Relationship Between Savings and Investment in the Nigerian Economy
Introduction Interests in the study of economic growth and development have been on the increase especially since the middle of the present century. Economic growth results in the expansion of a country’s production possibility curve such that the potential output of the country is increased beyond the previous levels. Thus growth is often defined in terms of a sustained increase in the real per capita income of a country.
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Simon Kuznets in (Todaro, 1885), defined a country’s economic growth as “a long term rise in the capacity to supply increasingly diverse economic goods to its population, this growing capacity based on advanced technology and the institutional and ideological adjustments that it demands”. Growth is therefore measurable and objective. It describes expansion in capital, in the labour force, in output, income, consumption e. t. c.
It should be noted that economic growth is sometimes used interchangeably with economic development. A distinction of the two was however made by (Jhingan, 1976) where he defined economic development as the ‘non-quantifiable measure of the growing economy” i. e. the economic, social and other changes that lead to growth such as changes in techniques of production, social attitudes and institutions e. t. c. No matter the distinction what is important in the words of (Iyoha, 1996) is that there is no development without growth.
One point that must be mentioned however is that in practice, economic growth is used to describe the process of growth in advanced industrialized countries while economic development is used to describe the dynamics of growth in low income non-industrialized countries. This position is buttressed by (Romer, 2001), where he posited that over the past few centuries, standard of living in industrialized countries has reached levels almost unimaginable to their ancestors.
He affirmed that although comparisons are difficult, the best available evidence suggests that average real income today in the United States and Western Europe are between 10 and 30 times larger than a century ago, and between 50 and 300 times larger than two centuries ago. Following from the above, Kuznets identified six characteristics of modern economic growth. These are: ¦ High rate of growth of per capita output and population. ¦ High rate of increase in total factor productivity, especially labour. High rate of structural transformation of the economy. ¦ High rate of social and ideological transformation. ¦ Outward expansion of the developed economies i. e. the ability to reach out to the rest of the world for raw materials and markets. ¦ The international flow of men, goods and capita. It then follows that for all these to be achieved especially for a developing economy like Nigeria some economic variables within the context of the features of the Nigerian economy must be marked upon to achieve these status mentioned above.
Statement of research problem So many blurred visions about the projection of Nigerian economy have been seen by the operators of the Nigerian economy. In the days of Abacha administration between 1993 and 1997, it was vision 2010 as led by former Head of State, Ernest Shonekan. 2010 is around the corner and nothing seems to have changed the last 15years. Another journey is being embarked upon by Yaradua and his economic team. The mission of making Nigeria one of the biggest 20 economies in the world by 2020, vision 2020-20.
Whether this is achievable or not is best left for debate for scholars of economics. But if one must follow the position of Robert Solow (1956), the Ramsey-Cass-Koopman model (1928, 1965, 1965) and the Diamond model (1965), achieving the above is a function of thorough understanding of production function of a given economy. Nigeria like most countries is blessed with abundant human and natural resources, yet the economy is still groping with problems.
Evidence is palpable that apart from income from sales of crude oil, the nation is close to zero in terms of technological advancement. The reason for this is no other than that the much needed investment to motivate technological advancement and industrialization is not forthcoming. The position of the government immediately after independence to embark upon import substitution as an industrialization strategy did not equally help matter.
If investment is a catalyst for industrialization and hence economic growth, investment is made possible by another catalyst in savings. Over the years, there has not been any synergy between savings and investment in Nigeria. This problem is because of little emphasis partakers in the running of the economy are giving financial intermediation. It is in a country like Nigeria where the borrowers reign supreme at the expense of the lender.
The deposit rates to the supplier of funds from the surplus units are not only meager but pittance, while the lending rates collected from the users of fund in the deficit unit is astronomical. So it is the issue of cutting the depositors with knife’s edge while cutting the borrower with razor’s edge. Savings is not encouraged while investment is discouraged. Economic activities slowed down, productivity neglected while economic growth in the real sense of it is stagnant.