Nigeria Vision 20: 2020: A Reality or a Mirage

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1 Briish Journal of Economics, Managemen & Trade 3(1): 12-29, 2013 SCIENCEDOMAIN inernaional Nigeria Vision 20: 2020: A Realiy or a Mirage Onwuka Kevin Odulukwe 1* 1 Deparmen of Economics, Nnamdi Azikiwe Universiy, Awka, Nigeria. Auhor s conribuion Auhor OKO designed he sudy, performed he saisical analysis, wroe he proocol, and wroe he firs draf of he manuscrip. He also managed he analyses of he sudy and he lieraure searches, read and approved he final manuscrip. Research Aricle Received 23 rd July 2012 Acceped 7 h December 2012 Published 4 h February 2013 ABSTRACT Aims: The objecive of his paper is o assess if Nigeria has achieved he pah of economic developmen ha will evenually lead o convergence and how long i will ake her and a wha rae she will be growing o reach her envisioned per capia income of $4,000 in he year Research design: Nigeria aims o become one of he op weny naions in he world in he year To know if Nigeria will achieve his we examine he per capia income and consumer price index difference beween Nigeria and indusrialized naions (UK, US, Germany, France and Japan) and newly emerging markes ( Malaysia, Souh Africa, Souh Korea, Singapore) Place and Duraion of Sudy: This sudy is cenred on Nigeria and covers he period beween 1960 and Mehodology: We uilise he Augmened Dick-Fuller es and modified Barro-ype ime series of cross secion. Resuls: The resuls showed ha among he developed naions Nigeria can converge wih USA and UK. While among he newly indusrializing naions convergence is possible only wih Souh Africa, Souh Korea and Malaysia. Also he resuls showed ha Nigeria can cach-up wih Germany, Japan, Souh Africa and Singapore in he long run. The Barro-ype ime series model yields evidence of condiional convergence in per capia income. The findings show ha for Nigeria o aain he per capia income of $4,000 in he year 2020, she needs o *Corresponding auhor: odulukwe@yahoo.com, ko.onwuka@unizik.edu.ng;

2 be growing a 19.1% annually. If she is growing a he 2010 growh rae of 8 %, i will ake her abou 27years o aain he dreamed per capia income. Conclusion: Nigeria is growing bu he rae of growh is lower han i is expeced o aain a argeed per capia income in he year In his regard, more suppor ough o be given o he manufacuring secor where mos growh is expeced o come from. Keywords: Nigeria vision; convergence; developmen saus. 1. INTRODUCTION Nigeria vision 20:2020 (NV20:2020) is he inen of Federal Republic of Nigeria o become one of he op weny economies in he world by he year 2020, wih over-arching growh arge of no less han $900 billion in GDP and a per capia income of $4,000 per annum [1]. On economic fron, NV20:2020 ends o achieve a globally compeiive economy ha is resilien, diversified and able o fully opimise Nigeria s human and naural resources o mee he needs and aspiraions of her ciizens. I ends also o achieve an indusrialised economy wih a globally compeiive manufacuring secor ha is ighly inegraed wih he primary resource base of he naion, and conribue abou 25% o gross domesic produc. To achieve hese laudable aspiraions, a number of criical areas are idenified. These include hreas o naional securiy, war agains corrupion, correcing he weaknesses of he revenue allocaion, expansion of invesmens in criical infrasrucure, fosering privae secor non-oil growh o build he foundaion for economic diversificaion. Oher areas idenified are invesing in human capaciy developmen o enhance naional compeiiveness, enrenchmen of meri as a fundamenal principle and core value and deepening of reforms in social secor and sub-naional levels [2]. Including insecuriy of lives and propery as one of he criical areas shows ha inernal securiy is vial o Nigeria ransiion o developmen saus in he year Inernal securiy is he ac of keeping peace wihin he borders of a sovereign sae, generally by upholding he naional law and defending agains inernaional securiy hreas [3]. Threas o he general peace may range from low level civil disorder, large scale violence or even an armed insurgency. Threas o inernal securiy may be direced a eiher he sae s ciizens or he organs and infrasrucure of he sae and may range from pey crime, serious organised crime, poliical or indusrial unres or even domesic errorism. Susainable economic growh driven by he privae secor requires a good environmen characerised by securiy of lives and propery, prevalence of he rule of law, sanciy of conracs and respec for propery righs. Can Nigeria converge amids insecuriy of lives and propery? In an insecure counry or region, so he argumen goes, each counry mus devoe a disproporionae share of is endowmen of scarce economic resources o "unproducive" miliary spending o keep he counry calm. This calls for securiy reform o mee he need of invesors and individuals as well. According o Bendix and Sanley [4] he reform of he securiy secor is an essenial elemen in he figh agains povery. The raionales for securiy reform are: a) he role of he sae and is securiy forces direc impac on opporuniies for susainable developmen, since he basic securiy is pre-condiion for economic developmen b) reducing expendiure on securiy forces, free resources for social invesmen and povery reducion c) he securiy secor, especially he police and he miliary ofen conribues o violen conflic raher han conaining or prevening i and violen conflic is recognised as one of he major causes of povery and d) greaer paricipaion in securiy policy and access o securiy is expeced o 13

