ABSTRACT
The study assessed the effect of fiscal policy on net foreign direct investment (FDI) inflows, economic growth and development in sub-Saharan African economies from 1985 to 2019. Fiscal policy was proxied by government capital expenditure, government recurrent expenditure and tax revenue. Data were collected from World Development Indicators (2019) and Central Bank of Nigeria (CBN) Statistical Bulletin (2019). In all the models of the study, the unit root test showed that the variables were integrated of order one (i.e. I(1)) and the Johansen cointegration test showed that there was long run equilibrium relationship among the variables. Thereafter, vector error correction mechanism (VECM) technique was employed in determining the country-by-country effect of fiscal policy on net FDI, economic growth and economic development while pooled effect Ordinary Least Squares (POLS) was employed to determine the aggregate effect. Findings revealed that government capital expenditure had positive and significant effect on net FDI inflows and economic growth in sub-Saharan African economies (p < 0.05). Conversely, the study showed that government recurrent expenditure had negative and significant effect on net FDI inflows and economic growth (p < 0.05). The study also showed that government recurrent expenditure had positive and significant effect on economic development (p < 0.05). Furthermore, the study showed that tax revenue had positive and insignificant effect on economic growth (p > 0.05) while it positively and significantly increased economic development in sub-Saharan African economies (p < 0.05). However, tax revenue had negative and insignificant effect on net foreign investment (FDI) inflows in sub-Saharan African economies (p > 0.05). In conclusion, the study found that fiscal policy of governments in sub-Saharan African economies significantly affected net FDI inflows, economic growth and development. The study recommended that government capital expenditure should be increased across sub-Saharan African economies especially in Nigeria, Cameroun and Ghana in order to attract more foreign direct investment.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables x
List of Figures xiii
Abstract xiv
CHAPTER 1: INTRODUCTION 1
1.1 Background
to the Study 1
1.2 Statement
of the Problem 7
1.3 Objectives
of the Study 10
1.4 Research
Questions 10
1.5 Research
Hypotheses 11
1.6 Significance
of the Study 11
1.7 Scope
of the Study 12
1.8 Operational
Definition of Terms 12
CHAPTER 2: REVIEW OF RELATED LITERATURE 14
2.1 Conceptual Framework 14
2.2 Trends In Selected Fiscal Policy, FDI and
Economic Growth Indicators
In
Sub-Saharan African Countries: Nigeria, Cameroun,
Ghana and
Gambia Perspective 20
2.2.1 Trend in government expenditure in Nigeria,
Cameroun, Ghana and
Gambia: a comparison 20
2.2.2 Trends in government expenditure in selected
Sub-Saharan
African Countries 22
2.2.3 Trends
in economic growth rate in Nigeria, Cameroun, Ghana and
Gambia:
a comparison 24
2.2.4 Trends in FDI Inflow (% of GDP) in Nigeria,
Cameroun, Ghana and
Gambia:
a Comparison 27
2.3 Theoretical Review 29
2.3.1 Managerial theory 29
2.3.2 Savers-spenders
theory 30
2.3.3 Marginal
efficiency theory 31
2.3.4 Efficient frontier theory 32
2.3.5 The
Keynesian theory of government expenditure/economic growth 33
2.3.6 Neo-classical
theory/exogenous growth theory 36
2.3.7 Endogenous
growth theory 38
2.4 Empirical
