………………………..120

CHAPTER FIVE: DATA ANALYSIS AND INTERPRETATION
OF RESULTS …………………………………………..128
5.1 INTRODUCTION………………………………………………………….128
5.2 PRESENTATION OF DATA ………………………………………… 129
5.3 ESTIMATION OF THE MODEL …………………………………….134
5.4 RESULTS OF ANALYSIS …………………………………………….134
5.4.1 Public Infrastructure (PF) ……………………………………………134
5.4.2 Employment Level (EMPt) …………………………………………..135
5.4.3 Public Sector Investment (PSI)…………………………………….136
5.4.4 Foreign Debt (FD)………………………………………………………138
5.4.5 Foreign Debt (IM)……………………………………………………….139
5.5 MULTIPLE REGRESSION ANALYSIS …………………………..140
5.6 CORRUPTION…………………………………………………………….146
5.6.1 Interpretation of the Results of the linear equation model
on corruption …………………………………………………………….147
5.6.2 Descriptive Analysis of Corruption………………………………152
5.7 CONCLUSION …………………………………………………………….174

CHAPTER SIX: SUMMARY, CONCLUSION, RECOMMENDATION
AND CONTRIBUTION TO KNOWLEDGE……177
6.1 SUMMARY………………………………………………………………..183
6.2 CONCLUSION…………………………………………………………..185
6.3 RECOMMENDATION…………………………………………………186
6.4 CONTRIBUTION TO KNOWLEDGE…………………………….194
6.5 AREA FOR FURTHER RESEARCH …………………………….195
BIBLIOGRAPHY…………………………………………………………197
APPENDIX………………………………………………………………..206

LIST OF TABLES
Table 4.1 Nigeria=s External Public Debts Outstanding in (x million)
1980-2000…………………………………………………………………………86
Table 4.2 Nigeria=s External Public Debts Outstanding as a Percentage
of GDP 1960 – 1998…………………………………………………………88
Table 4.3 Nigeria=s External Public Debts: Interest and Capital Payments
1960 – 1998……………………………………………………………………….90
Table 4.4 Growth in Nigeria=s External Debt 1960 –
2000……………………….99
Table 4.5 External Debts Servicing Payments 1985- 200

 

INTRODUCTION

The Nigerian economy began to experience an apparent downturn in terms of its foreign reserves when the oil market weakened in the early 1980s.

The disturbance in the world oil market from 1980 led to a sharp drop in export revenue and consequently government finances. Inspite of this, the government was bent on executing its Fourth National Development Plan (1980 Р1985), in the hope that  e disturbance would be short-lived.

Accordingly, more debts were incurred leading to an enormous rise in the country=s fiscal deficits. Since the Federal Government took the stand that A sustainable and accelerated [email protected], had to be pursued, it opted for foreign capital inflow and Ogundipe (1985) asserted that Nigeria=s domestic and external debts rose to x27.95 million and x17,290.6 million respectively (CBN Statistical Bulletin Vol.6, No. 1 June 1995:100).

In addition to the earlier Economic Stabilisation Act of 1982, there was a National Economic Emergency Period, during which the President was empowered to issue orders and make regulations to improve the economy.

However, the stringent control measures pursued by successive administrations failed to deal with the structural economic and financial problems, rather, these measures resulted in a series of austerity measures that greatly increased the economic and social hardships of the people without providing effective and long-lasting solutions to the basic economic problems of the economy.

It, therefore, became obvious as Anyanwu, (1986) puts it, that the major problems of the economy, i.e. balance of payments disequilibrium, mounting external debt obligations, unemployment, and inflation were symptoms of a more fundamental problem – the structural weakness of the economy, especially its over-dependence on the oil sector

BIBLIOGRAPHY

Textbooks

Abubakar, F. (1990). ‚ÄúRefinancing and Servicing Nigeria‚Äôs External Debt.‚ÄĚ Nigerian External Debt. Crisis: Its Management. Lagos: Malthouse Press Ltd. p. 106.
Ahmed, A. (1990). ‚ÄúThe Management of Nigeria‚Äôs External Debt.‚ÄĚ Nigeria‚Äôs External Debt. (ed.) Fasipe, A. Ile-Ife: O.A.U. Press Ltd. p. 61.
Ahmed, A. (1990). ‚ÄúElements of Concerted Approach to Solving Africa‚Äôs Debt Problems‚ÄĚ. Nigeria‚Äôs External Debt. Fasipe, A. (ed.) Ile-Ife: O.A.U.
Anyanwu, J. C. (1997). Nigerian Public Finance. Onitsha: Joanee Educational Publishers Ltd. p.22
Black, J. (2002). Oxford Dictionary of Economics. Oxford: Oxford University Press. P10.
Carley, M. (1981). Social Measurement and Social Indicators: Issues of Policy and Theory. London: George Allen and Unwin, p. 69.
Cohen, B.P. (1980). Developing Sociological Knowledge: Theory and Method. Englewood Cliffs: N. J. Prentice-Hall, Inc. p. 69.
Cuddington, T. J. (1990). ‚ÄúThe extent and causes of the debt crisis of the 1980s‚ÄĚ in Dealing with the Debt Crisis. (ed.) Husain, I. And Diwan, I. A World Bank Symposium. p. 15.
Cuddington, T. J. and Smith, W. G. (1988). ‚ÄúInternational Borrowing and Lending: What have we learned from Theory and experience‚ÄĚ in International Debt and the Developing Countries. Smith W. G. and Cuddington, T. J. (ed.), A World Bank Symposium. p 15.
Elam, E. M. (1979). Applied Business Statistics. USA: Holden-Day Inc. pp. 308-309.
Falegan, B.S. 91992). Nigeria’s external debt burden. Ibadan: Fauntain Publications. p.32.
Harberger, A. C. (1988). ‚ÄúLessons for Debtor Country Managers and Policy Makers.‚ÄĚ In International Debt and the Developing Countries (eds.) Smith, W. G. and Cuddington, T. J. A World Bank Symposium. p. 236.
Higgins, B (1959). Economic Development. New York: Norton. Kane, E.J. (1968). Economic statistics and Econometrics. London: Harper International p.24.

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