3 make policies more responsive o he concern of he poor, as well as srenghening democracy by guaraneeing ransparency and accounabiliy in he mos sensiive areas of policy. Responsibiliy for inernal securiy may range from police o paramiliary forces and in excepional circumsances he miliary. Anoher raionale behind he sudy is ha ouside he indusrial world convergence club here appears fewer endencies for per capia income differences beween developed naions and developing counries o narrow (see [5,6]), given he close rade, immigraion and educaional link beween Nigeria and hese counries - Briain, Unied Saes of America, France, Germany and Japan, i is ineresing o es wheher any evidence of convergence exiss. Invesigaing pair-wise economic GDP per capia convergence beween hese counries should shed ligh on Nigerian Briain economic relaions and on he convergence hypohesis more generally and also wheher we are moving oward expeced goal o become one of he op weny developed naions in he world in he year The quesion of how far has Nigeria achieved his very laudable objecive cenres on he issue of convergence. The Nigeria vision provides a unique opporuniy o carry ou a quaniaive analysis of convergence in seleced macroeconomic fundamenals. Theoreically, here are wo principal reasons o expec he convergence of macroeconomic variables of Nigerian economy. Firs, Nigeria engaged quie heavily in inernaional rade wih many counries of he world noably Unied Saes America, Japan, Briain, Germany ec. Because i involves he flow of capial and goods, inernaional rade, if bilaeral, serves as a naural means of coordinaing he economic developmen of he paries involved. Ben- David [7] provides evidence ha income convergence among counries, while far from being a worldwide phenomenon, seems o be a prevailing feaure among he counries ha rade exensively wih one anoher. Second, Nigeria is member of regional inegraions like ECOWAS (Economic Communiy of Wes African Saes), carel OPEC (Organisaion of Peroleum Exporing counries) and World rade Organisaion (WTO). The aboliion or review of many resricive rade barriers and financial regulaions and he Nigeria s membership of he World Trade Organizaion (WTO) have enhanced he Nigeria s posiion in mulilaeral rading sysem and hus convergence. Economic convergence should be achieved around a higher level of growh which implies ha Nigeria needs o grow faser so ha i can in he long run, cach up economically wih he developed counries as a resul of dynamic consequences of regional inegraion and globalizaion. Third, here are policies adoped by Nigerian governmen, which migh faciliae he narrowing of he gap in per capia income beween Nigeria and developed naions. These include he privaizaion policy of sae-owned companies ha have o undergo criical resrucuring o improve produciviy and policies ha are relaed o invesmen which seek o eliminae consrains o invesmens by foreign and domesic invesors. Oher policies or programmes relaed o povery reducion like Povery Alleviaion Programme (PAP), Naional Povery Eradicaion Programme (NAPEP), Naional Direcorae of Employmen (NDE), Women in Agriculure (WIA), Micro -credi program hrough microfinance banks, are pursued. Also Nigeria is a signaory o millennium developmen goals. A reurn of democracy is also an added advanage which creaes an environmen in which he enrepreneur can flourish. There are criical areas ha migh preven her from achieving his vision. The noable areas include corrupion, povery, hreas o naional securiy, crimes (armed robbery, kidnapping and advanced fee fraud, a.k.a 419) and more especially psyche deerioraion or loss of sense of values. 14

4 The objecive of his paper is of wofold. The firs is o assess wheher Nigeria, hrough developmen sraegies, has achieved a pah of economic developmen which leads o a cerain degree of convergence in real per capia income and macroeconomic policy. The second objecive is, if Nigeria has achieved a pah of economic developmen, how long will i ake her o reach he arge aking insecuriy ino accoun? Thus as securiy is a prerequisie for a journey o developmen saus, securiy reform is essenial. Imporan securiy reform required is ha which seeks o link he challenges and opporuniies and a he same ime imbue hem wih a common vision - ha of a securiy secor which promoes human developmen; helps o reduce povery and allows people including poor people o expand heir opions in life. This paper conribues o macroeconomic policy lieraure in he following ways. Firs i assesses he validiy of he alernaive economic growh sraegies. Secondly, he esimaes of speed of convergence across economies provide informaion on one of he key parameers of growh heory. Thirdly, he convergence analysis which is synonymous wih assessmen of Nigerian developmen sraegies is vial in srenghening of macroeconomic policy credibiliy, effeciveness and sabiliy. This will lead o reformulaion of specific goals and sraegies for macroeconomic convergence. To he bes of our knowledge, no sudy has aemped o assess he validiy of Nigeria economic growh sraegies namely Nigeria vision The paper is organised as follows. The nex secion is he overview of Nigerian economy, Secion hree examines a heoreical link beween securiy and economic growh while secion four discusses convergence heory and model. Secion five looks a he esing sraegy while secion six presens he daa sources. Secion seven presens and discusses he resuls and secion eigh concludes and draws some policy implicaions. 2. OVERVIEW OF NIGERIAN ECONOMY Nigeria economy was srucured along he line of mixed economic sysem and all economic aciviies are conduced wihin his framework. The Nigerian economy before Srucural Adjusmen Programme in 1986, has been ransformed from subsisence agrarian sociey ino a largely moneised economy. This was made possible by he discovery and exploraion of oil in large quaniies in he early 1970s. The ransformaion consiss of hree periods , , and coinciding wih oil boom. The oil boom in he early 1970s had a pervasive effec on he growh and developmen of he economy. Wihin his period, oil became he dominan secor of he economy, accouning for more han 90 % of expors and he main source of revenue. Beween 1972 and 1974, he Federal revenue from oil was abou 80% of he oal revenue. However, beween period, oil revenue from oil secor grew modesly due o OPEC (organisaion of Peroleum exporing counries) rules which required Nigeria o cu down oil producion. The Nigerian new wealh radically affeced he scope, and conen of invesmen, producion, and consumpion paerns, he governmen approach o economic managemen and policies and programmes implemened. During his period, he public secor driven growh policy was conceived and pursued. Governmens boh federal and saes esablished a lo of public companies which were ill-managed. According o World Bank [8], Nigerian expendiures increased doubling beween 1973 and 1974 and beween 1974 and Much of his increase wen ino public invesmens. Measured a 1984 prices, he share of invesmen in GDP increased from less han 12% in 1971 o more han 25% in Apar from he public invesmens he growh in oil revenue was absorbed by public secor spending. The increase 15

