The relationship between fiscal development and economic growing is a controversial issue. For developing states, empirical surveies have provided assorted consequences. This survey seeks to research the relationship between fiscal development and economic growing in Niger from 1970 to 2010. We used two variables to proxy fiscal development viz. ; recognition to the private sector to GDP denoted by CP and fiscal deepening denoted by FD. The economic growing is proxied by existent GDP. In order to look into this relationship a Vector Error Correction Model was carried out. Unit root trial was conducted for stationarity, and all the series were found to be nonstationary at degree. However their first differences were stationary at the same order. Additionally, Cointegration trial was carried out, uncovering that there was long tally equilibrium relationship among the fiscal development variables and economic growing. In instance of the long tally, fiscal deepening ( FD ) had positive impact on GDP nevertheless, recognition to the private sector to GDP was found to impede economic growing. Consequently, the authorization in Niger should ordain Torahs and policies to set up a cardinal recognition agency associating all Bankss to restrict defaults on loan payments. They should besides construct stronger and more diversified fiscal and banking sector by go oning with the liberalisation policy so as to make competition among the Bankss. Finally, the public should be sensitized and educated on the security of the Bankss against prostration in order to make assurance in citizens about the sustainability of the banking sector.
Keies Wordss: Financial Development ; Economic Growth ; Niger, Credit to private sector, Africa.
Table of Contentss
Chapter 1 Introduction seven
1.1. Motivation nine
1.2. Scope of the Study ten
1.3 Brief overview of economic growing and fiscal sector Development in Niger ten
1.3.1 Economic Growth x
1.3.2 Financial Sector Development eleven
1.4 Disposition twelve
Chapter 2 Literature Review thirteen
2.1 Financial development: a factor for economic growing thirteen
2.2 Financial development: a less factor for economic growing fifteen
2.3 Fiscal liberalisation and economic growing in the WAEMU states xv
Chapter 3 Empirical Analysis 18
3.1 Data and Description of Variables 18
3.1.1 Datas 18
3.1.2 Economic Growth Indicator 18
3.1.2 Financial Development Indicators 18
3.2 Unit root Test 22
3.2.1 ADF trial 23
3.2.2 Test Consequences 24
3.3 Empirical consequences 24
3.3.1. Vector Autoregression ( VAR ) Lag Length 24
3.3.2. Cointegration Test 25
3.3.3. Cointegration consequences 26
3.3.4. Vector Error Correction Model ( VECM ) 26
Chapter 4 Conclusion and Policy Implications 31
4.1. Decision 31
4.2. Policy Deductions 32
Table of Figures
List of Tables
Table 3.1 Descriptive statistic of the variables 22
Table 3.2 Descriptive statistic of the first difference of the Variables 22
Table 3.3 Unit root trial of degree 23
Table 3.4 Unit root trial of first difference 24
Table 3.5 VAR slowdown order choice standards 25
Table 3.7 Vector mistake rectification estimates 28
Chapter 1 Introduction
Niger ‘s economic growing in the past decennaries has been comparatively modest and was below the population growing rate, in the early sixtiess through to the late seventiess economic growing was weakened by series of drouths that adversely affected the agricultural sector ( accounting 40 per centum of Niger GDP ) . From 1979 to 1982, economic growing was strengthened due to the universe demand for uranium ( Niger ‘s chief export merchandise ) . This improved the footings of trade and raised export grosss base of the state. However, this strong growing was short lived due to the prostration of the planetary uranium monetary value in the early 1980s, doing and speed uping drawn-out recession. Although the 1994 devaluation of the CFA[ 1 ]franc improved the state ‘s external fight, existent GDP growing was excessively low to hike per capita income ; IMF ( 2007 ) ; Ministry of Finance and economic system of Niger ( 2006 ) .
Over the old ages, the survey of economic growing has become one of the hottest research countries due to the strategic deductions of economic growing to national development. Modern theories on economic growing offer several accounts to this ; Katheline ( 2000 ) . Harmonizing to the authoritative definition of Francois Perroux ( 1981 ) , economic growing is “ an addition in the capacity of an economic system to bring forth goods and services, compared from one period of clip to another ” . In pattern, gross domestic merchandise ( GDP ) is used to mensurate economic growing and the rate of economic growing is evaluated by the rate of alteration of GDP. The fiscal sector is an of import subscriber to GDP in every economic system. Therefore, the degree of growing and development of an economic system is tied partially to profound reforms made in the fiscal and pecuniary constructions every bit good as policy intercessions. Changes in the fiscal sector are cardinal and critical for these reforms due to its function in distributing hazard and mobilizing nest eggs. It is hence imperative to foreground the parts of this sector to economic growing. Nonetheless, economic theories are divided on the importance of this sector in economic growing ; Bagehot ( 1873 ) ; Hicks ( 1969 ) ; Goldsmith ( 1969 ) ; Schumpeter ( 1912 ) ; Robinson ( 1952 ) ; Lucas ( 1988 ) .
