The world economy is facing the most
severe financial crisis since the Great Depression of the last century. The
risk of global recession has heightened significantly and volatility of
commodity prices, which is the mainstay of most developing countries like
Nigeria, has increased further. If this situation continues to deteriorate,
developing countries could be in great jeopardy.
Time series data relating to the period 1990-2008 were collected
and analysed accordingly, using the econometric technique of multiple
regression. Statistical tests of significance were also carried out in order to
determine the possible impacts of the current global financial crisis on the
Nigerian economy. The tests include: Correlation Coefficient (R); Coefficient of Multiple
Determination (R2); t-Test; F-statistic and Durbin-Watson test.
The findings of this study revealed that the
financial crisis was responsible for the fluctuation in crude oil prices,
external reserves, exchange rates, decline in export, lower portfolio and
foreign direct investment (FDI) inflow, fall in equity market, decline in
remittance from abroad, dwindling economic growth, etc.
It was concluded that the Federal Government should
come up with intervention policies that will minimise these effects and
jumpstart the economy and that business operators should learn to do things
using resources at their disposal to develop and expand at manageable level to
stem the tide of the crisis.
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TO THE STUDY
1.2 Statement of Research Problem
1.3 The Aims and Objectives of the Study
1.4 Research Questions
1.5 The Statement of Research Hypotheses
1.6 Research Methodology
1.6.2 Sources of data
1.6.3 Model Specifications
1.6.4 Statistical tools
The signification of the study
1.8 The Scope and Limitation of the Study
1.9 The definition of basic terms /concepts
1.10 The organization of the Study
1.10 Justification of the Study
1.9 Sources of Data
2.0 The Concept of Financial Crisis
2.1.0 Causes of the Current Global Financial Crisis.
of Global Financial Regulations
and Bust in the Housing Market
in Real Estate
Financial Architecture (NFA)
2.2 Consequences of the Crisis.
2.3 Africa and the Global Financial Crisis
2.4.0 Policy Responses to the Crisis.
2.4.1 Interest Rate Regimes
2.4.2 Liquidity Injections
2.4.3 Recapitalization of Banks and Regulatory
2.4.4 Fiscal Policy Measures
2.4.5 Trade Policy Measures
2.4.6 Improving Domestic Resource Mobilization
2.4.7 World Bank Intervention
GLOBAL FINANCIAL CRISIS: SHOCKS IN THE NIGERIAN ECONOMY
3.1 Shocks in the Nigerian Capital Market
3.1.1 Impact on the Equity Market
3.1.2 Impact on Federal Government Medium- To
3.2 Shocks in the Banking System
3.3 Global Financial Crisis and the Nigerian Oil
3.4 Impact on Foreign Exchange Earnings and
3.5 Impact on Net Capital Flows
3.6 Aftermath of the Crisis: A Bleak Future?
3.7.0 Policy Response to the Crisis in Nigeria
3.7.1 Reforms in the Banking System
3.7.2 Liquidity Management
3.7.3 Foreign Reserve Management
3.7.4 Fiscal Measures
METHODOLOGY AND DATA ANALYSIS
4.1 Model Specifications
4.2 Evaluation and Test of the Estimates
4.3 Presentation and Analysis of Data
4.4 Test of Hypotheses
4.5 Empirical Results at a Glance
RECOMMENDATION AND CONCLUSION
5.1 Summary of Findings
The current global financial
crisis, unprecedented in the history of the modern world, has been described as
Wall Street’s biggest crisis since the Great Depression in October 1929. From
the Wall Street financial headquarters in the United States, across to Europe,
Japan and China, the global financial system around which modern free market
economy and capitalism is built is crashing like a pack of cards. The financial
crisis, which had been brewing for a while, started to show its effects in
October 2008. Around the world, stock markets began to crash as billions of
mortgage-related investments went bad. Mighty investment banks which once ruled
the financial world such as Lehman Brothers and Merrill Lynch have either
crumbled or reinvented themselves as humdrum commercial banks.
The roots of the current global
financial crisis can be traced back to the fallout of the US subprime mortgage
lending, which started in early 2007. Without hesitation, it spread into other
markets and economies via a combination of market failures and regulatory
In general, market failed
because of poor corporate governance and incompatible executive remuneration
structures. Moreover, the lack of transparency in trading procedures, financial
instruments, and balance sheet positions of major financial institutions also
exacerbated market failures. In regulatory terms, most countries have weak
idiosyncratic rules pertaining to the operation of trading instruments and
financial conglomerates. Poor capital regulation and accounting rules
contributed to excessive risk-taking by banks. In addition, some rating
agencies were also not subjected to the jurisdiction of the national regulators.
In turn, this had led to
complete breakdown of short-term financial transactions in leading advanced and
emerging market economies, and subsequently, meltdown in global securities
exchanges. With the freezing of interbank lending and money markets, capital
could not be channeled to economic agents operating across the entire
there are many similar views on the causes of the current economic meltdown.
