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Thursday, 13 September 2018

Eco. 0511 Assignment-14th September, 2018

Discuss some of the vital questions raised under the Problems and Policies of Development and provide your own and answers and clear perspectives on them.
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Dokubo Johnson Monovie said...

UNIVERSITY OF NIGERIA, NSUKKA
FACULTY OF SOCIAL SCIENCES
DEPARTMENT OF ECONOMICS


AN ASSIGNMENT
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE COURSE ECO 0511
(PROBLEMS AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
DOKUBO JOHNSON MONOVIE
REG NO: PG/PGD/17/01047

LECTURER: DR. ORJI ANTHONY


SEPTEMBER, 2018

CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE MILLION DOLLAR QUESTIONS RAISE UNDER THE ISSUE SURROUNDING CAPITAL FUNDAMENTALISM?
No 1
What is the desired level of gross investment for an economy to realize the target growth rate of real (GDP)?
By definition, Gross investment refers to the expenditure on buying capital goods over a specific period of time. On the other hand, net considers depreciation and is calculated by subtracting depreciation from gross investment. Gross investment can also be viewed as the amount a company invests in business assets that does not account for any depreciation. The Gross figure more accurately reflects the company’s actual financial commitment to an asset from which it can derive a return on investment.
Real Gross Domestic Product (GDP) is an inflation – adjusted measure that reflects the value of all goods and service produced by an economy in a given year, expressed in based – year prices, and is often referred to as “constant-price”,
“Inflation – corrected GDP or “Constant Dollar GDP”. Unlike Nominal GDP, real GDP can account for a change in price level and provided a more accurate figure of economic growth. For an economy to realize the desired level of target growth rate of real GDP, such economy should invest fully on gross investment because this is a kind of investment in which capital goods like plants, machinery, etc are used for the production of other goods which in return leads to high increase in the value of assets and securities and on the long-run leads to the largest growth rate of real GDP.
No 2
How is the ex-arte investment to be appropriated between the public and private sector to help achieve the real growth rate?
Ex-arte is a phrase meaning “before the event”. Example is used mostly in commercial world, where result of a particular action or series of actions, forecast advance (or intended). The real growth in an economy is critically dependent on the existing stock of capital and net accumulation in the stock through current investment. Since the stock of capital at one point of time is the output of the stream of investment made in the past, therefore, the growth rate of an economy in the final analysis is the function of investment of both current and past.
There is massive gap between the need for infrastructure. Investment around the world and the ability of Government which is the public sector to pay for those investments while the private sector should build, control and operates infrastructure project and subject to strict government oversight and regulation, can help to achieve the real growth rate. However, public sector should sets the groundwork to enable private investment and allow it to thrive and private sector should also try to be doing the necessary because both sectors are so important for each other for favourable or sound Economic growth or the real growth rate.

Dokubo Johnson Monovie said...


No 3
How do we define the sectoral priorities within the public and private sectors such that investment allocation generate sectoral growth rate to match the overall growth rate of the economy?
The public and private sector investment allocation generate sectoral growth rate that match the overall growth rate of economy such as allow markets to function. The public sector recognizes the power of markets to drive optimal behaviour among market participants The Plan priorities the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.
Uphold core values. The public and private sector is rooted in the core values that define the Nigerian society. Economic Recovering Gross Profit has three broad strategic objectives that will help achieve the vision of inclusive growth outlined below: (1) restoring growth, (2) investing in our people, and (3) building a globally competitive economy.
Restoring Growth: To restore growth, the plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.
Investing in our People: Economic growth is beneficial for society when it creates opportunities and provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.

Dokubo Johnson Monovie said...

Social inclusion: The Federal Government will continue to provide support for the poorest and most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.
Job creation and youth empowerment: Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries. Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.
Improved human capital: The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage students to enroll in science and technology courses.

Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It will increase competitiveness by investing in infrastructure and improving the business environment.
Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.
Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.

Dokubo Johnson Monovie said...