Consequently, two chief hypotheses are advanced whose cardinal issue is whether or non the fiscal sector supports economic development. The first is led by Bagehot and others ; Bagehot ( 1873 ) ; Mackinnon ( 1973 ) ; Shaw ( 1973 ) ; and Schumpeter ( 1912 ) . They highlight the active function of the fiscal sector in advancing economic growing ; Robinson ( 1952 ) and Lucas ( 1988 ) on the other manus believe there is no relationship between the fiscal sector and economic growing.
Crisiss in the banking sector in 1980s resulted in prostration of Bankss in developing states particularly in Africa ; peculiarly, South of the Sahara. It forced the West African and Monetary Union ( WAEMU ) states ( among which Niger is a member ) to prosecute in fiscal liberalisation advocated by research workers as an intercession step ; McKinnon and Shaw ( 1973 ) . This intercession, as envisaged at the clip, would let the recovery of the banking and the fiscal sectors and in fact, impel the growing of the economic system. Unfortunately, the intercession has non been successful due to the fact that the fiscal sector is extremely concentrated with higher intermediation borders ; ensuing in surplus liquidness which has inauspicious effects on banking efficiency ; Igue ( 2006 ) .
A developed fiscal sector enhances economic growing, by advancing and mobilising nest eggs and supplying information on investings chances so that resources can be channeled to productive ventures. It monitors the expense of financess, promotes trading, variegation and direction of hazard every bit good as easing the exchange of goods and services taking to economic growing ; Levine ( 1997, 2004 ) .
The aim of this survey is to look into whether the development of fiscal sector in Niger in the past 40 old ages has contributed to economic growing or non. Empirically, existent GDP was used to bespeak economic growing ; two variables were used to bespeak fiscal development. Financial intensifying M2/GDP denoted by FD, and recognition to the private sector to GDP by CP. Based on these, probe to find whether or non there was any relationship between fiscal development and economic growing in Niger was done.
There have been some surveies on the fiscal development and economic growing in some WAEMU states, nevertheless to the best of my cognition at that place has non been any study in the instance of Niger. Its fiscal sector has non been given the necessary attending in research surveies as an of import index of economic growing. Hence, the demand to make full this research and academic spread is of paramount importance. This survey hence, purposes at analysing the relationship between the fiscal development and economic growing of Niger and supplying inexplicit and expressed policy suggestions that may be adopted by policy shapers to advance fiscal development and economic growing.
1.2. Scope of the Study
Financial development is a wide term ; it is a combination of the developments of fiscal establishments fiscal markets and fiscal assets. The focal point of this survey is chiefly on the development of fiscal establishments. Other facets such as stock market will non be considered as the state has no effectual and operational stock market. In fact, the whole of the West African Economic and Monetary Union ( WAEMU )[ 2 ], has merely one stock market located in Abidjan, Ivory Coast. Be it as it may, this regional stock exchange[ 3 ]is non good developed to vie with and to interrupt the monopoly of the Bankss.
1.3 Brief overview of economic growing and fiscal sector Development in Niger
1.3.1 Economic Growth
Since independency ( in 1960 ) , Niger has experienced several profound economic growing. This span of economic developments may be divided into five ( 5 ) different periods.
1963-78 The rural sector contribute more than half of entire value added to GDP, with excavation accounting for about 7 per centum. Within this period, there were series of
drouths that weakened the agricultural sector which history for approximately 40 per centum of the GDP, negatively impacting on growing. Per capita existent GDP growing averaged about 0.8 per centum per twelvemonth ; Ministry of Finance of Niger ( 2006 ) .
1979-82: Higher U monetary values pushed per capita existent GDP growing to an norm of about 2.5 per centum per twelvemonth, in this period. The excavation sector contributed an overall GDP of approximately 13 per centum. This increased authorities gross and facilitated greater public investing in substructure ; Ministry of Finance of Niger ( 2006 ) .
1983-93: International U monetary values and Niger ‘s footings of trade declined aggressively, significantly cut downing export net incomes, decelerating investing, and weakening the fiscal sector. Limited policy accommodations to the footings of trade and political instability worsened the state of affairs. Per capita existent GDP declined, by an norm of 3.4 per centum a twelvemonth ; Ministry of Finance of Niger ( 2006 ) .
