This study investigated the effect of monetary and fiscal policy on unemployment rate in Nigeria. Data covering the period of 1986 to 2018 were sourced from Central Bank of Nigeria Statistical (2018) and National Bureau of Statistics.
Non-experimental research design was adopted, the design was preferable because the data for this study is secondary and historical data. The estimation of the effect of international trade on economic growth was conducted using the Ordinary Least Square procedure. Analysis of data collected was conducted using Augmented Dickey-Fuller unit root test, Bound Co-integration, Autoregressive Distributed Lag and Pairwise Granger Causality techniques. Based on the Augmented Dickey-Fuller unit root test, it was found government total expenditure and trade openness were stationary at level while manufacturing productivity, broad money supply, exchange rate and inflation rate were stationary at level.
The study revealed that: Monetary and fiscal policies played important and significant role in improving business sector performance. Monetary and fiscal policies have the capacity to influence business sector performance in the long run in Nigeria.
The study concluded that economic policies are effective in stimulating business sector performance in Nigeria. The study further recommends that: The current monetary policy should be sustained. The trade policy of the nation should be revisited and improved upon. Exchange rate should be stabilized.
1.1 Background to the Study
Achieving private sector growth is one of the major objectives of government in both developed and developing countries. This is because private sector’s business serves as tool of growth and development through the effective and efficient utilization of economy resources in productive and value enhancing activities. Thus, diverse economic policies are formulated by government to achieve business sector growth.
Economic policies comprises of policy frameworks that are formulated by government to influence the level of business and economic activities. It involves the guidelines of government regarding the conduct of economic activities which influence private sector investment (Gado, 2015). Ibeto (2011) described the economic policies as factors arising from changes in government policies and programmes, which influence the ability of economic entities in achieving their goal.
The efficiency in the usage of the quantity and resources (renewable and non-renewable) and state of technology and in both the production and consumption processes relied on the effectiveness of government economic policies. Economic policies refers to forces and issues emanating from decisions of government and policy makers, which are capable of altering the expected outcome and value of a given economic action, by changing the probability of achieving business objectives (Nwaiwu & Nwaiwu, 2015). Richard, Devinney, George and Johnsonl (2009), maintain that the successful performance of companies depends to a great extent on the economic policies of the government.
Initially economists were of the opinion that government policies have no impact on business cycle but after the great depression of the 1930’s, Keynes showed that government policies could affect business cycle (Ibrahim & Muritala, 2015). For example, if government imposes taxes and duties that are not commensurate with its profit margin on a particular sector, businessmen can lose interest in the sector and move their capital to another sector. Similarly, tax and duty exemption for a particular sector would encourage businessmen to invest more in the sector thereby making the sector to be attractive to other investors. Furthermore, if a country’s monetary policy ensures availability of loans at a reasonable rate, investment will also grow. Also, the trade and external policies of government through exchange rate and level of openness to trade may have effect on business activities (Ibrahim & Muritala, 2015).
Globally, the prevailing economic policy has a tremendous impact on a country's business. For example, the USA manipulated the UN to impose sanctions on Iraq in the 1990s, these sanctions destroyed Iraqi business for which it lost business worth billions of dollars as well as money in banks in USA and its allies (Gado, 2015). In an attempt to facilitate industrialization and business growth in the country, over the years, different economic policies like import substitution approach, export promotion strategy and foreign private investment led industrialization, trade liberalization policy, monetary and fiscal policy and exchange rate policy have been formulated and implemented by developed and emerging countries like China, United State of America, France, Germany, Japan, South Korea and United Arab Emirate among others. Since 1960, the major problem of African continent is the promotion of business development and as a result of this industrial development was perceived as a means of gaining self-reliance and lower dependence on the industrialized economies (Isiksa & Chimezie, 2016). However, diverse policy reforms are formulated in order to promote industrial growth through the promotion of industrialization led economy in most Africa countries among which include Structural Adjustment Programme, Free Trade Zone Policy and Single Monetary Unit among ECOWAS nations.
In Nigeria since independence government has adopted numerous economic policies and reforms. Over the years, the Nigerian government have adopted different polices in enhancing the growth and development of the private sector business. Some of these strategies include import substitution strategy, export promotion strategy and Local resource-based strategy, Nigerian indigenization policy, trade and financial liberalization and Structural Adjustment Programmes (SAP), fiscal and monetary policy and external policy among others. The liberalization policy implemented in 1986 through the adoption of the structural adjustment programme and the successive reforms was aimed at opening the Nigerian economy to the rest of the world in order to promote private sector business and economic growth. Thus, it is of great importance to examine the effect of these economic policies on private sector business in Nigeria.
1.2 Statement of Problem
Private sector business development determines the extent of the growth and development of a nation through the effective and efficient utilization of natural resources. It plays a crucial role in the development process of an economy and serves as a measure of the level of advancement of an economy.
Nigerian economy has been anchored upon industrial led economy through the enactment of the growth and performance of private sector business before independence. Fiscal policy diverse fiscal policies have been formulated by government to enhance business sector performance (Imide, 2019). In spite of the large government budgets and the adoption of expansionary policy, the business sector has not experience meaningful growth to reflect the growth of government expenditure. Fiscal policy like tax holiday has helped to grow some notable companies i.e. Dangote groups and Honeywell groups in Nigeria. Value added tax (VAT) as a major source of revenue to the government is a huge burden on most firms in Nigeria. Most of these firms prefer to enjoy tax holidays and shift the burden of VAT to their consumers (Ibrahim & Muritala, 2015).