No 4
What is the optimal blend of national savings and foreign savings or external borrowing to finance the aggregate level of investment?
This suggests that the country has saved a specific amount in external account while in reality the deficit reflect a gap or excess demand in its foreign exchange transaction for a given period of time. National income account which is formally written as S – I = X – M where symbol S, I, X and M indicate respectively natural savings, total investment, export of goods and services and import of goods and services. If the left hand side of these identity which indicate the savings investment gap is in the negative, is invariably follows that, the right hand side, the foreign exchange gap would be in the negative as well and vice versa.
The identity highlights one of the most important behavioural relationships of an economy namely the current account deficit added to the national savings equal to the level of total investment. Finally, investment must be financed by some combination of private domestic savings, government savings (surplus) and foreign savings (foreign capital inflow).
No 5
What are the main determinant and principal deterrent to domestic investment and foreign investment (portfolio and direct)?
The main determinant for domestic and foreign Investment (portfolio and direct) are:
(1) Political and Economic condition: These are very important elements that contribute positively, for any investor to think for investment in any area or country both domestic and foreign investors consider it before investing to avoid story.
(2) Macro-economic stability: Here if macroeconomic system or stability like inflation, government, policy, exchange rate, interest rate is favourable and stable the investors will trup-in to invest and there will be no fear in them for come in and invest thereby increase the GDP by at least 8% and attract Economic development.
(3) Certainty in economic policies and other incentives: This is also another factor that enhances Domestic.
(4) Low tax and other incentives: These are important factors that determine domestic and foreign investment because if taxation is low and there is incentives or subsides you will see thousands of investors for both domestic and foreign will be competing to invest because they have seen that they are going to make it in the long-run.
(5) Cost of Production: This is also a pre-requisite which many investors consider before they can think of moving on or investing in any country, both domestic and foreign investors consider this very paramount to know if its high or low, however, if its low they will invest but if not so it will scare or push them out from investing.
(6) Potential domestic market: This is very important tool or determine for both domestic and foreign investors consider or look into before they can make a move. At the same time country that investors see that they have high sales in their country ultimately it will attract more investors than the other example of such country is China, Vietman and India. These are major three countries that attract more investors than the other countries. It’s simply because market sales in their countries more than other countries.
(7) Labour regulation, work, ethics: A country where labour regulation permits a continuous or fixed labour, such a country attracts both domestic and foreign investments and investors in a huge quantum.

Dokubo Johnson Monovie said...

(8) Social and Economic infrastructure: This is also a basic factor that the investors are looking at before moving to any country because social and economic infrastructure will make their investment viable or boost.
(9) Easy of doing business: Any country or Area that business booms or is booming the both investors are bound to defect or move to such locality or region or country.
(10) Absent of bribery and corruption: This is another big factor that investor consider very well because no investor wants to hear bad story or associate with a corrupt person or country for no reason because it mar or inimical to both domestic and foreign investors as well. Sure a country that is bribery and corruption free, there will be a massive investors competing with each other to invest. Because definitely, there will be profit on the long-run.
The above mentioned or discussed are the major deterrent of domestic investment and foreign investment badly and that will scare or push both domestic and foreign investors out from such area, or country. As a matter of fact, the verse versa of the above discussed is the major issue that deterred domestic and foreign investment or investors. The absent of these ten (10) points in good mode or order will deter domestic and foreign investors into.


Dokubo Johnson Monovie said...