1994-98: Along with devaluation of the CFA franc ( in 1994 ) , the Nigerien governments initiated reforms that worked towards liberalising the economic system. These steps improved external fight and strengthened the economic system ‘s overall supply response. Good conditions conditions boosted the public presentation of the agricultural sector, although per capita existent GDP growing still averaged merely about 0.5 per centum a twelvemonth ; IMF ( 2007 ) .
1999-2010: The 1999 elections ushered in a democratic authorities and brought consensus on the demand for prudent policies and reforms to beef up growing and cut down poorness. Consequently state-owned companies were privatized and domestic and external trade liberalized. While these reforms strengthened the economic system ‘s supply response, drouths continued to hit the economic system taking to limited advancement in agricultural productiveness ensuing in modest per capita existent GDP growing ; IMF ( 2007 ) .
1.3.2 Financial Sector Development
Niger is a member of the Economic and Monetary Union of the West Africa ( WAEMU ) which comprise of 8 former Gallic settlements in West Africa. The Central Bank of the States of West Africa, known as Banque Centrale des Etats de l’Afrique de l’Ouest ( BCEAO ) in French which was established in 1962, is responsible for both the
direction of the pecuniary policies, modulating and oversing the banking services
of the member states. The fiscal sector of Niger is comparatively developing. The sector includes the cardinal bank, 10 commercial Bankss ; the national fund of societal security system ; five insurance companies ; three securities firm houses and about 270 microfinance establishments MFIs ; Monograph of BCEAO ( 2004 ) . Among the WAEMU member states, Niger ‘s ratio of wide money to GDP and sedimentation to GDP is the lowest. Based on this, it is safe to reason that the fiscal intermediation in Niger is still really low. Entire assets of the fiscal system at the terminal of 2010 stood at about 480 billion CFA francs, stand foring 25 % of the GDP. The banking sector dominates the fiscal system with entire assets accounting for approximately 69 % where as the non fiscal sector accounted for about 27 % with the insurance sector accounting for approximately 6.4 % and the microfinance establishments accounting for approximately 3.6 % ; WAEMU ( 2010 ) . The fiscal sector suffered serious troubles in the late 80s and 90s. Banks, security financess and microfinance establishments went through terrible fiscal crisis. Additionally, long period of political and economic instability and sulky economic growing are factors that contributed to this fiscal crisis. Other factors that affected the sector include the inefficiency of the bench, hapless fiscal sector policies, including supervising, slack banking, the rigidness of the construction of involvement rates and sectoral allotment of recognition ; WAEMU ( 2003 ) . Mismanagement, subsidised loans ( particularly in the late seventies and the 80s ) and budget shortages besides contributed to the failure of the fiscal establishments.
The survey is structured in four parts ; the first chapter is an debut concentrating on the motive, the range and a brief history of Niger ‘s economic growing and fiscal sectors. The 2nd chapter is an overview of theories refering fiscal development and economic growing. The 3rd chapter is the description of informations, variables, and consequences of empirical proof. The 4th chapter is the decision and policy deduction of findings of the survey.
Chapter 2 Literature Review
Economic growing is a end and national development policy of every state. Developed economic systems provide populating grounds of the importance of the fiscal sector in economic growing. Financial development stimulates economic growing through investing which constantly contributes to increasing national productiveness.
2.1 Financial development: a factor for economic growing
The positive correlativity between fiscal development and economic growing has been recognized in the literature for over decennaries Bagehot and others Bagehot ( 1873 ) , Schumpeter ( 1912 ) , Goldsmith ( 1969 ) are among the innovators of this subject. Fiscal construction rapidly became one of the cardinal economic developments spurred by writers Gurley and Shaw ( 1967 ) ; McKinnon ( 1973 ) , King and Levine ( 1993 ) . In about all surveies, findings confirm that an efficient fiscal system contributes strongly to economic growing. The correlativity between the two sectors is widely accepted nevertheless the way of causality is yet problematic. The construct of fiscal system by and large includes Bankss and fiscal markets. Levine ( 2004 ) advanced five statements that theoretically support the being of strong and positive nexus between fiscal development and economic growing. He stated that fiscal system would:
Shock absorber against the hazard ;
Allow optimum allotment of resources ;
Allow better control of the company direction
Facilitate the mobilisation of domestic nest eggs ;
Facilitate the exchange of goods and services.