Literature 39
2.5 Summary
of Review of Literature 61
2.6 Gap
in Literature 64
CHAPTER
3: METHODOLOGY 65
3.1 Research
Design 65
3.2 Area
of Study 66
3.3 Sources
of Data 67
3.4 Model
Specification 67
3.5 Measurement
of the Variables 73
3.6 Method
for Data Analysis 75
3.6.1 Unit root test 71
3.6.2 Cointegration test 76
3.6.3 Autoregressive distributed lag (ARDL)/error
correction
modeling
(ECM) technique 77
3.6.3.1 t-statistic 78
3.6.3.2 F-statistic 78
3.6.3.3 R-squared 79
3.6.3.4 Durbin-Watson statistic 79
CHAPTER 4: DATA ANALYSIS
AND DISCUSSION OF FINDINGS 80
4.1 Data
Analysis 80
4.1.1 Nigeria 80
4.1.1.1 Lag order selection criteria 80
4.1.1.2 Unit root test 83
4.1.1.3 Cointegration test 83
4.1.1.4 Vector error correction model
(VECM) Results 87
4.1.2 Cameroun 97
4.1.2.1 Lag order selection criteria 97
4.1.2.2 Unit root test 100
4.1.2.3 Cointegration test 101
4.1.2.4 Vector error correction model
(VECM) results 104
4.1.3 Ghana 114
4.1.3.1 Lag order selection criteria 114
4.1.3.2 Unit root test 116
4.1.3.3 Cointegration test 117
4.1.3.4 Vector error correction model
(VECM) results 120
4.1.4 Gambia 130
4.1.4.1 Lag order selection criteria 130
4.1.4.2 Unit root test 132
4.1.4.3 Cointegration test 133
4.1.4.4 Vector Error Correction Model
(VECM) Results 136
4.1.5.1 Pooled-effect Regression
Results 145
4.2 Test
of Hypotheses 152
4.3 Discussion
of Findings 153
4.3.1 Effect
of government capital expenditure on net FDI inflows,
economic growth
and development 153
4.3.2 Effect of government recurrent expenditure
on Net FDI Inflows,
Economic Growth
and Development 155
4.3.3 Effect of tax revenue on FDI inflows,
economic growth and development 156
CHAPTER 5: SUMMARY OF
FINDINGS, CONCLUSION AND RECOMMENDATIONS 158
5.1 Summary
of Findings 158
5.2 Conclusion 159
5.3 Recommendations 160
REFERENCES 162
APPENDICES 170
LIST
OF TABLES
2.1: Data on General Government Final
Consumption Expenditure
in Nigeria, Cameroun, Ghana
and Gambia (1980-2017) 20
2.2: Data on Gross Domestic Product Growth Rate
in Nigeria, Cameroun,
Ghana and Gambia (1980-2017) 24
2.3: Data
on FDI, Net Inflow (% of GDP) in Nigeria, Cameroun, Ghana
and
Gambia 27
2.4: Summary
of Literature Review 61
1a: Optimal
Lag Selection Criteria (FDI Model) 80
2a: Optimal
Lag Selection Criteria (GDP Model) 81
3a: Optimal
Lag Selection Criteria (GDPPC Model) 82
4a: Augmented
Dickey-Fuller (ADF) Unit Root Test Result 83
5a: Johansen
Cointegration Test Result for FDI Model 84
6a: Johansen
Cointegration Test Result for GDP Model 85
7a: Johansen
Cointegration Test Result for GDPPC Model 86
8a: Vector
Error Correction Modeling (VECM) Result for FDI Model 87
9a: Vector
Error Correction Model (VECM) Result for FDI Model 89
10a: Vector
Error Correction Modeling (VECM) Result for GDP Model 90
11a: Vector
Error Correction Model (VECM) Result for GDP Model 92
12a: Vector
Error Correction Modeling (VECM) Result for GDPPC Model 94
13a: Vector
Error Correction Model (VECM) Result for GDPPC Model 96
1b: Optimal
Lag Selection Criteria (FDI Model) 97
2b: Optimal
Lag Selection Criteria (GDP Model) 98
3b: Optimal
Lag Selection Criteria (GDPPC Model) 99
4b: Augmented
Dickey-Fuller (ADF) Unit Root Test Result 100
5b: Johansen
Cointegration Test Result for FDI Model 101
6b: Johansen
Cointegration Test Result for GDP Model 102
7b: Johansen
Cointegration Test Result for GDPPC Model 103
8b: Vector
Error Correction Modeling (VECM) Result for FDI Model 104
9b: Vector