No 6
Why is it that some countries are able to attract a huge quantum of foreign direct investment over a long period of time?
(1) A business conducive environment to the investors: A country that has a conducive business environment is ultimately to attract more investors to their country than a country with unfriendly environment. Business friendly environment largely depends on good governance, rule of law, political will and infrastructure of the country and rules and regulations.
(2) Congenial climate: This is another factor that any investor has to consider before moving to any country to invest. However, at the same time, a country with/endowed with a good climate will ultimately attract more investors that’s sure than the other that do not have.
(3) Political stability/situation: This is very essential and credit to any country that their political situation is conducive/stable and thereby it’s obvious that foreign direct investors will move over to such a country than the opposite (country). It’s also a prime determinant for attracting foreign direct investment, the investors consider it very well to avoid economic waste or lost of their hard earned income.
(4) The availability of raw materials/resources: The investors deemed it right to consider this as also the factor that makes them to invest more in one country than the other where there is no availability of the raw materials that may be needed for their production cannot be considered to move on for investment in such a country.
(5) Cost of Labour/wages: This is important determinant that makes some country attract more foreign direct investment while other are starved of such, a rational investor consider this very well before progressing to any foreign direct investment because labour has a direct Relationship with the profit the investor is aiming to gain which is the sole aim of the investors and for their voice to be heard in enterprises (IMF) but this is secondary.
(6) Friendly tax, custom regulations and attractive packages: It is another factor or reason that some country gain/attract more investment than the other because any rational investor has to consider the tax, custom regulations of any country they want to move to for investment.
(7) Tolerable and moderate inflation and reasonably stable exchange rate: Here is a very big factor that foreign direct investors look into consideration before moving on to any country to invest because high inflation and unstable exchange rate is not friendly to any investor to put his/her hard earned capital/income to such country while those that have tolerable and moderate inflation and reasonable exchange rate attract more investment in their country.
(8) Technological progress/industrialization: This is also one of the factors that makes a country to attract more investment/investors than the other because investors are always looking at country that have innovation, improvement ideas, skills, machinery and steady electricity supply for the proper functionality of their investment but any country that are technologically weak, they are bound to be starved for a foreign direct investment.

Dokubo Johnson Monovie said...

No 7
What are the short-term and long-term (or Short-run and Long-run) of financing gross investment from foreign debt rather than foreign direct investment?
In financing Gross investment from foreign debt: When these funds injected back into the economy by the Government leads to a multiple increase in aggregate demand causing an increase in output and employment than foreign investment foreign boost the country’s economy but the lion profit made by the investors are taken back to their various countries but Gross investment will accelerate the economy far. It can be illustrated with the below model:
i. Y = C + I + G + (x - m)
The change in output will be equal to the multiplier times the change in government expenditure ∆y = (1-∆G)/(1-b)
ii. Foreign debt is used as a proxy for capturing total domestic debt of the economy in given period.
iii. Foreign debt is also used to capture the total amount of money expected by the Federal Government on debt payment abroad and its measure in billions.
iv. External debts are typically undertaken to finance public investments needed to boost the economic growth rate. It’s used to capture debt burden and economic growth.
v. It increases growth investment
vi. it will increase GDP
Gross f is gross investment, pop is the resources or money used in an economy. It’s very important on the domestic economy to enable to allocate resources and boost national resources.
vii. It is used to finance investment.
Finally, Gross investment do not account for depression and for that it is very rational for a country to invest on it, even if it required foreign debt or borrowing because it will be beneficial in both short and long run rather than foreign direct because in foreign direct the enterprisers or investors will hijack the whole profit back to their country and leave some to their host country.

Dokubo Johnson Monovie said...

No 8
What determines the efficiency and productivity of investment in a country both sectoral and overall?
By definition, efficiency and productivity of investment is a function of the return and total cost of an investment management structure subject to the judiciary and other constraints within which investor must operate. Institutional investors implement their investment policies through investment management structures. Efficiency and productivity of investment in a country both overall are below:
(1) Maximizing capital or income: An efficient and productive investment can be achieved through a maximum management of capital invested into the firm to avoid collapsing or economic waste. If judiciously managed or utilized ultimately, they will be efficient and high level of productivity of the investment but if not so they will not be nothing like efficiency or productivity of investment.
(2) Rational labour productivity: This contributes largely for the efficiency and productive of investment because cost of labour has a directly relationship with the success of any investment, if cost of labour is low the efficient and productivity of the investment will increase (high) but verse versa.
(3) Good governance: This is very crucial factors that determines the efficiency and productivity of investment in a country in bother sectoral because if government of any country is functional or delivering there will be high efficient and productivity of investment and everybody in the country will benefit it directly or indirectly because it will ultimately increase GDP or national output.
(4) Low level of corruption: This is very dangerous factor if not controlled or eliminated completely. It will mar the efficient and productivity of investment in a country in both sectoral and overall because the efficient and productivity can never be achieved but if controlled or eliminated sure there will be efficiency and high productivity of investment in both sectoral and overall.
(5) Allocation and policy decisions: It implies that the trustees or investors need to integrate or implement risks and other vital issues that concern the firm or company for high efficiency and productivity of such investment in both sectoral and overall.
(6) Adequate or steady electricity supply, infrastructure and good roads: This is a very essential factor that boosts the efficiency and productivity of investment both in sectoral and overall, if there exists a steady electricity supply the investment will grow and yield more profit which is the main aim of the investment.
(7) Quality accounting: This is important and necessary to increase efficiency and productivity of investment in sectoral and overall.