The performance of businesses in Nigeria over the years has not been impressive. It is generally believed that monetary policy through monetary policy and inflation rates instability constitutes a major constraint to domestic investment in Nigeria (Okonkwo, Egbulonu and Emerenini, 2015). Also, inability of government to use monetary policy in directing financial institutions like commercial banks to increase lending to private sector business at low lending rate also contributed negatively to business performance (Imoughele & Ismaila, 2015).
Also, series of trade policies have been formulated by government to stimulate private sector business. While efforts has been made by government to enhance business sector performance through promotion production and consumption of locally made products and SMEs development, the underutilization of resources and low capacity of the business sector is still worrisome (Ogu, Aniebo & Olekwa, 2016).
Furthermore, the increasingly complex financial integration of economies coupled with turmoil in currency markets and their impacts have revived interests on external sector variables, their volatility, and how they affect the domestic economy Ndu-Okereke & Nwachukwu, 2017). Exchange rate which constitutes important external servitor policy may have negative effect on business performance. Generally, the massive devaluation of the Naira since September, 1986 and price instability has resulted in a considerable increase in the cost of production in the country which negatively affects business sector performance (Okereke, 2017). As a direct consequence of the devaluation, producers have found that they need more thousands of Naira to procure the same quantity of inputs (Olukosi, 1993). Thus, given the statement problem, this study investigates the effect of economic policies on business in the private sector.
1.3 Objectives of the Study
The main objective of the study is to examine the impact of economic policies on business in the private sector. The specific objectives are:
- To assess the effect of fiscal policies on the private businesse sector productivity.
- To investigate the effect of monetary policies on the private businesse sector productivity.
- To explore the effect of trade policies on the private businesse sector productivity.
- To explore the effect of external policies on the private businesse sector productivity.
1.4 Research Questions
The questions of interest in the study are:
- To what extent has fiscal policies influenced the private business sector productivity?
- What is the contribution of monetary policies to private business sector productivity?
- What is the impact of trade policies on the private business sector productivity?
- What is the impact of external policies on the private business sector productivity?
1.5 Research Hypotheses
Based on the objectives, the following hypotheses were developed in order to make valid conclusion on the subject matter. The hypotheses are expressed in their null form:
- H01: Fiscal policies have no significant effect on private business sector productivity.
- H02: Monetary policies have no significant effect on private business sector productivity.
- H03: Trade policies have no significant effect on private business sector productivity.
- H04: External policies have no significant effect on private business sector productivity.
1.6 Operationalization of Variables
The dependent variable is business performance, represented by manufacturing productivity. On the other hand, economic policies, being the independent variable, isproxied by fiscal policies, monetary policies, trade policies, external policies.
Y= f (y0)
Y= Business Performance.
y0= Manufacturing Productivity.
X= f ( x1, x2, x3, x4)
X= Economic Policies.
x1= Fiscal policies
x2= Monetary policies
x3= Trade policies
x4= External policies
The four specific objectives are operationally expressed as:
Fiscal Policies and Manufacturing Productivity
y1= f (x1)
y1= b0 + b1x1 + u
Monetary Policies and Manufacturing Productivity
y2= f (x2)
y2= b0 + b1x2 + u
Trade Policies and Manufacturing Productivity
y3= f (x3)
y3= b0 + b1x3 + u
External Policies and Manufacturing Productivity
y3= f (x3)
y3= b0 + b1x3 + u
1.7 Significance of the Study
This study is expected to be of great relevancy to the Nigerian economy. Firstly, the private sector would find this research work important as it will enable them to know the economic implications of various economic policies on their corporate performance. The policy makers will also find the study useful as it will expose them to the effect of the macroeconomic policies on firm performance and its ultimate effect on the economy at large. The current administration with her promises and change mantra will also find this study useful given the myriad of challenges facing the business sector and the economy. Lastly, researches on the current study is very scanty in Nigeria, thus it is hoped that this study will also provides a basis for further study.
1.8 Scope of the Study
The study is streamlined to economic policies variables such as fiscal policies, monetary policies, trade policies, external policies and manufacturing sector productivity. The study will cover the period of 1986 to 2018. This period is selected to take into cognizance of the Structural Adjustment Programme which marks policy short towards the formulation of diverse policies to enhance manufacturing sector policy.
1.9 Definition of Terms
Economic Policies: These are policy frameworks of government that use to control and regulate economic and business activities in order to achieve desire level of growth and development. Business Performance: This is the financial improvement of an organization in terms of increased earnings, profitability or revenue.
Fiscal Policies: These involve the use of government expenditure and taxation power to regulate the level of economic activities and achieve sustainable growth.
Monetary policies: These involve the control of money supply and credit creation in order to achieve desired macroeconomic objectives of price stability and economic growth.
Trade policies: These are policies formulated to enhance the trade relation and performance of an economy.
External policies: These are policies formulated by government regarding the dealings of the nation with foreign countries in terms of business and other activities.
Productivity: This is the state or quality of being productive.
The study contained five chapters. Chapter one discussed the introduction of the study. It contains the background to the study, statement of problem, research questions and objectives amongst others. Chapter two reviewed relevant literatures related to the study in the context of conceptual review, theoretical review and empirical review. Chapter three presented the research methodology adopted in the study. Chapter four contained the presentation and discussion of results. Chapter five contained the summary of findings, conclusion, recommendations and suggestions for further studies.