Error Correction Model (VECM) Result for FDI Model 106
10b Vector
Error Correction Modeling (VECM) Result for GDP Model 107
11b: Vector
Error Correction Model (VECM) Result for GDP Model 109
12b: Vector
Error Correction Modeling (VECM) Result for GDPPC Model 110
13b: Vector
Error Correction Model (VECM) Result for GDPPC Model 112
1c: Optimal
Lag Selection Criteria (FDI Model) 114
2c: Optimal
Lag Selection Criteria (GDP Model) 114
3c: Optimal
Lag Selection Criteria (GDPPC Model) 115
4c: Augmented
Dickey-Fuller (ADF) Unit Root Test Result 116
5c: Johansen
Cointegration Test Result for FDI Model 117
6c: Johansen
Cointegration Test Result for GDP Model 118
7c: Johansen
Cointegration Test Result for GDPPC Model 119
8c: Vector
Error Correction Modeling (VECM) Result for FDI Model 120
9c: Vector
Error Correction Model (VECM) Result for FDI Model 122
10c: Vector
Error Correction Modeling (VECM) Result for GDP Model 123
11c: Vector
Error Correction Model (VECM) Result for GDP Model 125
12c: Vector
Error Correction Modeling (VECM) Result for GDPPC Model 127
13c: Vector
Error Correction Model (VECM) Result for GDPPC Model 129
1d: Optimal
Lag Selection Criteria (FDI Model) 130
2d: Optimal
Lag Selection Criteria (GDP Model) 131
3d: Optimal
Lag Selection Criteria (GDPPC Model 131
4d: Augmented
Dickey-Fuller (ADF) Unit Root Test Result 132
5d: Johansen
Cointegration Test Result for FDI Model 133
6d: Johansen
Cointegration Test Result for GDP Model 134
7d: Johansen
Cointegration Test Result for GDPPC Model 135
8d: Vector
Error Correction Modeling (VECM) Result for FDI Model 136
9d: Vector
Error Correction Model (VECM) Result for FDI Model 138
10d: Vector
Error Correction Modeling (VECM) Result for GDP Model 139
11d: Vector
Error Correction Model (VECM) Result for GDP Model 141
12d: Vector
Error Correction Modeling (VECM) Result for GDPPC Model 142
13d: Vector
Error Correction Model (VECM) Result for GDPPC Model 144
14a: Pooled-effect
Ordinary Least Squares Result for FDI Model 146
14b: Pooled-effect
Ordinary Least Squares Result for GDP Model 148
14c: Pooled-effect
Ordinary Least Squares Result for GDPPC Model 150
LIST
OF FIGURES
2.1: General
Government Final Consumption Expenditure 22
2.2: Trends in Economic Growth in Nigeria,
Cameroun, Ghana and Gambia 25
2.3: Trends in Net FDI Inflow (% of GDP) in
Nigeria, Cameroun,
Ghana
and Gambia 28
CHAPTER
1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Prior to the 19th century, the
participation of government in economic activities was not appreciated so
government was not actively involved in the day to day running of the economy (Palley,
2013). Classical economists of that era were of the opinion that the economy has
an automatic mechanism that ensured that markets could efficiently aid in
allocation of goods and services. To them, governments were merely expected to maintain
law and order as well as protect their territories from any external aggression
and this position had clearly isolated governments from any economic activities
(Muhlis & Hakan, 2003). In their views, government expenditure was wasteful
and monies spent by government could be better utilized by the private sector
(Jamshaid, Igbal & Siddiqi, 2010). Obviously, the classical economists
(John Stuart Mill, Adam Smith, David Ricardo, Jean Baptiste Say and Thomas
Robert Malthus) never appreciated the role of government’s fiscal policy
measures in the growth of an economy (Fuller & Geide-Stevenson, 2003).