5 in public spending wen o improving ransporaion and social services. Transporaion faciliies, especially roads and pors were expanded significanly. However, many public projecs were underaken wihou he requisie analysis of heir long erm financial viabiliy and efficiency wih which such projecs were implemened in he pas. The rapid growh of he public secor and he consrucion boom ha accompanies he massive invesmen programme alered he prevailing paern of relaive prices and wages and changed he underlying srucure of he economy. A rapid increase in public expendiures nowihsanding, he growh in oil revenue was sufficien o mainain a federal budgeary surplus ye in 1976, expendiures began o oupace revenue. Sae budges also began o show deficis. Economic problems began o surface in 1978, bu a second oil boom in 1979 len confidence ha oil revenue would in fac be a sound basis for planning and susaining public secor consumpion and invesmen [9]. Alhough, he , period was ermed second oil boom, he economic problem ha had begun in 1978 remained unchanged. In , he erms of rade which has remained relaively consan hrough 1979, doubled. This promped he Nigeria governmen o increase public expendiures leading evenually o a defici in The overall growh in GDP was only 4.2% in Agriculural GDP grew by 6.4% and indusrial GDP by 7.3% bu peroleum secor GDP declined by 11.6%. Also expors fell by 9.5% while impors grew by 27.2%. In 1982 oil prices fell precipiously, leading o severe erms of rade and flucuaions in real income. All hese economic problems led he Nigeria governmen o a budge deficis and increase in exernal borrowing. To salvage he economy, governmen sough he World Bank and Inernaional Moneary Fund assisance and adoped Srucural Adjusmen Programme (SAP) in In 1986, Nigeria borrowed money from IMF wih condiionaliy. This escalaed he economic problems in he economy due o poor implemenaion and corrupion among he governmen officials responsible for he execuion of he programme. Mos budges hinged on he price of crude oil which means ha a fall in price of crude oil price was ranslaed ino budge deficis. Prior o hese decades agriculure was he main say of he Nigeria economy. Abou 70% of expor came from agriculure. Afer he reurn o democraic rule in 1999, Nigeria is seen as one of he fases growing economies in he world in he pas decade. The average annual growh rae of GDP over he period beween 2004 and 2012 is 6%.This was higher han he growh record in In 2011, he economy grew robusly a 7.45%. The expeced growh in 2012 is abou 6.5%. This is due o slow-down in world economy arising from he crisis in global financial markes and unsable global energy marke developmens. Real per capia income grew a 3% per annum. Despie he robus and susained economic growh, here is no ne gain in producive employmen for he majoriy of he labour force. The unemploymen rae rose from 14.1% in 2008 o 21.4% in The well-being of average Nigerian is declining. The incidence of povery rises significanly in boh absolue and relaive erms. The number of he people, ha is poor almos doubled beween 2004 and 2010 (68.7 o million) [10]. Povery incidence wihin his period rose by abou 20%. Anoher noable bu adverse developmen is he rend in he disribuion of he benefis of economic growh. The Gini coefficien, an indicaor for measuring income inequaliy, show ha income inequaliy increased, rising from in 2008 o in A grea challenge o Nigerian governmen oday is he mainenance of law and order. The abiliy of Nigerian governmen o manage her Inernal Securiy by he Securiy Agencies is being doubed. Primarily, he Federal Governmen is charged sauorily via he Miliary and Paramiliary Agencies o proec he ciizens from all forms of securiy hreas and incidens like armed robbery, kidnapping, civil disorder, large scale violence, insurgency, domesic 16

