Financial Sector Development: Evidence from Institutional Reforms in Nigeria

The paper examine the impact of institutional reforms on financial sector development in Nigeria using data that span the periods of 1996 to 2011. Our findings indicates that measures of institutional reform such as regulatory quality (Rqty), government effectiveness (Gef); and political stability and absence of voice (Psav) impact strongly on financial sector development (Dcps) in Nigeria,  suggesting the need for institutional reforms that can promote viable regulatory system for the enhancement of contract enforcement; property right protection, corruption control; and to avoid any form of politically motivated violence, unconstitutional overthrownment and terrorism in Nigeria. The results of the causality test also show that financial sector development (Dcps) granger causes economic growth (Rgdp) in Nigeria. However, it is evident that future improvements in institutional quality in Nigeria, through initiation of all-encompassing reforms in the institutions, may promote financial sector development which may in turn promote economic growth.

Application of Generalized Autoregressive Conditional Heteroschedasticity Model on Inflation and Share Price Movement in Nigeria

In the past, studies on the linkage between share prices movement and inflation has been subjected to extensive research by academics, researchers, practitioners and policy makers since the 1990s. Most studies in the industrialized economies showed the existence of negative relationship between share price movement and inflation. Consequently, this paper utilized GARCH model and investigated the influence of inflation on share price movement in Nigerian stock market, using quarterly data for the period 1981 to 2012. The findings of this paper suggest that the GARCH terms of the share price movement in Nigeria depicted a variance of autoregressive conditional heteroscedastic behaviour. Furthermore, share price movement and inflation exhibited a collective volatility of about 0.0015% during the study period. Share price movement exhibit a volatile shock of about 79% in behaviour while a 1% increase in inflation leads to about 0.15% decrease in share price movement in Nigeria. In addition, a 1% increase in market capitalization leads to about 66.8% increase in share price movement in Nigeria. Therefore, stabilizing inflation will deepen the Nigerian stock market the more thereby leading to a trickling down effect on the stock market capitalization. Hence, policies geared towards the reduction and stabilization of inflation to at least, single digit is recommended to the Nigerian monetary authorities. Keywords: Inflation, Share Price, GARCH, Influence, Stock Market. JEL Classifications: E31, G00, G10, G1

Semi Strong Form Efficiency Test of the Nigerian Stock Market: Evidence from Event Study Analysis of Bonus Issues

This study tests the consistency of the Nigerian Stock Market with the Efficient Market Hypothesis (EMH) in the semi-strong form using bonus issues as the information generating event. Using daily data, a total of 121 bonus issues were observed and examined for the period 2002-2006. The stocks which were tested were classified according to the size of their bonus issues and also according to the price of the stock to know the impact of information released on the price of different categories of stock. Using the event study methodology, the market and the market adjusted models as well as the VAR models, the study discovered that information release impacts significantly only in the year 2002. Also, it reveals that small bonus issues responded speedily to bonus issues more than medium and large bonus issues. In addition, the test between penny stocks and blue chips shows that only penny stocks were significantly affected. Keywords: Semi-Strong Form, Efficiency, Stock Market, Event Study, Bonus Issues JEL Classifications: G10; G11; G12; G1

THE ECONOMIC COST OF MALARIA TREATMENT TO POOR RURAL HOUSEHOLDS IN SELECTED COMMUNITIES IN ENUGU STATE

Malaria is one of the leading tropical diseases affecting majority of the rural population in Nigeria. This disease drains the insufficient income of rural dwellers and further reduces their socio-economic standards. This study examined the economic cost of malaria treatment to poor rural households selected from six communities in Enugu state using cost of illness approach. It found that ‘richest’ rural households on the average spentN6153 (28.41%) monthly while households from the poorest quintile spent 30.25% of their average monthly income on malaria treatment. This leads these households into large financial catastrophe forcing them to reduce other basic expenses. These poor households are likely to remain in poverty if measures are not taken to alleviate the situation. Policies that would consider the introduction of community-based health insurance scheme or reduction in user fees in the rural areas are recommended. &nbsp

Global uncertainty, economic governance institutions and foreign direct investment inflow in Africa

Based on the fact that Africa has not fared well in attracting foreign direct investments in the last decade compared to other regions of the world, especially during periods of high uncertainty occasioned by one crisis or the other, this study investigated: the impacts of global uncertainty and economic governance institutions on FDI inflow to Africa; the moderating effect of economic governance institutions on global uncertainty-FDI relationship in Africa; and other significant drivers of FDI inflow to Africa. The study used the system GMM modeling framework and a panel of 46 African economies over the period 2010–2019. The results indicate that global uncertainty has a significant dampening effect on FDI inflow to Africa, and economic governance institutions on the continent amplify this effect rather than mitigate it. The results further indicate that natural resource endowment, market size, and initial FDI inflows are robust drivers of FDI inflows to Africa, while the roles of financial development and trade openness remained muted. Overall, the study concludes that policymakers in Africa should take urgent steps to strengthen the quality of economic governance institutions as a means of mitigating the excruciating effect of global uncertainty on FDI inflows to Africa