In the 20th century with the
wave of the Great Depression, the position of the classical economists was
upturned as Keynes argued that the economy do not operate on automatic
mechanism that ensured full equilibrium (Oziengbe, 2013). Keynes argued that
the failure of the economy which has led to the depression was as a result of
lack of government intervention in the economy. As a solution, Keynes advocated
that government should play key roles in economic activities especially in
providing goods and services to its citizens (Olugbenga & Owoye, 2007). In
carrying out these responsibilities, Keynes (1936), opined that governments’
fiscal policy would create jobs and give room for the utilization of idle
capital (Jahan, Mahmud & Papagerogiou, 2014). With increased government
presence, Keynesian school of thought argued that public infrastructure would be
developed thereby leading to economic growth. From the standpoint of the
Keynesians, it has been acknowledged that government needed to intervene in an
economy through its fiscal policy instruments. For instance, when government
adopts an expansionary fiscal policy, it leads
to increase in the purchasing power of both firms and households (Arikpo, Ogar
& Ojong, 2017). An increase in the purchasing power of economic agents could
lead to increase in aggregate demand and an increase in firms’ productivity. On
the other hand, when government pursues contractionary fiscal policy,
purchasing power decreases leading to contraction in the market for goods and
services thereby undermining the growth of the economy (Adefeso &
Mobolaji, 2010; Okoroafor & Mbagwu, 2016; Adefeso,
2018).
Government could intervene in an economy through its
spending. These spending can either be in the form of capital expenditure or
recurrent expenditure. Government capital expenditure includes expenditures on
education infrastructure, healthcare infrastructure, road infrastructure,
electricity infrastructure etc (Agu, Idike, Okwor &
Ugwunta, 2014). These infrastructures when developed or rehabilitated reduce
the cost of living, increases productivity and ultimately lead to increase in
economic growth (Agu et al, 2014).
For instance, when government spends on roads, it could increase access of the
rural farmer to the urban markets thereby enhancing the agricultural
productivity of the rural farmer whose products could now be sold at a profit
(Ubesie, 2016). In addition, through improvements in healthcare delivery
infrastructure, government could improve the health status of its work force
for increased productivity (Nwaoha, Onwuka & Ejem, 2017).
Recurrent
expenditure includes those expenditures made on consumables which have only but
short term benefits to the citizens. It includes those payments made by
government for all other purposes except capital costs and typically made on a
scheduled basis (Aladejare, 2013). Expenses made on wages, salaries, pensions
and gratuities and other administrative overheads are typically recurrent in
nature. These expenditures are made regularly throughout the year with the
intent of keeping the wheels of government (governance) running (Nwaeze, Njoku
& Nwaeze, 2014). For instance, government pays wages and salaries to her
employees to motivate them for greater productivity and this ultimately leads
to increased economic growth. Thus, the need for government to make provisions
for recurrent expenditures cannot be overemphasized since government must incur
costs in the course of its day-to-day activities that must be taken care of (Gilbert
& Kehinde, 2017).
Beyond the mere use of government spending
as a fiscal policy instrument, recent competition among developing countries
towards attracting increased capital inflows has brought to the fore the need
to adopt fair tax policy. In recent years, there has been an intense
competition among developing countries towards attracting foreign direct
investment. Sub-Saharan African countries are not left out in this competition
(Boly, Coulibaly & Kere, 2019). Tax incentives stand tall among the fiscal
policy instruments used by developing countries in the pursuit of increased
foreign direct investment (FDI) inflow (Zee, Stotsky & Levy, 2002). Tax
incentives could come in form of corporate tax rate reductions. It is argued
that when a country offers low tax rates, foreign investors become more
attracted into the domestic economy in order to take advantage of lower tax
rates. Based on this, proponents of increased FDI inflow argued that a host
country’s taxation policy affect the effectiveness of tax incentives as an
instrument for attracting foreign direct investment. High tax rates might
discourage foreign investors from bringing investment into the domestic
economy. The implication of this might be that foreign investors would be more
favourable to investing in the low-tax rate countries and this could translate
to higher economic growth in such countries.
Scholarly works has suggested that
host-country’s tax rates mattered because it could be an important trigger for
foreign investors (Boly et al, 2019).