Schumpeter ( 1911 ) argued that an efficient fiscal system greatly helps the growing of a state ‘s economic system. For him well-functioning Bankss encouraged technological invention by offering support to entrepreneurs that have the best opportunities of successfully implementing production procedures for advanced merchandises. Goldsmith ( 1969 ) is another innovator in analyzing the links between growing and fiscal development. His survey focused on a sample of 35 states over the period 1860 to
1963. He concluded that there is a positive nexus between the fiscal sector and
economic growing. In an effort to turn to the failing in the work of Goldsmith, King and Levine ( 1993 ) , focused their analysis on a sample of 80 developed states over a period 1960 to 1989 by reexamining all fiscal factors probably to act upon long-run economic growing and concluded that there was statistically important and positive part of fiscal variables on economic growing.
Levine and Zervos ( 1998 ) assessed the impact of exchange stock market and development of the banking sector on economic growing with a sample of 49 states over the period of 1976-1993 and utilizing plus turnover, and market capitalisation ratios, market volatility and bank development indexs as fiscal variables. They besides considered as growing rate of existent GDP, capital, productiveness and nest eggs as endogenous variables in line with earlier surveies ; King and Levine ( 1993 ) . Their consequence highlighted the positive impact of fiscal variables on economic growing and penciled two mechanisms through which fiscal development is affected economic growing. The first is the increased efficiency of capital, through better resource allotment and the 2nd is the mobilisation of nest eggs which increases the volume of investing. They concluded that economic systems with high degrees of fiscal development exhibited higher growing rates. Venet et Al. ( 1998 ) in a survey on the economic systems of sub-Saharan states from 1970-1995 found out that fiscal intensifying played a major function in the existent growing of bulk of states within WAEMU, including Cameroon. They used economic growing measured by existent GDP per capita as regressor and ratios of M2 to GDP, the nominal recognition to the private sector and stock of existent recognition per capita as fiscal variables and concluded that there was a causal nexus between fiscal deepening and existent economic growing of the states except Niger. In its instance, there was no causal significance ; yet, harmonizing to them, the consequence does non needfully connote the absence of economic ties between the two sectors of Niger.
2.2 Financial development: a less factor for economic growing
In fact, the issue of the relationship between fiscal development and economic growing is still debated. Some economic experts believe there is no important relationship between fiscal system and economic growing. For case, Lucas ( 1988 ) dismissed
the finance-economic growing relationship by saying that economic experts “ severely over-stress ” the function fiscal factors play in economic growing. Mayer ( 1988 ) argues that a developed stock market is non of import for funding of companies. Nonetheless, some writers such as Robinson ( 1952 ) assert that economic growing creates demand for fiscal instruments and that where endeavor leads, finance follows. Nguema ( 2000 ) studied fiscal intermediation and growing on Gabon, and concluded that despite the regular periods of extra liquidness in the banking system, Bankss did non finance growing. In other words, the development of the fiscal sector did non act upon the economic growing of the state.
2.3 Fiscal liberalisation and economic growing in the WAEMU states
By and large, the term “ fiscal repression ” refers to the effects of rigorous ordinance of fiscal systems and the arrays of limitations imposed by States on the activity of fiscal establishments. Adopting fiscal liberalisation policies was frequently considered a requirement for healthy and efficient fiscal sector ; McKinnon and Shaw ( 1973 ) . Theoretical and empirical surveies conclude that fiscal development dramas of import function in economic growing, and that less developed fiscal systems may impede economic growing, and that reforms affecting the deployment of market mechanisms must be pursued. Evidence from these surveies has been the foundation for the moving ridge of fiscal liberalisation of many developed and developing economic systems. For the WAEMU states, the liberalisation of fiscal systems to halt the prostration of the Bankss and impel investing began in the late eightiess ; WAEMU one-year study ( 2003 ) . The reforms were chiefly liberalisation of involvement rates, riddance of recognition, operationalization of the minimal modesty system, redevelopment of the money market, creative activity of the Regional Stock Exchange known as Bourse Regionale de Valeures Mobilieres ( BRVM ) in French, and publicity of the microfinance sector. These steps were implemented ( as portion of the liberalisation policy in the pecuniary country ) to better the efficiency of Bankss for economic growing. However, some argue that fiscal repression has a cut downing consequence on growing.