6 errorism and oher forms of securiy breaches. However, he opposie appears o be he case, judging from he spae of unforunae violence crises ha have engulfed he counry recenly, wih he aack on he Nigeria Police Force Headquarers and arm canonmen Kaduna as he mos disurbing one. These developmens in he Nigerian economy pose grea challenges o Nigeria mach o developmen saus in LITERATURE REVIEW 3.1 Theoreical Consideraions of Securiy and Economic Growh Economic developmen heoriss generally hold ha securiy is a prerequisie for economic growh [11].The heoreical link beween securiy and economic growh is no linear or direc. Securiy is no a physical inpu in he producion funcion. There are wo possible ways hrough which securiy impac on economic growh. Firs is hrough preservaion of lives and properies. Where insecuriy of lives and properies rises he economic performance is likely o be derailed. This is possible because workers embodied wih knowledge (human capial) are los in he process; capial per worker is likely o be reduced; innovaions may no ake place. Economic heory has i ha populaion is criical o economic growh. A counry wih a small populaion is consrained in erms of human capial producion and produciviy. However, if he counry wishes o mainain he level of is innovaion or R & D (Research and Developmen) aciviies or improve produciviy i can do his a high cos. I may choose o hire expariaes a high cos. The expariaes may accep o work in a counry wih high securiy risk a a price ha will cover he cos of he expeced risk. The second channel is hrough is effec on invesmen or erosion of invesors confidence on he hos counry. As insecuriy rises he proporion of GDP devoed o miliary spending or purchasing of arms increases. This divers funds from producive aciviies o unproducive ones. This migh be expeced o depress a counry's secular growh performance. Oher hings being equal, a rise in miliary spending exers a negaive impac on he rae of invesmen in (public and privae) producive fixed capial. This occurs because of wellknown crowding-ou effecs: an increase in miliary spending mus be financed eiher by raising curren axes or by borrowing (fuure axes). In eiher case, i will lower he expeced afer-ax reurn on producive fixed capial, while simulaneously reducing he flow of (domesic plus foreign) savings ha is available o finance producive fixed capial formaion in he domesic economy (see [12]; [13]). This channel is likely o be paricularly imporan in he case of ne-debor developing counries. Since such counries are faced wih exernal financing consrains, a rise in miliary spending o he exen ha i is no associaed wih larger ne capial inflows o finance a higher exernal curren accoun defici can be expeced o crowd ou capial invesmen and/or privae consumpion [14]. In he conex of developing counries, Hewi conends ha he jusificaion for miliary expendiures mus be from naional securiy grounds, since he economic benefis are limied. Apar from is effec on invesmen insecuriy is capable of eroding invesors confidence and hus diminishes he per capia oupu and learning by doing or echnology ransfer. Miliary expendiures may affec he growh pah of capaciy oupu hrough heir direc impac on he efficiency of resource allocaion. Since miliary spending is no governed by marke processes, i ends o creae disorions in relaive prices ha resul in a dead-weigh loss o oal producive capaciy. In addiion, i may exer negaive exernaliies on capaciy oupu. There are several ways in which hese inefficiencies direcly affec he growh rae. Firs, a higher deadweigh loss o domesic producion resuls from eiher an increase in 17

7 conemporaneous axes or heavier borrowing o finance higher miliary spending; borrowing from he banking sysem ofen leads o higher inflaion, which disors resource allocaion. Second, research and developmen aciviies may concenrae on miliary progress a he expense of echnological advances in economically-producive areas. Third, policies implemened o suppor a miliary program are ofen derimenal o efficien resource allocaion and marke growh: examples are rade resricions, naionalizaion of miliary equipmen producers, miliary procuremen preferences for cerain firms and indusries, and compulsory miliary service. Finally, ren-seeking aciviies grow around he miliary because of is non-compeiive allocaion of resources. In his way, over and above heir depressing effec on he level of invesmen, miliary expendiures may exer a direc adverse impac on he economy's producive efficiency. 3.2 Convergence Theory and Model The concep of convergence implies ha he poor counries wih iniial low GDP per capia grow faser han he rich counries or is he endency for per capia income of differen economies o equalize over ime. This is one of he predicions of Solow s [15] neoclassical growh model. Solow s model predics ha convergence exiss among differen economies regardless of he iniial condiions once he deerminans of aggregae producion funcion are conrolled for [16]. I herefore requires a negaive correlaion beween iniial per capia oupu and is growh rae, so ha poor counries will cach up wih wealhier counries. Diminishing reurns provide a simple economic underpinning for he convergence hypohesis. Barro and Sala-i-Marin [17] and Mankiw e al. [18] argue ha invesmen in human capial migh reduce he endency for reurns o diminish. However he insecuriy in an economy migh reduce he reurns on invesmens and hus prolongs he ime of convergence or caching up. Barro [19] and Mankiw e al. [20] find ha convergence can be achieved among economies ha exhibi similar characerisics and when human capial variables such educaion and savings raes are conrolled for. No all ess of convergence are ineresing in heir own righ bu hey emerge as one naural esable implicaion of alernaive models of growh. However, convergence is bu one implicaion of such models and does no in iself represen a full es of he compeing approaches. Currenly, hree basic esimaion and relaed esing approaches are used. a) Barro-ype ime series of cross secions: Here he cross-secion correlaion beween he iniial per capia oupu levels and subsequen growh raes for a group of counries is examined. Evidence of convergence exiss if a negaive correlaion exiss i.e. counries wih low per capia iniial incomes, on average, grow faser han hose wih higher iniial per capia incomes. We define he average growh rae for each (i) economies 1 as g T y y ). As such, ess of convergence involve he esimaion of he i, T ( i, T i, 0 following equaion: g i, T yi,0 i, T (1) where T is a fixed horizon and is a random disurbance erm wih mean zero. Suppor for he hypohesis is inferred if 0 wih he alernaive hypohesis, 0. Some formulaions would add exra conrol variables o equaion Eq. (1). For example, in Mankiw e al. [21] savings and populaion growh raes are included. In such cases, 0 implies ha convergence holds condiionally on some se of exogenous facors. The main echnical 18