Thus, one wonders if the corporate income tax rate charged in Nigeria,
Cameroun, Ghana and Gambia explain FDI inflows, levels of economic growth and
economic development in these countries. A look at the corporate income tax
rate charged in Nigeria, Cameroun, Ghana and Gambia might suffice. In Nigeria,
corporate income tax rate has been fixed at 30 percent; Cameroun’s corporate
tax rate has been fixed at 33 percent; Ghana’s corporate tax rate had been
fixed at 25 percent while Gambia’s corporate tax rate has been fixed at 31
percent (IMF, 2017). At 30 percent, Nigeria’s corporate income tax rate
exceeded average corporate tax rate for Africa which stood at 27.46 percent and
global average corporate tax rate which stood at 23.62 percent. Similarly, Cameroun’s
corporate income tax rate of 33 percent also exceeded Africa’s average
corporate tax rate of 27.46 percent and global average corporate tax rate of
23.62 percent. In the same vein, Gambia’s corporate tax rate of 31 percent
exceeded both Africa’s average corporate tax rate of 27.46 percent and global
average corporate tax rate of 23.62 percent, respectively. However, Ghana’s
corporate tax rate of 25 percent was less than Africa’s average corporate tax
rate of 27.46 percent but greater than global average corporate tax rate of
23.62 percent (IMF, 2017).
Available data showed that Nigeria topped
the table among other sub-Sahara African countries as she received 53 percent
of FDI inflows. The value of net FDI (measured in current US$) into Nigeria stood
at $3,497,233,435 as at 2017. Over the past 8 years, the value of FDI inflows into
Nigeria had declined from $6,026,232,041 in 2010 to $3,497,233,435 in 2017
(World Bank, 2019). Between 2010 and 2017, total FDI inflows into Nigeria stood
at $43,231,273,993 with average FDI inflows of $5,403,909,249.13. For Ghana,
the value of FDI, net (balance of payment, current US$) as of 2017 stood at
$3,254,990,000. Over the past 8 years, the value of FDI inflows had fluctuated
between $2,527,350,000 in 2010 and $3,254,990,000 in 2017(World Bank, 2019).
Between 2010 and 2017, total FDI inflows into Ghana accumulated to
$25,592,491,344 with average FDI inflows of $2,199,061,418. For Cameroun, the
value of FDI, net (balance of payment, current US$) as of 2017 stood at $814,001,700.8.
Over the past 8 years, the value of FDI inflows into Cameroun had fluctuated
between $535,742,601.5 in 2010 and $814,001,700.8 in 2017 (World Bank, 2019).
Between 2010 and 2017, total FDI inflows into Cameroun stood at $5,159,535,405.1
with average FDI inflows of $644,941,925.6. On the other hand, the value of
FDI, net (balance of payment, current US$) as of 2017 for Gambia stood at
$5,445,631.49. Over the past 8 years, the value of FDI inflows into Gambia had
fluctuated between $37,140,887.81 in 2010 and $5,445,631.49 in 2017. Between
2010 and 2017, total FDI inflows into Gambia stood at $208,376,474.62 with
average FDI inflows of $26,047,059.33 (World Bank, 2019). Comparing these four
countries on the basis of average FDI inflows from 2010 to 2017, one might be
tempted to argue that corporate tax rate did not determine the amount of FDI
inflow because at a lower corporate tax rate regime of 25 percent, Ghana’s
average FDI inflow was lower than average FDI inflows into Nigeria although
Nigeria had a higher corporate tax rate regime of 30 percent (Dunning, 2002). More
so, Gambia had lower average FDI inflows ($26,047,059.33) than Cameroun’s
average FDI inflows ($644,941,925.6) even though Gambia had lower corporate tax
rate of 31 percent as against Cameroun’s corporate tax rate of 33 percent.