John Ogochukwu said...

UNIVERSITY OF NIGERIA, NSUKKA
FACULTY OF SOCIAL SCIENCES
DEPARTMENT OF ECONOMICS


AN ASSIGNMENT
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE COURSE ECO 0511
(PROBLEMS AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
JOHN OGOCHUKWU
REG NO: PG/PGD/17/00480

LECTURER: DR. ORJI ANTHONY


SEPTEMBER, 2018
CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE MILLION DOLLAR QUESTIONS RAISE UNDER THE ISSUE SURROUNDING CAPITAL FUNDAMENTALISM?
No 1
What is the desired level of gross investment for an economy to realize the target growth rate of real (GDP)?
By definition, Gross investment refers to the expenditure on buying capital goods over a specific period of time. On the other hand, net considers depreciation and is calculated by subtracting depreciation from gross investment. Gross investment can also be viewed as the amount a company invests in business assets that does not account for any depreciation. The Gross figure more accurately reflects the company’s actual financial commitment to an asset from which it can derive a return on investment.
Real Gross Domestic Product (GDP) is an inflation – adjusted measure that reflects the value of all goods and service produced by an economy in a given year, expressed in based – year prices, and is often referred to as “constant-price”,
“Inflation – corrected GDP or “Constant Dollar GDP”. Unlike Nominal GDP, real GDP can account for a change in price level and provided a more accurate figure of economic growth. For an economy to realize the desired level of target growth rate of real GDP, such economy should invest fully on gross investment because this is a kind of investment in which capital goods like plants, machinery, etc are used for the production of other goods which in return leads to high increase in the value of assets and securities and on the long-run leads to the largest growth rate of real GDP.
No 2
How is the ex-arte investment to be appropriated between the public and private sector to help achieve the real growth rate?
Ex-arte is a phrase meaning “before the event”. Example is used mostly in commercial world, where result of a particular action or series of actions, forecast advance (or intended). The real growth in an economy is critically dependent on the existing stock of capital and net accumulation in the stock through current investment. Since the stock of capital at one point of time is the output of the stream of investment made in the past, therefore, the growth rate of an economy in the final analysis is the function of investment of both current and past.
There is massive gap between the need for infrastructure. Investment around the world and the ability of Government which is the public sector to pay for those investments while the private sector should build, control and operates infrastructure project and subject to strict government oversight and regulation, can help to achieve the real growth rate. However, public sector should sets the groundwork to enable private investment and allow it to thrive and private sector should also try to be doing the necessary because both sectors are so important for each other for favourable or sound Economic growth or the real growth rate.

John Ogochukwu said...

No 3
How do we define the sectoral priorities within the public and private sectors such that investment allocation generate sectoral growth rate to match the overall growth rate of the economy?
The public and private sector investment allocation generate sectoral growth rate that match the overall growth rate of economy such as allow markets to function. The public sector recognizes the power of markets to drive optimal behaviour among market participants The Plan priorities the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.
Uphold core values. The public and private sector is rooted in the core values that define the Nigerian society. Economic Recovering Gross Profit has three broad strategic objectives that will help achieve the vision of inclusive growth outlined below: (1) restoring growth, (2) investing in our people, and (3) building a globally competitive economy.
Restoring Growth: To restore growth, the plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.
Investing in our People: Economic growth is beneficial for society when it creates opportunities and provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.

