The Impact of Naira Devaluation on Small and Medium Enterprises (SME) in Nigeria

TITLE PAGE

 

THE IMPACT OF NAIRA DEVALUATION ON SMALL AND MEDIUM ENTERPRISES (SME) IN NIGERIA

 

 

BY

 

 

OHAEGBU HENRY SOMTOCHUKWU

2012034025

 

 

A PROJET SUBMITTED TO THE DEPARTMENT OF ECONOMICS, FACULTY OF SOCIAL SCIENCES

CHUKWUEMEKA ODUMEGWU OJUKWU UNIVERSITY (COOU)

IGBARIAM CAMPUS

 

 

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE BACHELOR OF SCIENCE (B.Sc.) DEGREE IN ECONOMICS

 

 

 

 

 

 

 

 

JULY, 2016.

 

APPROVAL PAGE

In accordance with the due regulations of Chukwuemeka Odumegwu Ojukwu University, Igbariam Campus, this project work titled “the impact of Naira Devaluation On Small and Medium Enterprises (SMEs) in Nigeria” has been approved and accepted in partial fulfillment of the requirements for the award of Bachelor of Science (B.Sc.) Degree in Economics.

 

 

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Dr. (Lady) Onwuteaka I. C.                                             Date

Project Supervisor (1)

 

 

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Dr. Oguanobi Chibuike                                                   Date     Project Supervisor (2)

 

 

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Dr. (Mrs.) Mgbemena, Emilia M.                                     Date

Head of Department

 

 

 

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External Examiner                                                         Date

 

 

 

 

CERTIFICATION

I hereby certify that I am responsible for the work submitted in this project. The original work is mine, except as specified in the acknowledgement and references, and that the project has not been submitted to this university or other institution for the award of a Bachelor’s Degree.

 

 

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Ohaegbu, Henry Somtochukwu                                     Date

(Researcher)

 

 

 

 

 

 

 

 

 

 

 

DEDICATION

This work is dedicated to God Almighty.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACKNOWLEDGEMENTS

My greatest appreciation goes to the Almighty God for the life, protection, provision and direction he has given me throughout my academic year in the University.

 

My special thanks goes to my supervisors Dr. (Lady) Onwuteaka, Ifeoma C. and Dr. Oguanobi Chibuike for supervising this project, and their advice, inspiration and invaluable assistance and suggestions which led to the successful completion of this work.

 

I also wish to express my gratitude to the Head of department Dr. (Mrs.) Mgbemena E. M., for her great impact in my life through my course of study in the institution. Also to my lecturers; Dr. Akamobi A., Dr. Ezeanyaeji C. I, Prof. Ikpeze N. I., Prof. Onah, Dr. (Mrs.) Maduka, A. C., Dr. Agu A. O., Dr. Obi, C.Y., Lord Nuel Ifebi O., Mr. Ibekilo B., Mr. Ekesiobi C.S. and Mrs. Ugwunna Ogochukwu. who in one way or the other contributed to the successful completion of this work.

 

I am highly indebted to my parents Mr. and Mrs. Fidelis Ohaegbu, My brothers: Nonso and Ebuka, my sister: Mrs. Ogbonna Chioma, Mrs. Ezeora Uju, Mrs Iwundu Nwamaka, my In-laws’ Mr. Ogbonna Ambrose, Mr. Ezeora Barnabas, Mr. Iwundu Emmanuel and my God father Mr. Amadife Chukwudi for their love support and words of encouragement.

 

Finally, I acknowledge the efforts of my friends Okoyeagu Blessing, Itulu Chijioke, Obianoyi Arinze, Okpala Johnpaul, Obidiwe Jekwu, Nwosu Nonye, Chukwukekwu Chukwebuka and Okafor Pascal for their unconditional support throughout my stay in the University.

God bless you all!