8 problem wih such ess is ha hey canno idenify groupings of counries which are converging. Furhermore, hey are ess of caching-up no convergence as he 0 propery represens he process of converging (caching-up) no convergence iself. Tess of his cross-secional ype will no be uilized in his sudy, hough condiional convergence will be esed wih ime series of per capia income wih modificaion of his equaion. Onwuka, Baharumshah and Habibullah [22] uilised he modified Barro-ype o examine he convergence in per capia GDP and produciviy in ASEAN (Associaion of Souh Eas Asia Naions) counries. For uncondiional convergence his equaion was esimaed. g ln y ln y 1 ln y e (2) 1 For condiional convergence we specify he following equaion g ln y 1 ln Sec ln Ex ln rer e (3) where g is he growh of real GDP per capia, approximaed by logarihm difference, y 1, indicaes he rae of convergence and i is is he level of real GDP per capia a 1 expeced o be negaive. A posiive sign will indicae divergence. Sec is he inernal securiy; e is he random Ex is expor of goods and services and rer is he real exchange rae. error ha is normally and independenly disribued wih mean equal o zero and consan variance. b). Bernard-Durlauf ype ime series: In his approach, ess of convergence examine he long run behaviour of he differences in per capia oupu across counries. The main feaure of his class of ess is ha convergence which implies such differences will always be ransiory in he sense ha long-run forecass of he difference beween any pair of counries converge o zero as he forecas horizon grows. The main esing feaure of his approach is ha oupu differences beween wo economies conain a uni-roo or ime rend if he counries have converged. However, he approach also disinguishes convergence from he endency o cach-up, where again a srong implicaion is he absence of a uni roo, alhough significan ime-rend effecs can exis. In paricular, Durlauf [23] and Bernad and Durlauf [24] uilize he Dick-Fuller uni roo esing procedure as a ime-series based es for convergence. Here convergence implies oupu innovaions in one economy should be ransmied inernaionally. Tess for ime series noion of convergence require cross-counry per capia oupu differences o be saionary. Uilizing slighly differen definiions o Bernad and Durlauf [25], his can be illusraed via he conceps of caching-up and long-run convergence. Caching-up: consider wo counries i and j, and denoe heir log per capia real oupu as y i and y j. Caching-up implies he absence of a uni roo in heir difference yi y j. Nonsaionariy in y y mus violae he proposiion, alhough he occurrence of a non-zero i j ime rend in he deerminisic process in iself would no. Long-run convergence: Consider wo counries i and j, and denoe heir log per capia real oupu as y and y. Long run convergence implies he absence of a uni roo in heir difference i y y i j j and he absence of a ime rend in he deerminisic process. Caching-up differs from long-run convergence in 19

9 ha he laer relaes o some paricular period T equaed wih long-run equilibrium. In he former case, he exisence of a ime rend in he saionary y y series would imply a narrowing of he log per capia oupu gap or simply ha he counries hough caching up had no ye converged. This caching-up could be oscillaory, bu mus imply non-divergence of oupu differences. Conversely, he absence of a ime rend in he saionary series implies ha caching-up has been compleed. As defined in he foregoing, es of caching-up and long-run convergence hinge, herefore on he ime-series properies of y y. The naural roue for such ess involves Dick-fuller i j ypes ess based on he bi-variae difference in log per capia oupu beween pairs of he counries, i and j, i.e. y i y j n ( yi, 1 y j, 1 ) k ( yi, k y j, k ) (4) k 1 where y indicaes he logarihm of per capia oupu. If he difference beween he oupu series conains a uni roo, 1 oupu per capia in he wo economies will diverge. The absence of a uni roo, 1indicaes eiher caching-up, if 0 or long-run convergence, if 0. Tirelli [26] and Kumo [27] uilized he Bernar-Durlauf ype ime series o examine he convergence in per capia income and price sabiliy in Wes-Africa and Souhern Africa sub-regions respecively. Kumo finds ha he real per capia income of Boswana and Souh Africa ended o converge o he real regional average per capia GDP during he period While he Boswana s economic growh was anchored by higher savings and fixed invesmen raes during he period under consideraion he Souh Africa s improved performance was associaed more wih increased openness of he economy following democraizaion in 1994 and higher iniial income levels. In Nigerian vision 20:2020 he Nigeria aims o be one of op weny developed naions. We are no ineresed if Nigeria is converging o regional average per capia income bu raher if she is caching up wih he developed naions like USA, Briain, France ec. 4. TESTING STRATEGY Tesing sraegy for convergence wihin he Bernard-Durlauf-ype framework involves a wo sage process. Firs, check for he exisence of a uni roo in he difference beween per capia incomes in he wo counries concerned. The non-rejecion of a uni roo implies nonsaionariy and rejecion of he ime-series propery implies he convergence. Coningen on rejecion of he uni roo hypohesis is he convergence crieria requiremen ha significan ime-rend effecs are absen. Furhermore, srong convergence would imply he insignificance of he consan erm. Tesing for caching-up involves he firs wo sages of esing for convergence, i.e. rejecion of a uni roo and checks on he significance of he ime rend bu becomes an issue only if he ime rend is significan. Noe ha he concep does no require a zero consan. However, caching-up as a long-run propery of he model would be inconsisen wih a consan, non-ime varying, ime-rend as, asympoically, and a consan ime-rend effec would always imply divergence as ([28], [29]). Therefore caching-up characerised by saionary oupu differences and a consan ime-rend is relevan only for a paricular i j 20