John Ogochukwu said...

Social inclusion: The Federal Government will continue to provide support for the poorest and most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.
Job creation and youth empowerment: Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries. Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.
Improved human capital: The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage students to enroll in science and technology courses.

Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It will increase competitiveness by investing in infrastructure and improving the business environment.
Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.
Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.

John Ogochukwu said...

No 4
What is the optimal blend of national savings and foreign savings or external borrowing to finance the aggregate level of investment?
This suggests that the country has saved a specific amount in external account while in reality the deficit reflect a gap or excess demand in its foreign exchange transaction for a given period of time. National income account which is formally written as S – I = X – M where symbol S, I, X and M indicate respectively natural savings, total investment, export of goods and services and import of goods and services. If the left hand side of these identity which indicate the savings investment gap is in the negative, is invariably follows that, the right hand side, the foreign exchange gap would be in the negative as well and vice versa.
The identity highlights one of the most important behavioural relationships of an economy namely the current account deficit added to the national savings equal to the level of total investment. Finally, investment must be financed by some combination of private domestic savings, government savings (surplus) and foreign savings (foreign capital inflow).

John Ogochukwu said...

No 5
What are the main determinant and principal deterrent to domestic investment and foreign investment (portfolio and direct)?
The main determinant for domestic and foreign Investment (portfolio and direct) are:
(1) Political and Economic condition: These are very important elements that contribute positively, for any investor to think for investment in any area or country both domestic and foreign investors consider it before investing to avoid story.
(2) Macro-economic stability: Here if macroeconomic system or stability like inflation, government, policy, exchange rate, interest rate is favourable and stable the investors will trup-in to invest and there will be no fear in them for come in and invest thereby increase the GDP by at least 8% and attract Economic development.
(3) Certainty in economic policies and other incentives: This is also another factor that enhances Domestic.
(4) Low tax and other incentives: These are important factors that determine domestic and foreign investment because if taxation is low and there is incentives or subsides you will see thousands of investors for both domestic and foreign will be competing to invest because they have seen that they are going to make it in the long-run.
(5) Cost of Production: This is also a pre-requisite which many investors consider before they can think of moving on or investing in any country, both domestic and foreign investors consider this very paramount to know if its high or low, however, if its low they will invest but if not so it will scare or push them out from investing.
(6) Potential domestic market: This is very important tool or determine for both domestic and foreign investors consider or look into before they can make a move. At the same time country that investors see that they have high sales in their country ultimately it will attract more investors than the other example of such country is China, Vietman and India. These are major three countries that attract more investors than the other countries. It’s simply because market sales in their countries more than other countries.
(7) Labour regulation, work, ethics: A country where labour regulation permits a continuous or fixed labour, such a country attracts both domestic and foreign investments and investors in a huge quantum.
(8) Social and Economic infrastructure: This is also a basic factor that the investors are looking at before moving to any country because social and economic infrastructure will make their investment viable or boost.
(9) Easy of doing business: Any country or Area that business booms or is booming the both investors are bound to defect or move to such locality or region or country.
(10) Absent of bribery and corruption: This is another big factor that investor consider very well because no investor wants to hear bad story or associate with a corrupt person or country for no reason because it mar or inimical to both domestic and foreign investors as well. Sure a country that is bribery and corruption free, there will be a massive investors competing with each other to invest. Because definitely, there will be profit on the long-run.
The above mentioned or discussed are the major deterrent of domestic investment and foreign investment badly and that will scare or push both domestic and foreign investors out from such area, or country. As a matter of fact, the verse versa of the above discussed is the major issue that deterred domestic and foreign investment or investors. The absent of these ten (10) points in good mode or order will deter domestic and foreign investors into.

John Ogochukwu said...