McKinnon and Shaw ( 1973 ) , King and Levine ( 1993 ) are the chief advocators for fiscal liberalisation. For them, a repressed fiscal system where the province controls
the banking sectors is uneffective because authorities dramas of import function in recognition allotment, through the care of really low involvement rates, subsidised involvement rates for precedence sectors ( particularly SOEs ) and really high modesty demands. This development is believed to upset comparative monetary values and resource allotment. Fiscal liberalisation therefore, must first advance greater aggregation of nest eggs, by increasing the supply of nest eggs instruments and raising existent involvement rates. There is besides the inclination to finance less productive investings in a financially pent-up economic system ; McKinnon ( 1973 ) . Furthermore, Shaw ( 1973 ) showed that the rate bounds aggravate hazard antipathy and liquidness penchant of fiscal mediators. Harmonizing to Fry ( 1997 ) , recognition allotment is normally based on political associations instead than on the footing of efficiency in a repressed fiscal system. King and Levine ( 1993 ) besides stated that fiscal repression reduces the services offered by the fiscal system for clients. It hinders invention and weakens the growing rate of the economic system. Therefore, theoretically, there is ample grounds that shows that fiscal repression adversely affects both the fiscal domain and the existent economic system. Hence, the liberalisation of fiscal systems advocated by economic experts as a step to bring on economic growing seems to be in the right way. In contrast, a 2nd attack argues that fiscal liberalisation is harmful to fiscal development invention and economic growing. Stiglitz ( 1981 ) opined that the map of capital markets, driven chiefly by fiscal liberalisation is affected by asymmetric information flow which undermines its effectivity. For illustration, the caput of a recognition bank has more information on the footings and conditions on loans than the client who is taking hazards to borrow. This consequences in inauspicious choice, and moral jeopardy.
Chapter 3 Empirical Analysis
Macroeconomic public presentation in Niger has been rather hapless over the old ages and existent GDP varied between 1970 and 2010. In this chapter variables of the survey are described, informations are analyzed and consequences validated through empirical observation. Initially, the presence of unit root is enquired before finding of Cointegration. After Cointegration between the variables was established the being of long tally equilibrium relationship was confirmed. Finally, a Vector Error Correction technique was employed to analyze the short and long tally kineticss with the aid of Eviews 7.1 Software.
3.1 Data and Description of Variables
Annual clip series informations were used from 1970 – 2010. The information was collected from the International Financial Statistics ( IFS ) and World Bank Development Indicators ( WDI ) information bases ( hypertext transfer protocol: //www.imf.org/external/data.htm ; hypertext transfer protocol: //data.worldbank.org ) .
3.1.2 Economic Growth Indicator
Unlike Levine ( 2000 ) who used existent GDP per capita in mensurating economic growing, herein, existent GDP was used as a placeholder for economic growing because the population growing rate of Niger is higher than the GDP growing ; such that spliting the existent GDP by the population does non reflect the growing of the state. This variable would reflect the development of the economic development. Note that this index reflects the economic wellness of a state and its ability to finance domestic investing. Therefore the natural logarithm of existent GDP is used as index of economic growing denoted by ( GDP ) .
3.1.2 Financial Development Indexs
Based on Niger ‘s state of affairs and handiness of informations, two variables were in turn selected to mensurate fiscal development, which are the ratio M2 divided by nominal GDP denoted FD and recognition to the private sector besides divided by nominal GDP denoted by CP. The ratio of recognition to the private sector to GDP has been designed as an index of fiscal intermediation. The higher this ratio is, the larger the volume of recognition loaning to the private sector. Additionally, recognition to private sector to GDP as a placeholder of fiscal development indicates non merely a high degree of domestic investings, but besides a high development of the fiscal system. Furthermore, Financial deepening ( FD ) is designed as an index to capture the development of the liquidness of the economic system. Furthermore, Demetriades and Hussein ( 1996 ) , King and Levine ( 1993 ) used this variable to mensurate the development of the fiscal sector. Increase in FD corresponds to increase in liquidness of the economic system. The mark of FD was expected to be positive because the more liquid an economic system is, the more chances exists for continued and sustainable growing. However, the mark for recognition to the private sector to GDP ( CP ) may be equivocal ; allotment of non-performing credits may be a beginning of crises for Bankss every bit good as the economic system and therefore associate negatively to growing. On the other manus, it may be positively correlated with GDP if credits are deployed expeditiously. Therefore, the logarithm of CP and FD were used as fiscal development indexs.
The Figures below illustrate each series in log degrees of the variables every bit good as the first differences of the logs. As indicated in Figure 3.1, each series appears to be nonstationary. Whereas the first differences of the logs of the series in Figure 3.2 have stationary visual aspect.