Comparatively, economies in sub-Sahara
African have grown in different scales over the years. For instance, Nigeria’s
GDP growth rate stood at 2.87 percent in 1980 and increased to 20.84 percent in
1981. However, in 1982, Nigeria’s GDP growth rate declined to -1.05 percent and
the upward and downward trends in GDP growth rate in Nigeria continued until it
stood at 6.31 percent in 2014. In 2015, Nigeria’s GDP growth rate decreased to
2.7 percent and further decreased to -1.6 percent in 2016. However, GDP growth
rate in Nigeria increased to 0.8 percent in 2017. Overall, from 1980 to 2017,
available data showed that Nigeria’s economy had grown at an average of 4.99
percent (IMF, 2017). Similarly, Ghana’s GDP growth rate stood at 0.45 percent in
1980 and increased to 5.18 percent in 1981. However, in 1982, Ghana’sGDP growth
rate declined to -5.04 percent and the upward and downward trends in GDP growth
rate in Ghana continued until it stood at 4.16 percent in 2014. In 2015,
Ghana’s GDP growth rate decreased to 3.8 percent and further decreased to 3.5
percent in 2016. However, GDP growth rate in Ghana increased to 5.9 percent in
2017. Overall, from 1980 to 2017, available data showed that Ghana’s economy
had grown at an average of 4.99 percent (IMF, 2017).
On the other hand, Gambia’s GDP
growth rate was 0.71 percent in 1980 and decreased to -9.52 percent by 1981. In
1982, Gambian economy grew at 20.76 percent and the upward and downward trend
in Gambia continued until it stood at -0.22 percent in 2014. In 2015, Gambia’s
GDP growth rate increased to 4.3 percent and decreased to 3 percent in 2017. On
average, Gambian economy grew at 3.56 percent between 1980 and 2017. For
Cameroun, the GDP growth rate stood at 9.9 percent in 1980 and increased to
17.05 percent in 1981. However, in 1982, Cameroun’s GDP growth rate decreased
to 7.56 percent and the upward and downward trends in GDP growth rate in
Cameroun continued until it stood at 5.14 percent in 2014. In 2015, Cameroun’s
GDP growth rate increased to 5.8 percent but decreased to 4.7 percent in 2016.
GDP growth rate in Cameroun decreased further to 4.0 percent in 2017. Overall,
from 1980 to 2017, available data showed that Cameroun’s economy grew at an
average of 3.35 percent (IMF, 2017). Given the different GDP growth rates
recorded in the sub-Saharan African countries, it is evident that Nigerian
economy and Ghanaian economy had grown more than the economies of Cameroun and
Gambia.
1.2 STATEMENT OF THE PROBLEM
Tax policy remains a major fiscal
policy instrument for generating revenue to meet up with public infrastructural
challenges as well as influence the production function of the economy.
However, tax policy remains the most controversial component of fiscal policy
because of its role on the attraction of FDI and achieving economic growth and
development. This is against the backdrop that tax policy mutually affects
investment decisions of multinational corporations (MNCs) and as a result determines
the FDI inflows into a domestic economy. In Nigeria, Cameroun, Ghana and Gambia,
the corporate income tax rates have been high. With corporate income tax rates
of 30 percent for Nigeria; 33 percent for Cameroun; 25 percent for Ghana and 31
percent for Gambia which exceeded global average corporate tax rate put at
23.62 percent, it could be argued that sub-Saharan African countries are not
attracting FDI as much as they would have if their corporate income tax rates
had been lower. Yet, Nigeria has been acknowledged as ‘beautiful bride’ of FDI
inflows in sub-Saharan Africa. This is against the backdrop that between 1990
and 2016, available data showed that Nigeria topped the table among other sub-Saharan
African countries such as Cameroun, Gambia, and Ghana as she received large
chunk of FDI inflows into sub-Saharan African countries (Bello, 2005). In
addition, both Nigeria and Ghana are economically viable economies in the
sub-Saharan African countries with Nigeria been acknowledged as largest economy
in Africa. Given the above scenario, the controversy between taxation (as a
fiscal policy instrument of government), FDI inflows, economic growth and
development further deepens. A high corporate income tax rate as obtained in Nigeria
and Ghana should have been a discouragement to foreign investors thereby
reducing foreign direct investment. As foreign investment decreases, employment
is expected to have decreased and productivity should have been adversely
affected. In the midst of the high corporate income tax rate, FDI inflows into
both countries have soared over the years with the level of economic growth and
development in both countries remaining high in the entire African continent.