No 6
Why is it that some countries are able to attract a huge quantum of foreign direct investment over a long period of time?
(1) A business conducive environment to the investors: A country that has a conducive business environment is ultimately to attract more investors to their country than a country with unfriendly environment. Business friendly environment largely depends on good governance, rule of law, political will and infrastructure of the country and rules and regulations.
(2) Congenial climate: This is another factor that any investor has to consider before moving to any country to invest. However, at the same time, a country with/endowed with a good climate will ultimately attract more investors that’s sure than the other that do not have.
(3) Political stability/situation: This is very essential and credit to any country that their political situation is conducive/stable and thereby it’s obvious that foreign direct investors will move over to such a country than the opposite (country). It’s also a prime determinant for attracting foreign direct investment, the investors consider it very well to avoid economic waste or lost of their hard earned income.
(4) The availability of raw materials/resources: The investors deemed it right to consider this as also the factor that makes them to invest more in one country than the other where there is no availability of the raw materials that may be needed for their production cannot be considered to move on for investment in such a country.
(5) Cost of Labour/wages: This is important determinant that makes some country attract more foreign direct investment while other are starved of such, a rational investor consider this very well before progressing to any foreign direct investment because labour has a direct Relationship with the profit the investor is aiming to gain which is the sole aim of the investors and for their voice to be heard in enterprises (IMF) but this is secondary.
(6) Friendly tax, custom regulations and attractive packages: It is another factor or reason that some country gain/attract more investment than the other because any rational investor has to consider the tax, custom regulations of any country they want to move to for investment.
(7) Tolerable and moderate inflation and reasonably stable exchange rate: Here is a very big factor that foreign direct investors look into consideration before moving on to any country to invest because high inflation and unstable exchange rate is not friendly to any investor to put his/her hard earned capital/income to such country while those that have tolerable and moderate inflation and reasonable exchange rate attract more investment in their country.
(8) Technological progress/industrialization: This is also one of the factors that makes a country to attract more investment/investors than the other because investors are always looking at country that have innovation, improvement ideas, skills, machinery and steady electricity supply for the proper functionality of their investment but any country that are technologically weak, they are bound to be starved for a foreign direct investment.

John Ogochukwu said...

No 7
What are the short-term and long-term (or Short-run and Long-run) of financing gross investment from foreign debt rather than foreign direct investment?
In financing Gross investment from foreign debt: When these funds injected back into the economy by the Government leads to a multiple increase in aggregate demand causing an increase in output and employment than foreign investment foreign boost the country’s economy but the lion profit made by the investors are taken back to their various countries but Gross investment will accelerate the economy far. It can be illustrated with the below model:
i. Y = C + I + G + (x - m)
The change in output will be equal to the multiplier times the change in government expenditure ∆y = (1-∆G)/(1-b)
ii. Foreign debt is used as a proxy for capturing total domestic debt of the economy in given period.
iii. Foreign debt is also used to capture the total amount of money expected by the Federal Government on debt payment abroad and its measure in billions.
iv. External debts are typically undertaken to finance public investments needed to boost the economic growth rate. It’s used to capture debt burden and economic growth.
v. It increases growth investment
vi. it will increase GDP
Gross f is gross investment, pop is the resources or money used in an economy. It’s very important on the domestic economy to enable to allocate resources and boost national resources.
vii. It is used to finance investment.
Finally, Gross investment do not account for depression and for that it is very rational for a country to invest on it, even if it required foreign debt or borrowing because it will be beneficial in both short and long run rather than foreign direct because in foreign direct the enterprisers or investors will hijack the whole profit back to their country and leave some to their host country.

John Ogochukwu said...