These include the inability of homeowners to make their mortgage payments, poor
judgment by the borrowers and/ or the lender, speculation and overbuilding
during the boom period, risky mortgage products, high personal and corporate
debt levels, complex financial innovations, central bank policies and
government regulation. The significant decline in housing prices led to
delinquencies in mortgage payments and foreclosures in the US which caused a
ripple effect across the financial market and global banking systems, as
investments related to housing prices declined significantly in value, placing
the health of key financial institutions and government sponsored enterprises
Strauss-Kahn (2008) said “At the core of the problem were falling house prices
in the U.S. and the resulting loss in the value of securities linked to
mortgage liabilities. Too many risky mortgages were approved. It worked for a
while, and led to high earnings, but in the end, the carelessness led to the
is however noteworthy that this wild financial period is not confined to the
United States. The world has become a global village sewn together through
telecommunications and technological advancements. This is a clear indication
that the global economy is inter – related, hence, what affects one country
directly or indirectly affect the other. The economy of Nigeria, as a
developing nation, largely depends on the economies of various foreign
developed countries that are being plagued by the current global financial
it is imperative to appraise how the global economic meltdown would affect the
key sectors of the Nigerian economy. Since the commencement of the current
global financial crisis, fears have been expressed on its likely implications
on our economy, especially on the financial sector. Soludo (2008) was of the
opinion that the crisis will not affect the Nigeria economy. He maintains that
the banking consolidation programme was a pre-emptive measure ahead of the
crisis. So, the Nigerian banks were among the most capitalized in the world.
prejudice to the assurance given by the authorities of the Central Bank of
Nigeria (CBN) that the economy is immured to the global financial crisis, there
is need to critically look at the wider implications of the crisis which has
ravaged not only our economy, but also developed economies of United States,
Europe and Asia.
1.2 Statement of Research Problem
the Nigerian economy is not insulated from the impact of global financial
meltdown owning to it’s interconnectedness with the global economy. The sectoral
interconnectedness of Nigerian economy implies that the effects of global
financial crisis will reverberate through a large section of the Nigerian
study is therefore, designed to address the following issues as it affects the
The chronology of events leading to the
current global economic crisis and the channels of transmission of the crisis
onto Nigerian economy.
A critical appraisal of the implications of
the crisis on the Nigerian macroeconomic indicators such as GDP, foreign
reserve, oil revenue, inflation rates, exchange rates and stock price index.
An appraisal of the various policy measures
which have been adopted by the monetary authority to minimise the impacts of
the global financial meltdown on the nation’s economy.
Aims and Objectives of the Study
study is aimed at achieving the following specific objectives:
To conduct an investigation into the causes
of the current global financial crisis and its impacts on specified
To ascertain the impacts of the crisis on
general price level, exchange rate, stock price index, external reserves, crude
oil price, and the possible implications of these variables for the nation’s
And, to assess the efficacy of the various
policy measures which have been adopted by the monetary authorities to curb the
menace of global financial meltdown in Nigeria.
1.4 Research Questions
study provides appropriate responses to the following questions in relation to
the impacts of the current global financial meltdown on the Nigerian economy.
What are likely causes of the current
global economic crisis in Nigeria?
What are the possible implications of the
crisis on crude oil revenue in Nigeria?
What are the impacts of the crisis on the
Nigerian economic growth?
statement of Research Hypotheses
following hypotheses were tested with the view of providing an analytical research
of the study.
Ho: The variations in the stock price index,
inflation rate, exchange rate and external reserves do not have significant impacts on
Nigerian oil revenue.
Ha: The variations in the stock price index,
inflation rate, exchange rate and external reserves have significant impacts on Nigerian oil revenue.
Ho: The fluctuations in the stock price index,
crude oil price, inflation rates, external reserves and exchange rates do not have significant impacts on Nigerian
Ha: The fluctuations in the stock price index,
crude oil price, inflation rates, external reserves and exchange rates have significant impacts on Nigerian economic growth.
1.6 The Research Methodology
econometric technique of multiple regression will be used to carry out the
statistical test of significance on the possible impacts of the current global
financial crisis on the Nigerian economy. These tests include correlation
coefficient (R), coefficient of
multiple determination (R2), t-Test, F-statistic and Durbin-Watson test (DW). The coefficient of determination (R2) will help
examine the explanatory power of the independent variables. The F-statistic will be used to determine
the significance of the parameters of the estimates. The DW test will equally be used to determine the incidence of
autocorrelation in the model.
study utilises secondary sources of data in form of time series data which will
be obtained from the Central Bank of Nigeria (CBN) annual statistical bulletin,
publications of Nigerian Stock Exchange (NSE), International Monetary Fund
(IMF), and so on. Economic journals, national dailies, and relevant websites
will also be consulted.
econometric models of Ordinary Least Square (OLS) technique will be adopted in
other provide an empirical analysis of the study. The models are outlined as
Ү= Crude Oil Price (US$Million),
χ1= Stock Price index (#Million),
χ2= Inflation Rates (%),
χ3= Exchange Rates (%),
0= Constant Term
1…4= Coefficients of the Independent
µ= Stochastic Variable.
Ү= GDP at Current Basic Price (#Million),
χ1= Stock Price Index (#Million)
χ2= Crude Oil Price (US$Million),
χ3= Inflation Rates (%),
χ4= External Reserves (%),
χ5= Exchange Rates (US$),
0= Constant Term,
1… 5= Coefficients of
the Exogeneous Variables, and
µ= Stochastic Variable.
1.6.4Statistical tools of data analysis
of the Study
study is intended to serve as a reference material for the stakeholders that
might be affected by the current trends in the global financial system by way
of educating them to do away with certain economic actions and decisions that
could aggravate the current economic meltdown.
is equally believed that the report will serve as a springboard for the
relevant monetary authorities towards making appropriate policy measures to
reduce, if not eliminate, the negative impacts of the global economic meltdown
on the Nigeria economy.
Scope and limitation of the Study
variables of interest for this study are delimited to GDP at current basic
price, stock price index, crude oil price, inflation rates, external
reserves, and exchange rates, all within the period of 1990 – 2008.
of the Study
research report will be presented in give chapters follows:
one covers the introduction and background to the study.
two which is the literature review will examine the conceptual analysis of the
current global financial crisis. Chapter three will be devoted to the review of
the impacts of the current global financial crisis on the Nigerian economy.
Chapter four will examine the presentation and analysis of data. Lastly, the
summary, conclusion and recommendation will be presented in chapter five.