Expansionary fiscal policy of government via increased
government expenditure is expected to enhance productivity thereby increasing
economic growth and development. Has this assertion been true in all cases? In
Nigeria, fiscal policy of government had over the years tilted towards
increasing recurrent expenditures. For instance, since the inception of
democratic governance in Nigeria, there has been persistent increase in
National Assembly recurrent expenditure which has attracted so much attack from
those outside the confines of the National Assembly. It has been argued that
increased spending on things such as payment of wardrobe allowances to members
of the National Assembly, buying of new cars for members almost on yearly
basis, payment for seating allowance to members per seating, increase in
salaries of members and other financial benefits will only rip the nation off
her hard-earned resources thereby retarding economic growth and development. Conversely,
it had been argued that if government had made its expenditures in providing
infrastructures and other amenities, it would have increased economic growth
and development. With adequate infrastructures, FDI inflows would have increased
since foreign investment thrives in availability of an enabling environment.
Given the upheavals associated with increased government recurrent expenditure,
it is expected that FDI inflows into sub-Saharan African countries such as Nigeria,
Cameroun, Ghana and Gambia would not have been impressive and the economic
growth of these nations should not have been impressive. However, in the midst of obvious fiscal
policy abnormalities, sub-Saharan African countries had continued to attract
their fair share of FDI and achieved impressive economic growth and
development.
Previous studies such as Martin and Fardmanesh
(1990); Lin (2000); Foster and Henrekson (2001); M’Amanja and Morrisey (2005);
Blinder and Solow (2005); Ocran (2009); Rina, Tony and Lukytawati (2010); Peter
and Simeon (2011); Iyeli, Uda and Akpan (2012); Modebe, Okafor, Onwumere and Imo
(2012); Agu, Idike, Okwor and Ugwunta (2014); and Morankiyo, David and Alao
(2015) also investigated the impact of fiscal policy on economic growth. The
studies used various components of fiscal policy and they had varying results
and findings. For instance, Rina et al,
(2010) and Peter andSimeon (2011) found fiscal policy to have exerted
significant impact on economic growth while Adefeso and Mobolaji (2010), and
Iyeli et al, (2012), found that
fiscal policy had insignificant effect on economic growth. However, some of
previous studies such as Zee, Stotsky and Levy (2002); Bello (2005); Radulescu
and Druica (2014); and Coulibaly and Kere (2019), investigated the effect of
fiscal policy on foreign direct investment (FDI). They also had varying results
and findings. In most of these previous studies, emphasis was restricted to the
effect of fiscal policy either on economic growth or foreign direct investment
in Nigeria, South Africa and other countries. Generally, the effect of fiscal
policy on foreign direct investment (FDI) inflows, economic growth and
development of nations was scarcely considered in those past studies either in
Nigeria or elsewhere. With these previous studies, the effect of fiscal policy
on both foreign direct investment and economic growth was inconclusive. Beyond
this, it was also empirically difficult to determine the effect of fiscal
policy on both foreign direct investment and economic growth among countries in
sub-Saharan Africa. To fill this gap,
this study would specifically aim at investigating effect of fiscal policy on
foreign direct investment, economic growth and development in sub-Saharan
African economies with special reference to Nigeria, Cameroun, Ghana and Gambia.
By the time the study is completed the researcher shall be in a position to
ascertain if fiscal policy in Nigeria, Cameroun, Ghana and Gambia has had a
negative or positive effect on both foreign direct investment and economic
growth in these countries.
1.3 OBJECTIVES OF THE STUDY
The broad objective of the study was
to assess the effects of fiscal policy on foreign direct investment, economic
growth and development in Sub-Saharan African economies namely Nigeria,
Cameroun, Ghana and Gambia. The specific objectives of the study were listed
below:
(i)
To ascertain whether
government capital expenditure explains net FDI inflows, economic growth and
development differentials in Nigeria, Cameroun, Ghana and Gambia.