Figure 3.1: Tendency of single variables GDP, FD, and CP in log degree
The variables fluctuate over the old ages. The CP appears to diminish from 1970 up 1972, so increase suddenly in 1975. It so fell in 1978 and picked to a upper limit in 1979. Thereafter, it decrease steadily in 1997 and eventually increase from 1997 to 2010. The FD increased from 1970 to 1980, so dropped to 1983 and increased steadily to 1994, so decreased to 1997 and eventually increased in 2010. The GDP increased from 1970 to 1971, decreased in 1973, so increased steadily to 1979 and so dropped in 1984.Thereafter, it increased boulder clay 2010.
Figure 3.2: Log first differences of single variables
From Figure DCP increased from 1970 to 1972, and so decreased aggressively in 1976. It stabilizes a small in 1992, and dropped in1995.Thereafter it fluctuates steadily till 2010. The tendency of DGDP decreased from 1970 to 1972, and so increased from 1972 to 1975. It so fell from 1978 to 1983. It increased so aggressively from 1983 to 1985. Finally, it fluctuates steadily from 1985 to 2010 even though it decreased in some old ages. The DFD decreased from twelvemonth 1970 to 1972, and so increased litter in 1975.Thereafter decreased from 1980 to 1983 and picked up from 1983 to 1985. It so decreased somewhat up 1999. From 1999 it increased aggressively to 2004 so dropped boulder clay 2010.
Below are descriptive statistics at the degree and the first difference of the variables. From ( Table 3.2 ) the per centum of M2 in nominal GDP ( FD ) show that Niger population has an norm of 3.47 % of their income as liquid assets, which remains below the norm of developing states. The CP was an norm of 2.09 % . This low rate indicates the underdevelopment of recognition to the private sector.
Table 3.1 Descriptive statistic of the variables
N.B: There were 41 observations from 1970-2010.
Table 3.2 Descriptive statistic of the first difference of the Variables
N.B: There were 40 observations.
3.2 Unit root Test
Most macroeconomics informations are nonstationary ; hence it was aboriginal to prove for stationarity before the arrested development in order to avoid deceptive consequences. Therefore, a formal trial is applied in order to look into the stationarity of the series. Series which are stationary at degree is said to be integrated of order nothing, I ( 0 ) . The 1s which attained stationarity after differencing is said to be integrated of order one, I ( 1 ) .
3.2.1 ADF trial
Augmented Ducky Fuller ( ADF ) trial was used to prove for the stationarity. It consists of running a arrested development of the first differences of the series against the series lagged one time, lagged difference footings and optionally, a changeless and clip tendency. This can be expressed as follows:
( 1 )
Where is dependent variable, is changeless term, tendency variable, is stochastic perturbation term.
The trial for unit root was carried out on the coefficient of ( ) . If the coefficient is important from zero, so the hypothesis that has a unit root is rejected. The fact that the void hypothesis is rejected indicates stationarity. The void hypothesis is that the variable is a non-stationary series ( H0: ) and it is rejected when is significantly negative ( ) .
If the computed value of the ADF statistic is more negative than the critical values, so the void hypothesis ( H0 ) is rejected and the series considered to be stationary or integrated of order nothing, I ( 0 ) . Contrary, failure to reject the void hypothesis implied that the series is non-stationary taking to another trial on the first difference of the series. If the series attained stationarity after the first difference, they are considered incorporate of the order one, I ( 1 ) . If non, farther difference was conducted until stationarity was reached.
Table 3.3 Unit root trial of degree
Table 3.4 Unit root trial of first difference
D ( GDP )
D ( FD )
D ( CP )
3.2.2 Test Consequences
Consequences of the unit root trial showed that all the series were nonstationary. The ADF trial statistics were lesser than the critical values bespeaking that the series were nonstationary at degree ( Table 3.3 ) . Furthermore, all the variables attained stationarity at first difference at 10 % significance degree. The deliberate values of the ADF statistics were more negative than the critical values connoting that the series were integrated of order one I ( 1 ) ( Table 3.4 ) .
3.3 Empirical consequences
In this subdivision, an optimum slowdown length is chosen and consequences of the Cointegration trial every bit good as the Vector mistake rectification theoretical account ( VECM ) estimations are presented.