No 8
What determines the efficiency and productivity of investment in a country both sectoral and overall?
By definition, efficiency and productivity of investment is a function of the return and total cost of an investment management structure subject to the judiciary and other constraints within which investor must operate. Institutional investors implement their investment policies through investment management structures. Efficiency and productivity of investment in a country both overall are below:
(1) Maximizing capital or income: An efficient and productive investment can be achieved through a maximum management of capital invested into the firm to avoid collapsing or economic waste. If judiciously managed or utilized ultimately, they will be efficient and high level of productivity of the investment but if not so they will not be nothing like efficiency or productivity of investment.
(2) Rational labour productivity: This contributes largely for the efficiency and productive of investment because cost of labour has a directly relationship with the success of any investment, if cost of labour is low the efficient and productivity of the investment will increase (high) but verse versa.
(3) Good governance: This is very crucial factors that determines the efficiency and productivity of investment in a country in bother sectoral because if government of any country is functional or delivering there will be high efficient and productivity of investment and everybody in the country will benefit it directly or indirectly because it will ultimately increase GDP or national output.
(4) Low level of corruption: This is very dangerous factor if not controlled or eliminated completely. It will mar the efficient and productivity of investment in a country in both sectoral and overall because the efficient and productivity can never be achieved but if controlled or eliminated sure there will be efficiency and high productivity of investment in both sectoral and overall.
(5) Allocation and policy decisions: It implies that the trustees or investors need to integrate or implement risks and other vital issues that concern the firm or company for high efficiency and productivity of such investment in both sectoral and overall.
(6) Adequate or steady electricity supply, infrastructure and good roads: This is a very essential factor that boosts the efficiency and productivity of investment both in sectoral and overall, if there exists a steady electricity supply the investment will grow and yield more profit which is the main aim of the investment.
(7) Quality accounting: This is important and necessary to increase efficiency and productivity of investment in sectoral and overall.

John Ogochukwu said...

CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE
THE THEORIES OF CONSUMPTION
Due to the crucial or vital role of consumption in the size of a nation’s aggregate income (national income), through its impact on employment and other macro-economic variables, a lot of theories been propounded to explain the causes and behavior of consumption in both the short and long run. These include:
(1) Keyne’s Absolute income hypothesis: Keynes postulated that the propensity to consume was a functional relationship between a given level of real (current) income and the expenditure on consumption out of that given level of income. Thus, C = A + byd.
The propensity to consume represented by b is now more commonly known as the consumption function which is stable. Keynes hypothesized that the shape of the consumption curve is upward sloping, with a slop between zero and unity. Keynes proposition was based on “Fundamental psychological law” which states that men are disposed to increase their consumption as their income rises; but not as much as the increase in their income.
Keynes asserted that this psychological law applied to any modern community. From this it follows that the marginal propensity to consume (MPC) would lie between zero and one, Keynes further conjectured that the MPC would fail as income rises. This clearly means that the average propensity of national consumed, will decline with increases in total income.

The major assumptions underlying Keyne’s theory consumption function are as follows:
(a) Current consumption is a stable, positive function of current income, that’s C = Co + Cyd ------------------------------- (1)
(b) The MPC is less in the short run than in the long run. So, and increase in consumption will be smaller than an increase in disposable income.
(c) In the long run, a smaller proportion of income will be consumed as income increases, and hence, the MPC will be less than the average propensity to consumed (APC).
(d) At low levels of disposable income, consumption will exceed income (MPC>1).
(e) Changes in the stock of their wealth will directly affect household level of consumption. However, early attempts to verify the assumptions (characteristics) of Keynes theory/hypothesis produced results which seemed to support some of the features while others are refuted, which culminated in the development of alternative theory to explain consumption behaviours.

John Ogochukwu said...

