Econometric Analysis Of The Impact Of Globalization On The Nigerian National Savings

Introduction

Background To The Study

The relationship between globalization and financial development has been a subject of considerable interest to development economists in recent years. The concept of globalization, which is the great economic event of our era, is not of recent birth but a concept, which has been in the economic literature from the outset of time. Globalization is the process of increasing integration of national economies with the rest of the world to create a more coherent global economy. Globalization is the integration of national economies through trade and financial transactions, a process which has almost tended to inhibit the effectiveness of domestic policies to achieve its aim and objective.

Globalization links up various activities that takes place in the world today irrespective of the distance and it affect everything ranging from poor or low economic growth rates. The financial system of any country, especially the financial market which consists of the money market, the capital market and the banking sector play an important role if the country in question is to have any benefit from globalization. The major driving force of globalization is capital flow, which are very important in the development of a country. It is important to note that globalization is multi-dimensional and have various aspect which include: industrial, financial, economic, political, informational, cultural, ecological, social and technical/legal globalization. However, the focus of this study is financial globalization which means the emergence of world wide financial market and better access to external finance for corporate, national and sub national borrowers. IT could also mean the realization of a global common market, based on freedom of exchange of goods and capital.

Banks are statuary vested with the primary responsibility of financial intermediation in order to make fund available to all economic agents the intermediation process involves moving funds from surplus sector / units of the economy to deficit sector/units. The extent to which this could be done depends on the level of globalization of the financial sector as well as the savings (National Savings). The availability of investment funds is therefore regarded as a starting point for all investments in the economy which will eventually translate to economic growth and development (Uremadu 2006).

In nigeira, Nnanna, Englana and odoko (2004) are of the view that the level of fund mobilization by banks is quite low due to a number of reasons, ranging from low savings deposits rates to the poor banking habit or culture of the people. Most banks target corporate customers and government deposits and pay little or no attention to small savers.

Therefore, the impact of globalization on the national savings in the economic growth and development cannot be over-emphasized. Conceptually, savings represent that part of income not spent on current consumption. When applied to capital investment, savings increase output (Olusoji, 2003). Institutions in the financial sector like Deposit Money Banks (DMBs) or commercial banks mobilize savings deposit in an economy, the deposit rate must be relatively high and inflation rate stabilized to ensure a high positive real interest rate, which motivate investors to save from their disposable income. In Nigeria, the problem of mobilizing savings and deposits has always been the bane of economic growth and development.

From the foregoing discussion, it is clear that an understanding of the impact of globalization on the aggregate national savings which is critical in designing policies to promote savings, investment and growth (Umoh, 2003). Accordingly, for an effective mobilization of savings, it is vital to understand or capture the core leading determinants of savings in Nigeria globalization is capable of positively affecting the developing economics like Nigeria through production of rapid growth and development, increased transfer of technology free access to foreign savings, acquisition of new technologies, increase employment and higher standard of living.

Even with these positive side of globalization, lay some risks and dangers which comes as a result of increased integration of national economics. Among the risk is that it reduces the autonomy of independent state such that small open economy risk instability as a result of external shocks particularly in declining terms of trade increase unemployment and also creates avenue for dumping which is unethical to local industries. In Nigeria and other developing economies, that globalization has a significant effect on financial saving especially time and savings deposits while the structure of deposits was determined by differentials in deposit rates as has been demonstrated in (Ndekwu, 1991).

Statement Of Research Problem

Historically, there seem to be a consensus among historian that in the nineteenth and twentieth century, globalization actually facilitate financial system. In fact, some empirical observations tended to depict that developing countries have actively benefited from globalization and in return has enabled their economies to enjoy higher rates of growth of national income and savings.

The Nigeria financial system has remained largely undeveloped. The globalization of the national savings which means gain from both private and public savings and capital but the Nigerian financial system has not fully maximized this benefit gaining limited or no growth. Apart from stiff competition in the range of financial activities, the financial system also faced problem associated with a stubborn slow-down in economic activities, severe political instability, virulent inflation, worsening economic and financial condition of their corporate borrowers and increasing incident of fraud and embezzlement. All these factors – deregulation, competition, innovation, economic recession, political instability, escalating inflation and frequent reversal in monetary policy – have combined to create a challenging and precarious financial environment.

It is therefore necessary for developing countries like Nigeria to carry out continuous reform programmes in their financial system (National savings) in order to reap beautifully from the effect of globalization.

Objective Of The Study

The objective of the study is to examine the impact of globalization on the Nigeria National Savings and the implication that it has on the Nigeria National savings (financial system).

Specifically, the objective of the study includes:

To examine the challenges that the Nigeria National Savings faces in the light of increase globalization.

To examine how the Nigeria National Savings would respond in the light of increasing capital flow as a result of trade.

To examine how the Nigeria economy can be fully integrated into the scheme of things and prevent the risk of being marginalized by the new economic trend called globalization.

 

Research Hypothesis

In order to provide a fundamental framework upon which to carry out this research work, the following hypothesis have been formulated.

Ho (Null Hypothesis): There is no link between globalization and national saving.

H1 (Alternative Hypothesis): There is a link between globalization and National Savings.

 

Scope Of The Study

The scope of this research covers the period 1980 – 2006. The research is focused on the concept of globalization and its effect on the Nigeria National Savings. Time series data will be employed for the period under review.

Methodology

In this research work, the ordinary least square method (OLS) will be used to access the degree of relationship between the dependent variable and the independent variables. The t-ratio will be used to test for the significant of the parameters and data use will be obtained form secondary sources like Central Bank Statistical Bulletin, and Annual Reports and Statement of Accounts. (various years), international financial statistics of the IMF and the Nigeria federal office of statistics (Abuja).

Limitations Of The Study

Nothing will limit the result and findings of this study more than the data. Secondary data will be heavily relied on in carrying out this empirical analysis. The extent of reliability on the outcome of the study depend critically on the accuracy of data used.