THE RELATIVE CONTRIBUTION OF PUBLIC SECTOR AND PRIVATE SECTOR INVESTMENY TO NIGERIA’S ECONOMIC DEVELOPMENT SINCE 1960

Solomon Kings 43 PAGES (13014 WORDS) Essay/Paper
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.Theoretical issues 
It  is  generally  agreed  that  economic  development  implies  sustained  increases  in  income  per capita  coupled  with positive  structural  changes  (political,  cultural  and  social  etc)  within  an  economy  over  a long  period  of  time.  It  follows  that  economic  growth  may  not  result  in  economic  development.  For  development  to  occur,  there  must  be  visible  positive  changes  to  income  distribution,  quality  and  quantity  of  education,  access to  basic  needs,  modern  technology,  changes  in  political  structures. 

It is  often  argued  that  investment  stimulates growth;  within  a  market  economy,  private  sector  investment  remaining  the  engine  of  growth  with  the  public  sector  providing  the  enabling  environment.  In the  classical  sense,  the  enabling  environment  may  mean  providing  law  and  order to  allow  the free market to  thrive.  In  recent times,  the  public  sector  has  been  know  to go  beyond  provision  of  law  and  order.  The  public  sector  for  the  most  part  regulates,  intervenes in the  system  in order  to  allow  the  market  to  function  properly.  Government  puts  in  place  appropriate fiscal, monetary  and  exchange  rate  policies  to  ensure  the  function  of  the  system.  These  political action  are  crucial  if the  private  sector  is to  play  its  role  properly.  Theoretical, the private  sector  investments  remain  the  engine  of  growth.  Through  capital  accumulation, the  private  sector  can  ensure the  reproduction  and  sustainability  of a  market  system. 

However, the  controversy  centers on the   public  sector  vis  -  a –vis  public  sector  investment.  In  a simple  Keynesian  framework,  high levels  of  government  consumption  are  likely  to  increase  employment,  profitability  and  investment  via  multiplier effects  on  aggregate  demand.  There  are  those  who  maintain  that  government  consumption  will  “crowd  out”  private  investment  by  dampening  any  economic  stimulus  in the  short run  and  in the  long – run  by  reduction capital  accumulation.  Either  way,  the  link  is  between  levels  of  government  spending  and  economic  activity  rather than  factor  productivity. 

There  is  no  general  agreement  regarding the  relationship  between  government  spending  and  economic  growth.  Researchers  have  arrived  at  different  results.  Using  a  sample  of  96 developing  countries,  Landau  (1983)  inferred  that  big  government,  measured  by  the share  of  government  consumption expenditures  in gross  national  product (GNP) or  gross  domestic  product  (GDP),  reduced  the  growth  of  per capita  incomes.  Landau  (1986)  reaffirmed  his  earlier  findings  by  examining  other set of  variable  influencing  economic  growth;  these variable  included  per capita  income,  the  structure of  production,  population and  global  economic  conditions. 

Some  scholars  have  concluded  that  a  larger  government  revenue  in  GNP  enhances  economic  growth  in poor  developing  countries  (Rubinson, 1997;  Ram,  1986;  Grossman,  1988).  Diamond (1989)  using  a  sample  of  42 developing  counters found  that  social  expenditure  made  a significant  impact  on  growth  in the short -  run  while  capital   expenditures  exerted  a  negative  influence  on  growth  in  Nigeria.
The  controversy  over the  growth  effects  of  government  investments  is  partly  due  to our  incomplete  understanding  of the  growth  process  and  the  determinants  of  economic  expansion.  Within  the  endegenous  growth  theory, government  investment  in  human   capital  formation  can  stimulate  growth.  It  is,  therefore,  always  necessary  to  adopt  an  empirical  approach  in  investigating  the  available  evidence  on the  public  investment  growth . 

Government  capital  expenditure  impact  positively  on  technological  change.  Developing  countries  like  Nigeria  have  benefited  from  research and   development  expenditures  on  new  agricultural  techniques  ,  it   is  only  the  government  that  has  invested  large  sums  of  money  on  seed  varieties  and  other aspects  of  the  green  revolution  programme.

The  influence  of  the  efficiency  of the  use  of  resource  on the  growth  rate  is  not  easy  to  quantify. The  conventional  reason  for  government  under investment  is  the  break  down  of  the  market  system  implying  a  case  of   under  investment   in  public  goods.  These  public  goods  may  be  perceived  as  necessary  inputs  to  the  private  sector  production  process. For  example,  internal  security   and  public  order  is  a  necessary  condition  for  a  healthy  investment  environment  and  could  be   seen  as  one  of  the  variables  influencing  the  environment  thesis. 

Another  issue  is the  of  intermediate  imports  which  is  now  viewed  as  factor  of  production  especially  in  an  economy  that  is  foreign  -  exchange  constrained.  A  more  generalized  growth  model  will  incorporate  exports  as  an  engine  of  growth.  Increased  demand  for  importable  influences  the  expansion  of  domestic  production.  The  export demand  linkage  reflects the  “cyclical “effect  of   growth  on  real  output (Khan  and  Villanueva,  1991). 