10 finie T and only on he basis ha he counries have already converged. Hence, checking for convergence would be always he firs sage, which requires saionary oupu differences, followed by ess of caching-up. Noe, saionary oupu differences would imply eiher convergence or caching-up on parallelism,.i.e. idenical growh raes for all ime periods. In he bivariae case his requires ha he oupus be coinegraed wih coinegraing vecors [ 1, 1]. Li and Papell [30] refer o his noion of convergence as ime series convergence. If hey are coinegraed wih coinegraing vecor [ 1, ] here are common rends in oupu. Thus coinegraion beween economies is a necessary bu no a sufficien condiion for convergence. We examine he uni roo hypohesis in relaive per capia income, consumer price index of Nigeria and five developed economies - Briain, Unied Saes of America, France, Germany and Japan and four newly indusrializing economies Souh Africa, Souh Korea, Malaysia, and Singapore using ADF ess. Price sabiliy is one of he goals of macroeconomic policy. Price sabiliy allows us o limi he disorionary effecs of inflaion [31]. Some simulaions are essenial. For his exercise we pose he following quesions. A wha rae will Nigeria grow o reach he arge per capia income of $4,000 in he year 2020? To achieve his aim we employ he following ex book formula [32]. Nig Nig Nig n y 2020 y0 (1 g ) Nig 12 $ 4000 y0 (1 g Nig ) 4000 (1 y ) 12 g Nig Nig 0 Nig ln(1 g Nig ) ln 4000 ln y0 12 ln( 1 g Nig ) ln 400 ln y0 g Nig e Nig ln( 400 y0 ) / n 1 Nig /12 (5) where he $4,000 is he Nigeria per capia arge in 2020, Nigeria a he base period and n is he number of years. Nig y 0 is he per capia income of 5. DATA SOURCES The daa on real per capia income, consumer price index were colleced from World Key Developmen Indicaor (WDI) daa base [33]. The daa covers he period beween 1960 and The counry is grouped ino wo - developed and newly indusrializing economies. The developed naions included are Briain, Unied Saes of America, France, Germany and Japan while he newly indusrializing economies include Souh Africa, Souh Korea, Malaysia, and Singapore. 21

11 6. EMPIRICAL RESULTS 6.1 Times-Series Tes for Convergence We begin he analysis by esing for long run convergence and caching-up in per capia income differences as specified by equaion (4).We firs apply he convenional ADF ess o invesigae uni roos in relaive per capia income. We run a regression on he firs difference of he logarihm of relaive per capia income on a consan, he lagged level of he dependen variable and k lagged firs differences as seen in equaion (4). We use Schwarz informaion crierion o selec he lag lengh. We also run he ADF wih ime rend. Table 1A and 1B indicae ha for he period , here is evidence of convergence hypohesis, since a uni roo is rejeced in some cross-counry differences in GDP per capia. Wihou a ime rend, he uni roo is rejeced in wo cases of developed naions (USA-NG and UK NG) a 5% and 1% level of significance and here is evidence of Nigeria converging o he newly indusrializing naions excep in he case of Singapore. As is differen from zero, he convergence found consiues he evidence of deerminisic convergence (weak convergence). Counries Table 1A. Uni roo ess: Differences in GDP per capia ADF wihou rend Criical values k 1% 5% 10% USA-NG ** FR-NG GM-NG JP-NG UK-NG * * SK-NG * * SA-NG * * SG-NG MAL-NG * * Table 1B. Uni roo ess: Differences in GDP per capia ADF wih rend Criical values Counries k 1% 5% 10% USA-NG (0.518) *** FR-NG (0.2122) GM-NG (0.0105) *** JP-NG (0.0663) ** UK-NG (0.848) * SK-NG (0.524) * SA-NG (0.0293) * SG-NG (0.0948) ** MAL-NG (0.7845) * *denoes saisical significance a he 1% level, ** denoes saisical significance a he 5% level *** denoes saisical significance a he 10% level, Figures in bracke denoe probabiliies 22

12 Based on Table 1B, here is evidence of Nigeria converging bu here is no srong evidence of caching up wih he developed naions and newly indusrializing naions as he mos coefficiens are no significan and where hey are significan, he significance level is weak. We are able o rejec he uni roo hypohesis in favour of rend saionary alernaive if is significanly differen from zero. In his case saionariy of differences in per capia income consiues evidence of sochasic convergence. Alhough Nigeria rades exensively wih USA and Briain, bu she is no caching up wih hem. She is only caching up wih Germany and Japan. Table 2A presens he resuls of ADF ess wihou rend on differences in consumer price level. From he Table 2A here appears o be evidence of convergence in price level. Tha is, Nigeria is converging in price levels bu a differen raes o developed naions and newly indusrializing markes. The rae of converging o developed naions appears o be slow while he rae of convergence o newly indusrializing naions is faser. Table 2A. Uni roo ess: Differences in consumer price index ADF wihou rend Counries Criical values k 1% 5% 10% USA-NG ** FR-NG ** JP-NG ** UK-NG ** SK-NG ** SA-NG * SG-NG * MAL-NG * Table 2B. Uni roo ess: Differences in consumer price index ADF wih rend Criical values Counries k 1% 5% 10% USA-NG (0.3090) *** FR-NG (0.2211) *** JP-NG (0.1617) *** UK-NG (0.2113) *** SK-NG (0.2296) ** SA-NG (0.1309) * SG-NG ( ) * MAL-NG (0.2013) ** *denoes saisical significance a he 1% level, ** denoes saisical significance a he 5% level, *** denoes saisical significance a he 10% level Wih ime rend, however, here is sill evidence of convergence in price levels. Bu he convergence seems o be weaker for developed naions han he newly indusrializing naions (Table 2B). Nigeria is no caching up eiher wih developed naion nor h e newly indusrializing markes, as coefficiens are no significan a any level. 23