 

 

 

 

 

 

 

 

 

 

 

 

ABSTRACT

This paper studies the effect of Naira Devaluation on Small and Medium Scale Enterprises in Nigeria. The Study is conducted using time series data that covers the period of 34 years (1980-2014) employing the method of ordinary least square (OLS) and co-integration analysis currency devaluation proxies was regressed on output of Small and Medium Enterprises (SMEs) the result shows that exchange rate Interest rate and export has a positive impact on Small and medium enterprises and while exchange rate and interest rate are insignificant in explaining Small and medium Enterprises, Export is significant. The researcher also found three co-integrating variable. Therefore, the researcher came to the conclusion that Naira devaluation is not effective in encouraging the growth of small and medium Enterprises (SMEs), this is because Nigeria does not produce effectively non-oil expert, policy intervention is needed to balance the effect of exchange rate movement until the economy is transformed from oil driven to other sectors like Agriculture, Manufacturing Iron and Steel Industries etc government expenditure should be geared towards creating social overhead to enable these small firms to thrive. Government trade policy should be in favour of local firms.     

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

Title Page                                                                                         i

Approval Page                                                                                  ii

Certification                                                                                     iii

Dedication                                                                                       iv

Acknowledgements                                                                          v

Abstract                                                                                           vii

Table of Contents                                                                             viii

List of Tables                                                                                   xi

CHAPTER ONE - INTRODUCTION

1.1   Background of the Study                                                                 1

1.2   Statement of the Problem                                                                4

1.3   Research Question                                                                   5

1.4   Objective of the Study                                                              5

1.5   Statement of hypothesis                                                          6

1.6   Significance of the Study                                                                 6

1.7   Scope of the Study                                                                   7

CHAPTER TWO - LITERATURE REVIEW

2.1   Conceptual Review                                                                  8

2.1.1 Currency Devaluation                                                             11   

2.1.2 Brief History of Currency Devaluation in Nigeria                     14   

2.1.3 Condition for the Success of Devaluation                                       16   

2.1.4 Impact of Devaluation on Nigerian Economy                          18   

2.2   Theoretical Review                                                                   23   

2.2.1 Elasticity Approach: Marshal-Lerner Condition                      23   

2.2.2 The Absorption Approach                                                       24   

2.2.3 Monetary Approach                                                                25   

2.3   Empirical Review                                                                     27   

2.4   Limitation of Previous Studies                                                 30   

CHAPTER THREE - RESEARCH METHODOLOGY

3.1   Data Description and Econometric Software                            32   

3.2   Analytical Method                                                                    32   

3.3   Model Specification                                                                 33   

3.4   Method of Evaluation                                                              35   

3.5   First Order Test (Statistical Test)                                             35   

3.5.1 T-test                                                                                      35   

3.5.2 F-test                                                                                      35   

3.5.3 Coefficient of Determination (R2)                                             35   

3.5.4 R2 Adjusted (R-2)                                                                     36   

3.6   Second Order Test (Econometric Test)                                     36   

3.6.1 Unit Root Test                                                                                 36   

3.6.2 Cointegration                                                                          36   

3.6.3 Autocorrelation                                                                       37   

CHAPTER FOUR - RESULT PRESENTATION AND ANALYSIS

4.1   Unit Root Test                                                                          38   

4.2   Co-Integration Analysis                                                           39   

4.3   Presentation of Regression Result                                            41   

4.4   Interpretation of the Regression Result                                    42   

4.5   Hypothesis Testing                                                                  43   

CHAPTER FIVE - SUMMARY, CONCLUSION AND RECOMMENDATION

5.1   Summary of the Findings                                                        45   

5.2   Conclusion                                                                              46   

5.3   Recommendation                                                                     47   

References                                                                               49   

Appendix                                                                                         52   

 

 

 

 

 

 

LIST OF TABLES

Table 3.1:    A. Priori Expectation                                            34

Table 4.1:    Unit root result                                                    38   

Table 4.2:    Cointegration result test                                      40

Table 4.3:    Error Correction Model Result                             41   

                                               

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THE IMPACT OF NAIRA DEVALUATION ON SMALL AND MEDIUM ENTERPRISES (SME) IN NIGERIA

 

 

 

 

BY

 

 

 

 

OHAEGBU HENRY SOMTOOCHUKWU

2012034025

 

 

 

DEPARTMENT OF ECONOMICS,

FACULTY OF SOCIAL SCIENCES

CHUKWUEMEKA ODUMEGWU OJUKWU UNIVERSITY (COOU)

IGBARIAM CAMPUS

 

 

 

 

JULY, 2016.