THE IMPACT OF INFRASTRUCTURE ON ECONOMIC GROWTH: A CASE STUDY OF NIGERIA (1980-2011)

ABSTRACT

This research work attempts to provide empirical evidence of the impact of infrastructure on economic growth in Nigeria. The research work made use of the ordinary lease square (OLS) technique to capture the effect of infrastructure on economic growth. This work covered a period of 31 years from 1980-2011. The finding shows that infrastructure has great impact on the economic growth of Nigeria. In other words, increase investment in infrastructure will lead to corresponding increase in economic growth. The study also shows that increase in the provision of health and education infrastructure facilities has a positive and statistically significant relationship with economic growth. The researcher recommends that in order for Nigeria to meet its vision 2020 agenda it has to increase and improve the infrastructure base.

CHAPTER ONE

1.1     INTRODUCTION

The economic growth and development of a country is reflected in the increase in its productive capacity i.e potential increase in the goods and services produced by its factors of production. It reflects also in the level of efficiency in the allocation of factors of production and output among different economic agents in the country. The ability to maintain the aforementioned depends on many supporting services and facilities that are available in the economy and which are usually referred to as “infrastructures”. Infrastructure constitutes a basic important service that should be put in place to enable growth to occur in a country. Socio-economic development can be facilitated and accelerated by the infrastructure like education, electricity, transportation, communication and good health. If these various infrastructures are not put in place, growth will be very difficult. The provision of infrastructure such as (education, power, communication, transportation and health) would expand productive capacity of the economy and increase the goods and services in the country.

Many studies have shown that in order to enhance growth and development in developing economies, investment in infrastructure is an imperative need. For example Canning and Petroni (2004) investigated the long run impact of infrastructure provision on per capital income in a panel of countries over the period of 1950 to 1992 and provided evidence that in majority of cases infrastructure stimulate long run growths effects. And that a strong association exists between the availability of certain infrastructure and per capita GDP investment in infrastructure has a direct and indirect effect in the economy. The direct effects comes from the fact that in the initial stage of the provision of infrastructure in any economy or nation, in order to create roads, electricity, communication, transportation and health, short term jobs would be created in the sense that labour would be used in the building of roads, electricity etc. the indirect effect occurs in the long-run after the various infrastructure has been put in place to foster the production capacity of good and services in any given economy. (Ayanwu, 2009).

Awoseyila (1996), maintained that inadequate provision of infrastructure leads to low level of investment and high cost of goods and services in Nigeria. The inability of the Nigerian government to provide or mobilize enough financial resources to undertake the provision of adequate infrastructure for economic growth and development could result in low level investment and high rate of unemployment coupled also with increase in the poverty level of the country.

John Black defined infrastructure as the capital equipment used to produce publicly  available services, including  transportation, telecommunication, power, health services and education.

In economic terms, growth has traditionally meant the capacity of a national economy, whose initial economic condition has been more or less static for a long term, to graduate and sustain an annual increase in its gross national product (GNP) at rates of 5 per cent or more Ndukwe (2004).

From the above it can be pointed out that delivery of services like water, sanitation, transportation and energy directly benefit households and can dramatically improve their welfare and contribute to their productivity. Many of the benefits of infrastructure services accrue to firms: infrastructure through services lowers production costs (transportation and communication services), expands market opportunities (especially transport and telecommunication sub-sectors) that positively affect competitiveness and production and lead to economic growth. Similarly, the goals related to human development (education and health) rely on services that require supportive infrastructure-water and sanitation to prevent disease, electricity to serve schools and health clinics, and roads to access them. It should be said that the relationship and investments to economic development is very heterogeneous and investment to infrastructure stimulate growth and at the same time higher growth often leads to higher demand for infrastructure.