There  exist  significant  relationship  between  public  investment  and  private  investment.  Those  that  emphasize the  financing  side  of  expenditure  draw  attention  to  investment  crowding  -  out  effects  of  government  expenditure.  When  it  is  assumed  that  private  investment  has  higher  productivity  than  public  investment,  a  negative  effect on  growth  is  deduced.  Those  that  stress the  expenditure  side  show  the  private  investment  crowd  -  in  effects  of  public  expenditure  since  these will  tend  to  enhance  the  absorptive  capacity  of the  economy  and  the  profitability  of  private  investment. 

Some  scholars  have  hypothesized  that  the  response  of  private  investor  depends  on the  stage  of  the  cycle,  the  availability  of  financing  and  the  level  of  public  investment.  While  the  effect of  the  stage  of  the  cycle  appears  uncertain,  that  of  available  finance  seems  less  ambiguous.  
Indeed,  because  the  total  amount  of  financing  is  limited  and  the price  mechanism  is  not  allowed  to  operate  smoothly,  it  would  seem  legitimate  to  hypothesize  that  the   private  investor  in  a developing  country  is  restricted  by  the  level  available  bank financing  (Blejer  Khan,  1984,  p. 386). 

However, the  nature  of  capital  markets  in  developing  economies  limits  the  financing  of  private  investment  to the  use  of  retained  profits,  bank  credit  and  foreign  borrowing. 
Investment  if it  uses  scarce  physical  and  financing  resources  that  would  otherwise  be  available  to  private  investors.  Alternatively, the  same  scenario  will  occur  if the  public  sector  produces  marketable  output  that  competes  with  private  output. In  addition,  the  financing  of  public  sector  investment  either  through  taxes,  debt  issuance  or  inflation  will  reduce  the  resources  available  to  the  priate  sector  and  hence  dampen  private  sector  activities  (Chibber and  Dailami)

Khan  and  Reinhart  (1990)  tested  empirically  the  relative  productivity  of  private  and  public  investment  for  a cross  -  section  of  developing  counties.  Their  results  showed  that  private  investment  had  a  large  direct  effect on  growth  than  of  public  investment.  They  also  reaffirmed the  indirect  effects  of  public  investment  on  growth  through  raising  profitability  of  private  investment  and  the  absorption  capacity of the   economy. 

It  is  generally  agreed  that  public  investment  can  be  complimentary  to  private  investment.  Blejer and  Khan  (1984)  found  that  public  investment  which  has   some  bearing  on  infrastructure  and   the  provision  of  public  goods  was  complimentary  to  private  investment. The  necessity  of  pubic  investment  given  the  peculiarities  of  developing  countries   like  Nigeria  does  not  negate  importance  of  a  market  economy  propelled  by  private  investment. 

We  have  argued  elsewhere that  most  systems  need  both  market  and  state  interventionist  state  ought  to  strengthen  the  market  institutions  in  order  to  influence  the  behaviour  of  economic   agents  effective  Ekpo  (1997). It  is  within  this  context that  we  examine  the  contribution of  private  and  public  investment  to  economic  development  in  Nigeria

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APA

Solomon, K (2018). THE RELATIVE CONTRIBUTION OF PUBLIC SECTOR AND PRIVATE SECTOR INVESTMENY TO NIGERIA’S ECONOMIC DEVELOPMENT SINCE 1960. Afribary.com: Retrieved August 14, 2020, from https://afribary.com/works/the-relative-contribution-of-public-sector-and-private-sector-investmeny-to-nigeria-rsquo-s-economic-development-since-1960-759

MLA 8th

Kings, Solomon. "THE RELATIVE CONTRIBUTION OF PUBLIC SECTOR AND PRIVATE SECTOR INVESTMENY TO NIGERIA’S ECONOMIC DEVELOPMENT SINCE 1960" Afribary.com. Afribary.com, 29 Jan. 2018, https://afribary.com/works/the-relative-contribution-of-public-sector-and-private-sector-investmeny-to-nigeria-rsquo-s-economic-development-since-1960-759 . Accessed 14 Aug. 2020.

MLA7

Kings, Solomon. "THE RELATIVE CONTRIBUTION OF PUBLIC SECTOR AND PRIVATE SECTOR INVESTMENY TO NIGERIA’S ECONOMIC DEVELOPMENT SINCE 1960". Afribary.com, Afribary.com, 29 Jan. 2018. Web. 14 Aug. 2020. < https://afribary.com/works/the-relative-contribution-of-public-sector-and-private-sector-investmeny-to-nigeria-rsquo-s-economic-development-since-1960-759 >.

Chicago

Kings, Solomon. "THE RELATIVE CONTRIBUTION OF PUBLIC SECTOR AND PRIVATE SECTOR INVESTMENY TO NIGERIA’S ECONOMIC DEVELOPMENT SINCE 1960" Afribary.com (2018). Accessed August 14, 2020. https://afribary.com/works/the-relative-contribution-of-public-sector-and-private-sector-investmeny-to-nigeria-rsquo-s-economic-development-since-1960-759