(ii)
To determine if
government recurrent expenditure explains the differences in net FDI inflows, economic
growth and development in Nigeria, Cameroun, Ghana and Gambia.
(iii)
To examine how tax
revenue explains the differences in the net FDI inflows, economic growth and
development of Nigeria, Cameroun, Ghana and Gambia.
1.4 RESEARCH QUESTIONS
The present study sought to provide
answers to the following questions:
(i) To
what extent does government capital expenditure explain net FDI inflows, economic
growth and development differentials in Nigeria, Cameroun, Ghana and Gambia?
(ii) To
what degree does government recurrent expenditure explain the differences in net
FDI inflows, economic growth and development in Nigeria, Cameroun, Ghana and
Gambia?
(iii)
To what magnitude does tax revenue explain the
differences in net FDI inflows, economic growth and development of Nigeria,
Cameroun, Ghana and Gambia?
1.5 RESEARCH HYPOTHESES
Three hypotheses were tested in this
study and they were stated in the null form as follows:
(i)
H0: Government
capital expenditure does not significantly explain net FDI inflows, economic
growth and development differentials in Nigeria, Cameroun, Ghana and Gambia.
(ii)
H0: Government
recurrent expenditure does not have significant effect on net FDI inflows, economic
growth and development in Nigeria, Cameroun, Ghana and Gambia.
(iii)
H0: Tax
revenue has no significant effect on net FDI inflows, economic growth and
development of Nigeria, Cameroun, Ghana and Gambia.
1.6 SIGNIFICANCE OF THE STUDY
This
study will particularly be relevant to the government and academia:
(i)
The Government
This
study will broaden the knowledge of the government in the four countries
(Nigeria, Cameroun, Ghana and Gambia) on the effect of fiscal
policy on the level of net FDI inflows, economic growth and development in the countries.
This will enable the
governments and policymakers to adjust or strengthen fiscal policy
instruments so as to achieve increased FDI inflows, economic growth and
development Where a fiscal policy instrument has a negative impact on FDI
inflow, economic growth and development of the countries, governments
would adjust or re-align such policy to reverse such negative effects so as to
enthrone increased FDI inflows, economic growth and development.
(ii)
The Academia
This study will serve as reference
for academicians, researchers and scholars to formulate research questions and
hypotheses to guide their study. Literature generated in the study will also
help them develop appropriate literature framework and theoretical framework
for their study.
1.7 SCOPE OF THE STUDY
This study covered the period 1985 to
2019. The year 1985 was considered as the base year for the study in order to
capture the era of modern globalization which gained ground in Africa in the 20th
century and expectedly increased foreign direct investments into Africa because
of market liberalization. The year 2019 was adopted as the end period for the
study in order to accommodate the current realities as it concerns the fiscal
policy, FDI inflows, economic growth and development in Nigeria, Cameroun,
Ghana and Gambia.
1.8 OPERATIONAL DEFINITION OF TERMS
The researcher defines the
under-listed terms in the context in which they are applied in this study:
Fiscal Policy
This refers to all measures taken by
government to determine its expenditures and its revenue. As in Wamjula (2016)
and, Boly, Coulibaly and Kere (2019),
there was mixed effect of fiscal policy on foreign direct investment (FDI),
economic growth and economic development. In some cases, its effect on foreign
direct investment, economic growth and development were significant while in
others its effect were insignificant.
Foreign Direct Investment
This refers to all investments made
in Nigeria by firms and institutions not owned by Nigerians.
Economic Growth
This refers to how much goods and
services produced in Nigeria are worth in monetary terms.
Economic Development
This refers to increase in the
quality of lives of citizens of a country and often measured by the human
development index (HDI) and GDP per capita.
Government Recurrent
Expenditure
This refers to expenses made by
government on day-to-day basis in order to maintain the wheels of governance.
Government Capital
Expenditure
This refers to the expenses made by
government in the provision of infrastructures for its populace.
Tax
Revenue
This refers to total amount of money
realized by the government through taxes levied on the populace.
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