3.3.1. Vector Autoregression ( VAR ) Lag Length
Since all the variables are integrated of order one, application of Johansen Cointegration trial is more appropriate ; Johansen ( 1991, 1995 ) . Yet, Johansen Cointegration trial is sensitive to the slowdown length. Therefore an optimum slowdown length ( P ) must be chosen. Besides, before appraisal of the VECM theoretical account with associated cointegrating vector, it is necessary to choose optimum slowdown length of initial VAR. Different information standards were computed for different clip slowdowns ; each at 5 % degree of Likelihood Ratio ( LR ) , Final Predict Error ( FPE ) , Akaike Information Criterion ( AIC ) , Schwarz Information Criterion ( SC ) , and Hannan-Quinn information standard ( HQ ) . Consequence showed that the appropriate slowdown for all the standard was one. Hence, the figure of slowdowns required in the Cointegration trial was set to one ( p=1 ) .
Table 3.5 VAR slowdown order choice standards
A A 205.957*
A A 1.60e-06*
* indicates lag order selected by the standard, A LR: consecutive modified LR trial statistic ( each trial at 5 % degree )
FPE: Concluding anticipation mistake, A AIC: Akaike information standard, SC: Schwarz information standard, HQ: Hannan-Quinn information standard
3.3.2. Cointegration Trial
As Engle and Granger ( 1987 ) pointed out, it is possible that a additive combination of nonstationary series may be stationary. If such stationary combination exists, the non-stationary clip series are said to be co-integrated and it is so possible to construe it as a long-term equilibrium relationship among the variables. Johansen ( 1995 ) suggested two trial statistics based on Likelihood ratio ( LR ) ; the hint statistics and the Maximum Eigenvalue statistic. The first statistic trials the void hypothesis that the figure of Cointegration vector is less than or equal to r against the option that the figure of Cointegration vector is equal to r. The 2nd statistic trials the nothing hypotheses that the figure of Cointegration vector is equal to r against the option that it is equal to r+1.
Table 3.6 Johansen Cointegration trial
Unrestricted Cointegration Rank Test ( Trace )
No. of CE ( s )
At most 1
At most 2
A Trace trial indicates no cointegration at the 0.05 degree A * denotes rejection of the hypothesis at the 0.05 degree A **MacKinnon-Haug-Michelis ( 1999 ) p-values
Unrestricted Cointegration Rank Test ( Maximum Eigenvalue )
No. of CE ( s )
At most 1
At most 2
A Max-eigenvalue trial indicates 1 cointegrating eqn ( s ) at the 0.05 degree A * denotes rejection of the hypothesis at the 0.05 degree A **MacKinnon-Haug-Michelis ( 1999 ) p-values
3.3.3. Cointegration consequences
The figure of cointegrating vectors was tested based on the premise that the series have linear deterministic tendency and that there is an intercept. The void hypothesis that there is no cointegrating vector refering the hint statistics could non be rejected since its value was greater than the 5 % critical value. However, the maximal eigenvalue statistics test indicates one ( 1 ) cointegrating equation among the variables. Therefore, there was one Cointegrating equation bespeaking the being of long-term equilibrium relationship among the variables ( Table 3.6 ) .
3.3.4. Vector Error Correction Model ( VECM )
The usage of the vector mistake rectification theoretical account was necessitated by the fact that the clip series were nonstationary in their degrees except in their differences, coupled with the fact that the variables were cointegrated. In instance there was no Cointegration, VECM was non required. The VECM was applied in order to measure the short tally belongingss of the cointegrated series and to happen the existent nexus between the variables. It enables the integrating of the short-term fluctuations. The coefficient of the mistake rectification term must be negative to describe a force towards the long-term equilibrium. The arrested development equation of the VECM is express as:
( 2 )
( 3 )
( 4 )
Where I” is the first difference operator, is the mistake rectification term lagged one
period, are the short-term coefficients are changeless footings, are coefficients and are the white noise footings.
Table 3.7 Vector mistake rectification estimations
Cointegrating Equivalent: A
GDP ( -1 )
CP ( -1 )
( 0.144 )
[ 5.279 ]
FD ( -1 )
( 0.206 )
[ -6.355 ]
D ( GDP )
D ( CP )
D ( FD )
( 0.031 )
[ -1.935 ]
( 0.089 )
[ 2.059 ]
( 0.058 )
[ 4.805 ]
( 0.009 )
[ 1.858 ]
( 0.027 )
[ 0.766 ]
( 0.018 )
[ 1.922 ]
A Adj. R-squared
A Sum sq. resids
A S.E. equation
A Log likeliness
A Akaike AIC
A Schwarz SC
A Mean dependant
A S.D. dependant
A Determinant resid covariance ( dof adj. )
A Determinant resid covariance
A Log likeliness
A Akaike information standard
A Schwarz standard
Niobium: Standard mistakes in ( ) & A ; t-statistics in [ ]
Short tally dynamic
D ( GDP )
( * ) , indicates important at 10 % degree
The coefficient should be negative to demo that the long tally relationship exists among the variables and that divergence from equilibrium in the old twelvemonth is adjusted back to equilibrium in the current twelvemonth. In other words, this indicates a long-term mistake rectification among the variables. In peculiar, given that the coefficient of is -0.061, this means that 6.1 % of the disequilibrium in the old twelvemonth were adjusted back to equilibrium in the current twelvemonth.