13 6.2 Uncondiional and Condiional Convergence To es he uncondiional and condiional convergence we uilize he Barro-ype ime series model as specified in equaions (2) and (3). Equaion (3) includes he conrol variables. The conrol variables we include are expor, inernal securiy and real exchange rae. As we menioned earlier, Nigeria is expeced o converge and cach up wih he developed naions and he newly indusrializing naions as she rades wih hem and paricipaes in mulilaeral rading sysem. In he analysis we uilize he linear regression (Auoregressive errors in Exac Maximum likelihood). The resuls of uncondiional and condiional convergence regressions are repored in Table 3. Table 3. Uncondiional and condiional convergence ess Uncondiional convergence Variables Coefficiens Sandard errors -sa Prob y ln 1 c Condiional convergence y ln 1 ln Ex lnise ln rer c R sa F (0.099) Log-likelihood raio =62.01 In he case of uncondiional convergence he lagged per capia income carries a negaive sign bu i is no significan. This means ha Nigeria is diverging. Also wih he conrol variables like inernal securiy, expor and real exchange rae, he lagged per capia income mainains is negaive sign and is marginally significan a 10% level. This indicaes ha here is evidence of convergence in per capia income or ha Nigeria ends o grow faser han he developed or rich naions. The coefficiens of inernaional rade, inernal securiy and real exchange rae are significan. This indicaes ha hese variables are necessary for Nigeria o converge and cach up wih he developed naions. Exporing raher imporing is a vial in convergence. This makes real exchange rae depreciaion meaningful. The inernal securiy is imporan as meaningful economic aciviies will no ake place in a naion where lives and properies are no secure. Inernal securiy, hough significan a 10%, needs o be improved so as o increase aggregae domesic producs. 6.3 Simulaions A wha rae will Nigeria grow o aain a per capia income of $4,000 in he year 2020 using he base year 2008? Using he equaion (5) i is discovered ha for Nigeria o aain $4,000 per capia income in he year 2020 i mus grow a he rae of 19.1% per annum. However, if Nigeria evenually aains his level of income per capia, in 2020, how many years will i ake 24

14 his income o double? Applying Rule 72, i will ake abou 4 years (3.77 years) 1 o double. As cach-up is he major issue in he vision 20:2020, i becomes necessary o know he rae a which Nigeria will be growing per annum o cach up wih hese counries per capia income in 2008 base year. We employed equaion (5) o calculae his rae. The resuls of his exercise are repored in Table 4. From he Table 4 i can be seen ha for Nigeria o cach up or aain he per capia income of USA in 2008 i will be growing a 72.2% per annum saring from he incepion of vision 20:2020 in From he incepion 2000 o 2020, o reach he 2008 per capia income of USA, Nigeria will be growing a he rae of 24.35% annually. For Nigeria o cach up wih Souh Africa per capia income in 2008, i requires Nigeria o be growing a he rae of 10.7% per annum. Table 4. Percenage a which Nigeria will grow o reach base year (2008) income Counries (8yrs) (%) (20yrs) (%) (12yrs) (%) USA UK France Gm Japan Souh Africa Souh Korea Singapore Malaysia Calculaed by he auhor using equaion 5. We can infer from Table 4 ha Nigeria is no caching up in income levels wih any of he counries considered eiher developed or newly emerging marke economies. This is simply because hey differ in srucural parameers producion echnology, saving rae, and in he rae of echnological progress. According o predicion of Solow-swan model convergence will occur across counries in boh growh raes and income levels if all srucural parameers (producion echnology and saving rae) and he rae of echnological progress are he same. In his case, he poor counries will iniially exhibi lower capial-labour raio han richer ones. This implies a higher marginal produc of capial. Thus, given he equal raes of echnological progress, labour force growh and domesic saving rae, heir capial sock growh will exceed ha in richer counries during a ransiional period, bu hey should converge o capial-labour and capial-oupu raios. As i can be observed Nigeria is no way approaching he sandard of producion echnology obained in developed naions or he newly indusrializing economies of Asia. For Nigeria o aain he level of per capia income of Malaysia in 2008 i needs o grow a he rae of 12.5% annually. The differen growh raes and number of years i will ake Nigeria o reach he expeced per capia income of $4,000 in he year 2020 are shown in Table 5. If Nigeria should grow a he rae of 5% per annum i will ake Nigeria abou 43 years o reach $4,000 per capia in Growing a he rae of 25% per annum will ake Nigeria abou 9.4 years o aain he expeced per capia income. 1 Rule of 72 is a simplified way o deermine how long will ake an income o double given a fixed annual rae of growh. Given, 19.1% annual growh rae, $ 4, 000 per capia income will double in 4 years. 25