1.2     STATEMENT OF PROBLEM

Availability of infrastructure is expected to be one of the major objectives of any government. This is so because of its level of importance. This infrastructure sub-sector serves as a lubricant for efficiency of other sectors in an economy. Hence over the years, the unavailability of social and economic infrastructure has gone a long way to hinder the functioning of the other sectors of the economy as a whole. Industries facing global competiveness depend more and more on modern and efficient local infrastructure to enhance low operational cost and high quality services. Traditionally, the construction and operation of infrastructural facilities (education, electricity, communication transportation and health) has been the exclusive domain of the public sector but in recent years, how ever, this has been the surge in the demand for private financing of infrastructure due to several factors:

  • Lack of government financial resources to maintain appropriate levels of investment.
  • New demand, both in terms of sophistication and broad spectrum of infrastructure services
  • A decline in concessional and (both bilateral and multilateral) for infrastructure projects, and
  • Dissatisfaction by the local population and industry with the level and services of existing infrastructure services which has been principally due to inefficient public sector administration.

The trend in infrastructure development has been very disappointing over the years especially when considering the standard of infrastructure services in the country. This raises concern about the measures taking by government to improve infrastructure provision. Unfortunately it is seen that concerned efforts made by the government to revitalize the infrastructure sector has been perceived not to enough. This problem has been lingering from time to time despite the various programmes taking by the government such as River Basin Development Authorities (RBDA), Nigerian Building and Road Research institute (NBRRI) as well as Rural Water Supply and Sanitation Programme (RWATSAN).

It is therefore the concern of this study to investigate into the limiting factors that affect infrastructure development in Nigeria. And also, to access the contribution of infrastructural development to economic growth in Nigeria.

1.3     OBJECTIVES OF THE STUDY    

The broad objective of this study is to ascertain the role of infrastructure in the actualization of a sustainable economic growth in Nigeria. A way of doing this is to measure the effects of socio-economic infrastructure facilities on the growth process of the economy expected to hold for a very long term so much so that it catapult into the pace of economic growth.

The specific objectives are:

  • To examine the influence of government expenditure on health and economic growth in Nigeria.
  • To examine how education has been able to influence economic growth.
  • To analyze the trend of economic growth and infrastructure growth in Nigeria.

1.4     RESEARCH HYPOTHESIS

The working hypothesis for this study is:

H0:     There exist no significant relationship between infrastructural provision and economic growth in Nigeria.

HI:     There exist a significant relationship between infrastructural provision and economic growth in Nigeria.

1.5     JUSTIFICATION OF THE STUDY

Since infrastructure contributes to production activities. At the same time, it improves the living conditions of the general public. Every citizen consumes some amount of public goods and services. This means that the poor as well as the rich can enjoy the benefits it provides. Thus the development of infrastructure may be considered a prescription we need in Nigeria for increasing growth rate.

This study draws its justification from the indisputable fact that the provision of adequate infrastructure helps determine one’s country’s successes and another ability to diversify production, expanding trade, coping with population growth, or improving environmental conditions. Good infrastructure raises productivity and lower production cost. It also helps the poor and the whole society to contribute to environmental sustainability, clean water and sanitation and state disposal of solid water which provides environmental benefits for all income groups. Thus, accessing the rule of infrastructure in the actualization of a suitable economic growth in Nigeria is imperative.

1.6     SCOPE AND LIMITATION OF THE STUDY

The research work focuses on economic infrastructure of the Nigerian economy; it takes into consideration two infrastructure services which are health and education.

LIMITATIONS

  • Absence of quantitative and adequate data.
  • Time constraint during the study
  • Inadequate research such as journals, books and others.
  • Financial constraint.

1.7     ORGANIZATION OF THE STUDY

Chapter one entails the introduction, the statement of the problem, objectives, research hypothesis, significance of the study, scope and limitation, and organization of the study. Chapter two contains meaning of infrastructure, concept of infrastructure, concept of economic growth, the big push theory of growth, theoretical review, overview of the Nigerian infrastructure, empirical review, cases of inadequate infrastructure in Nigeria, the effect of inadequate infrastructure in Nigeria, efforts taking by the government to solve the menace of inadequate infrastructure, problem of infrastructure in Nigeria. Chapter three comprises the research methodology, model specification, estimation technique and source of data and measurement, method and techniques of analysis, chapter four contains analysis and interpretation of result, while chapter five contains summary, conclusion and recommendations.