Long tally moral force
GDP ( -1 )
CP ( -1 )
FD ( -1 )
( * ) , ( ** ) ( *** ) indicates 10 % 5 % and 1 % significance degree, severally.
Based on the long tally dynamic analysis the relationship between GDP, CP and FD can be expressed in footings of the coefficients as
( 5 )
We interpreted the coefficients in footings of snap. The GDP increased by 1.311 per centum with an addition of one per centum of FD. It had important influence on the economic growing of Niger. However, an addition of one per centum of CP led to a lessening in GDP by 0.765 per centum, which confirms the ambiguity of the mark of CP. With effectual allotment of resources, it will be correlated positively with economic growing ; otherwise non, particularly in states where the fiscal systems are non good developed. Generally, CP is expected to hold positive consequence on investing taking to economic growing ; Demetriades and Hussein, ( 1996 ) . Contrary, we found negative and important impact of CP on economic growing in Niger. This consequence could be explained by the immense non executing loans on the private sector between 1970 and 1980. Higher CP means wider fiscal sector and higher
fiscal intermediation. Yet for Niger ‘s instance, the CP was lower ; bespeaking restraint of the
fiscal sector and lower fiscal intermediation. Additionally, the attitude of bankers to finance less hazardous undertakings lead to low capital strength. This does small to better investing and may make deformations in the economic system. Furthermore, investing in Niger is weak and unstable taking to unexpected negative returns from undertakings with attendant negative impact on economic growing.
Chapter 4 Conclusion and Policy Implications
We investigated the being of relationship between fiscal developments and economic growing in Niger with one-year clip series informations from 1970 to 2010 utilizing Vector Error Correction techniques. Consequences of ADF unit root trial demonstrated that the series were non stationary at their degrees but stationary at first difference. Additionally, Johansen Cointegration trial was applied to analyze the long tally equilibrium relationship among the variables and consequences indicate the being of Cointegration among the variables. The mistake rectification term is negative and statistically important indicating that after a daze in a old twelvemonth, the long tally disequilibrium will meet towards equilibrium at approximately 6.1 % per centum in a current twelvemonth. In the long tally, we found that an addition in fiscal deepening ( FD ) leads to an addition in GDP nevertheless ; there was a negative and important consequence between recognition to the private sector to GDP and economic growing.
4.2. Policy Deductions
Based on the findings of the empirical analysis, suggestions are advanced for policy intercessions. The negative relationship between recognition to private sector and economic growing may be due to inefficient allotment of financess to productive sectors. This is chiefly due to the fact that most borrowers default on loan payments. As a consequence, Bankss are loath to give out recognition to many clients ; they pursue selective loaning to few sectors, particularly the excavation and telecommunication industries. This creates a state of affairs where there is no readily available recognition to legalize enterprisers, taking to less economic growing. Hence, to hike economic growing and development, the authorization in Niger should ordain Torahs and policies to set up a cardinal recognition agency associating all Bankss. This will collate the names and history of all borrowers such that old loan defaulters every bit good as the ability of borrowers to honour loan payments can easy be determined by recognition officers. On the other manus,
the positive correlativity of fiscal intensifying to economic growing indicated that fiscal deepening had much influence on the economic growing and developments of Niger. Therefore, to bring on economic growing and developments, the authorities has to work towards constructing a stronger and more diversified fiscal and banking sector by go oning to liberalise the fiscal sector so as to make competition among the Bankss. Competition will drive Bankss to establish advanced policies and plans that are client friendly. For case Bankss may be forced to ship on vigorous advertizement to educate clients on the advantages of banking with them or let creative activity of zero-balanced sedimentation histories. This will promote more clients to salvage ensuing in more liquidness to advance economic growing. Another intercession is to explicate directives for Bankss to carry on periodic and scheduled sensitisation and instruction plans for the public about the security of the Bankss against prostration. There is the general belief that the Bankss in Niger may fall in at any clip, ensuing in many people non desiring to salvage. This perceptual experience is borne out of the prostration of the banking sector in the 1980s. Therefore, making assurance among the citizens is critical for the sustainability of the Bankss and the economic growing of Niger.
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