15 Table 5. Number of years o reach $4,000 per capia a differen growh raes Percenage No. of years Calculaed by he auhor using equaion 5. I should be noed ha Nigerian GDP per capia growh rae in 2009 and 2010 were 7.0% and 7.9% respecively (World Bank, 2010). If Nigeria should growh a hese raes, i would ake her abou 31 years for growh rae of 7.0% and 27.3 years for growh rae of 7.9%. Nigeria is growing bu he growh rae is no so impressive o aain he arge per capia income in he year The resuls are in line wih previous empirical findings on economic convergence. For insance, he convergence per capia income in Souhern Africa [34], Wesern-Africa [35] and Easern and Souhern Africa [36] is oward a regional average for deeper regional inegraion which Nigeria is no aspiring o bu raher owards a developmen saus. Alhough here are some evidences of convergence, and few for cach-up, he need for macroeconomic sabiliy does no require an absolue sance on policy harmonisaion (i.e. convergence of macroeconomic policy). To mee he Nigerian aspiraion policies mus be designed o address naional developmen needs and since circumsances may differ, policies may a imes have o diverge. Nigeria achieving a convergence in moneary policy or inflaion rae may be possible bu he cach-up seems impossible a he presen circumsances of he economy. The curren inflaion rae was 11.3% in Sepember, 2012 and here is endency ha i will rise more. The unemploymen rae in 2011 was 21% and saving rae is quie low compared o he benchmark counries he aspiraion is no somehing ha can be achieved wihin a fixed ime period of I ough o be gradual process. The macroeconomic policy divergence winessed in some cases has been driven primarily by he global financial and economic crises which were preceded by sharp rises in commodiy and food prices. However, lack of poliical commimen and weaknesses in economic srucures such as heavy dependence on oil expors and high level of unemploymen have conribued o slow macroeconomic policy alignmen in Nigeria. 7. CONCLUSION AND POLICY IMPLICATIONS The resuls do indicae ha here is evidence ha Nigeria will converge wih wo developed naions (USA and UK). This is parly because Nigeria rades mosly wih Unied Saes and Unied Kingdom. Among he newly emerging markes, Nigeria can only converge wih hree counries namely Souh Korea, Souh Africa and Malaysia. Since he paern of convergence is no consisen even when ime rend is included, i means ha Nigeria has no consisenly achieved a pah of economic growh or developmen. This may be due o 26

16 differences in producion echniques and echnology. I is ineresing o noe ha Nigeria can cach-up wih Japan, Germany, Souh Africa and Singapore in he long run bu his is no srongly assured. I appears ha he exisence of convergence hypohesis does no provide unequivocal suppor for he Solow model since he observance of leap flogging behaviour is inconsisen wih his framework. From he resuls of he analysis i is observed ha Nigeria can possibly achieve a similar inflaion rae wih he developed naions and newly emerging markes. This is clear as mos of he coefficiens are significan. Bu however, he measures (like manufacuring for domesic consumpion and expors) o narrow he inflaion rae o one digi are no srong enough o expec such in he near fuure. There are some policy implicaions ha emerged from he resuls. As inernal securiy is crucial for Nigeria convergence, coninued insecuriy like armed robbery, kidnapping and miliancy (boko haram) is likely o derail Nigerian developmen pah. There is a grea need for srong measures ha will ensure minimum securiy of properies and lives. Where properies and lives are los due o crimes, he growh rae is affeced direcly or indirecly. Wih he curren waves of insecuriy in Nigeria, individuals are no free o expand heir opporuniies in life. The fear of being exposed o kidnappers hinders invesmens. The los of skilled workers affec manufacuring firms produciviies on which he growh of an economy ends o depend mos. Thus he non-oil expors will end o decrease as he firms produce under capaciies. Secondly mos Nigerian invesors may prefer invesing abroad o domesic economy. This makes he mach o developmen saus in 2020 more difficul, if no impossible. Too, unemploymen will end o increase as invesmens shrink. Nigeria is growing bu he rae of growh is lower han i is expeced o aain a argeed per capia income in he year In his regard, more suppor ough o be given o he manufacuring secor where mos growh is expeced o come from. Policies like ax breaks o indusries need o be pu place o enable hem expand producion and expors. Infrasrucures should be provided o reduce he producion coss which will enable he indusries o produce a compeiive prices. COMPETING INTERESTS Auhor has declared ha no compeing ineress exis. REFERENCES 1. Nigeria Governmen. Nigeria vision 20: 2020 Economic Transformaion Blueprin; Nigeria Governmen. Nigeria vision 20: 2020 Economic Transformaion Blueprin; Onyema E. Inernal Securiy and Miliancy Managemen in Nigeria. Nigeriaworld; Available: hp://nigeriaworld.com. 4. Bendix, Daniel and Sanley, Ruh. Securiy Secor Reform in Africa: The promise and he pracice of new donor approach. The African Cenre for he Consrucive Resoluion of Dispue (ACCORD), Occasional Paper Series. 2008;3(2): DeLong BJ. Produciviy growh, convergence, and welfare. American Economic Review. 1988;78:

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