A DISAGGREGATED ANALYSIS OF MONETARY POLICY EFFECTS ON THE AGRICULTURAL SECTOR IN NIGERIA

This study provides a disaggregated analysis of the effects of monetary policy shocks on the agricultural sector in Nigeria from 1981Q1 to 2016Q4. The study utilized the generalized impulse responses and the normalized generalized forecast error variance decompositions from an underlying VAR model, which are order-invariant. The four monetary policy variables used in the study are interbank call rate, monetary policy rate, broad money supply and exchange rate; while the four agricultural sub-sectors investigated are crop production, forestry, fishing and livestock. The study also controlled for the general price level and other economic activities in the overall economy. The findings indicate that the aggregate agricultural sector and its various sub-sectors consistently responded negatively to unanticipated monetary tightening in most of the forecast horizon; while the immediate impact of monetary policy shocks is transmitted to the agricultural sector through the interest rate and money demand (credit) channels. The findings further indicate that apart from these two channels, the roles of monetary policy rate and exchange rate are non-negligible in the long-run. The role of money supply channel in spreading monetary policy shocks to the agricultural sector remained muted all through. The study concludes that the monetary authority should evolve interest rate, credit, and exchange rate policies that will promote the development of the agricultural sector in Nigeria

A DISAGGREGATED ANALYSIS OF MONETARY POLICY EFFECTS ON THE AGRICULTURAL SECTOR IN NIGERIA

This study provides a disaggregated analysis of the effects of monetary policy shocks on the agricultural sector in Nigeria from 1981Q1 to 2016Q4. The study utilized the generalized impulse responses and the normalized generalized forecast error variance decompositions from an underlying VAR model, which are order-invariant. The four monetary policy variables used in the study are interbank call rate, monetary policy rate, broad money supply and exchange rate; while the four agricultural sub-sectors investigated are crop production, forestry, fishing and livestock. The study also controlled for the general price level and other economic activities in the overall economy. The findings indicate that the aggregate agricultural sector and its various sub-sectors consistently responded negatively to unanticipated monetary tightening in most of the forecast horizon; while the immediate impact of monetary policy shocks is transmitted to the agricultural sector through the interest rate and money demand (credit) channels. The findings further indicate that apart from these two channels, the roles of monetary policy rate and exchange rate are non-negligible in the long-run. The role of money supply channel in spreading monetary policy shocks to the agricultural sector remained muted all through. The study concludes that the monetary authority should evolve interest rate, credit, and exchange rate policies that will promote the development of the agricultural sector in Nigeria

The Impact of Foreign Direct Investment and Oil Revenue on Economic Growth in Nigeria

Many emerging economies, particularly oil-rich countries such as Nigeria, have neglected the key drivers of growth, and consequently resulting in a decline in investment and employment. In the midst of this, the current study sought to examine the extent to which foreign direct investment and oil revenue impact Nigerian economic growth. The estimation was done using ordinary least squares (OLS) techniques, and the Granger causality test was used to determine the direction of causality between FDI, oil revenue, and economic growth using annual time series data from 1991 to 2019. Hence, recognising that annual time series are high-frequency data, all the variables were subjected to OLS assumptions. The empirical findings revealed that FDI and oil revenue significantly impacted growth. Accounting for the impact of economic activities reflected in the role of financial inflow and outflow on economic growth, a significant and positive relationship was found. This implies that international monetary transactions between entities captured in the current account balance are key determinants of growth in Nigeria. Further evidence revealed that variables such as real exchange rate, inflation and interest rates significantly determine economic growth in Nigeria. As such, this finding was further supported by their interactive effects, revealing an inverse and significant influence on economic growth. The Granger causality results show bidirectional causality between oil revenue and growth, as well as between oil revenue and foreign direct investment in Nigeria. The robustness test, which employs GDP per capita and GDP growth as proxies for economic growth, is consistent with empirical evidence. As a result, FDI and oil revenues are important drivers of Nigeria's growth, ceteris paribus

Interactions between stock prices and exchange rates: An application of multivariate VAR-GARCH model

The study examined stock prices (SP) and exchange rate (ER) interactions with multivariate VAR-GARCH model using monthly data from January 2000 to October 2014. The results of the Engle and Granger and Johansen cointegration test show that there is stable long-term relationship between SP and ER. The empirical evidence of the VAR-GARCH model shows a significant mean spillover running from stock market to exchange market but not a mean spillover from exchange market to stock market. The variance equation results indicated the existence of bidirectional volatility transmission effect between SP and ERs, indicating the past innovations in stock market have the great effect on future volatility in foreign exchange market, and vice versa. The results have important implications for international portfolio managers in the portfolio diversification decisions and risk hedging strategies