(2) Duesenberry’s Relative Income theory/hypothesis
Professor J. S. Duesenberry of Harvard University, in 1994 came up with a theory to explain the secular upward drift of the short run consumption functions and to reconcile them with the long run consumption function. What Duesemberry sort to provide answer was; make makes people with a given income increase their consumption over time? This, why the short run consumption functions shift up over time? He found his answer in psychological and sociological factors. He posited that:
(a) That an individual’s consumption and saving decisions are influenced by his social environment (Sociological factors). Thus, given a level of income, if he lives in environment dominated by the well to do in society than if he lives in less affluent area. Thus, people in Victoria Island in Lagos are like to spend more than those in some other areas like Ajegunle and Oshodi. Moreso, it makes for a proportional relationship between aggregate consumption and aggregate disposal income. The “determinant effect resulting from the high living standard of those with high income levels and the desire to keep up with the Joneses” constituted one way of explaining the cross sectional variation in APC.
The constancy of the APC in the long run though it varies in the short run could be seen thus. If we assume that average propensity to save d s/y depends on the present level of income Yt
relative to previous peak income (Yo),
Thus:
S/y = a + b (y/ yo) ------------------------------------------------- (1)
Since c/y = 1 – s/y ------------------------------------------------- (2)
then,
c/y = (1-a) –b (yt /yo) ---------------------------------------------- (3)
If income grows at a constant rate g, so that
yt = (1+g) yt-1 ------------------------------------------------------- (4)
If Yt-1 = Yo, then
Yt = (1 + g) yo ------------------------------------------------------- (5)
Substitute Equation (5) into Equation (3), gives
C/y = [(1-a) –b (1+g)] ----------------------------------------------- (6)
Hence, in the long run the Apc is constant and equal to the Mpc.
(b) That the consumption behavior of individuals exhibits a “ratchet effect during from the fact that people, having become used to a standard of living find it difficult to lower same even in the face of declining income. This is the psychological axiom of relative income hypothesis.
In addition, the direction of income change determines the relationship between Apc and Mpc in Duesenberry analysis of consumption behavior using the relative income hypothesis. These include:
(i) If income is rising and it is above previous income level, the Apc would be constant and it will be equal to Mpc.
(ii) If income is rising and is below previous income level, the Apc would fall and Mpc rises but less than Apc.
(iii) If current income falls below previous income level, the Apc rises and is more than Mpc.
(iv) If income grows at a constant rate, Apc would be constant rate, Apc would be constant also equals Mpc.
Furthermore, a major problem of Duesentaerry relative income hypothesis is the negation of the basic fundamentals of utility maximization and rationality effects nullified.

John Ogochukwu said...

(3) Friedman’s Permanent income theory/hypothesis
According to Professor Milton Friedman of the University of Chicago, the main determinant of consumption expenditures is not current but “permanent income”. By permanent income, he means the average income which a household expects to earn over its planning horizon (planning horizon could be 3-5 years). Permanent income includes past, current and expected future income. Friedman’s theory of consumption may be summarized in these equations:
Cp = K(I, W. U)yp --------------------------------------------- (1)
Y = Yp + YT ----------------------------------------------------- (2)
C = Cp + CT ---------------------------------------------------- (3) and
P = P = 0 -------------------------------------------------------- (4)
YP YT CP CT YTCT
The first equation is the core of the equation. It hypothesized that consumption of a household is proportional to its permanent income. Note that K, the factor of proportionality implies that households consume about the same proportion of their permanent income notwithstanding (Yp). K is also a constant equals Mpc and Apc. The values of K depends on the rate of interest (i), the ratio of non-human wealth to permanent income (W) and U, a permanent variable for utility (a variable capturing the household’s taste and preferences for consumption versus additions of health). According to Friedman, K is a variable constant which vary with the household’s stage in the life cycle. The major problem with Friedman permanent income hypothesis is the elusive nature of the key variables. From experience, it is difficult to obtain a measure of permanent income and consumption since they are subject to changes overtime due to expectation and past experience.

John Ogochukwu said...

(4) Modiylian’s Life-Cycle (time) hypothesis/theory
The life-time income hypothesis also called the “life cycle” theory was advanced by F. Modigliani and R. E. Brumberg in 1954. According to them, an individual consumption depends not primarily on current income but rather on expected life-time income, and planning horizon in not 3-5years in Friedman’s model but rather his entire life time. The individual maximizes a household optimal utility function throughout his life time by saving “in fat years” to smooth out consumption in “lean years”.
An individual’s life time income and consumption pattern are depicted below:








From the above diagram, it shows that an individual will dissave in his youth and old age when his income is relatively low and will save during his middle age years when his income is high, due to family responsibility, his consumption may also be relatively high. However, Modiyiani and Brumberg were able to derive the result provided the interest rate is constant, the factor of proportionality between consumption and the individual’s present value or wealth or life time income is dependent solely on the age of the individual. They assume further that consumer hold expectation with certainty, interest rate is zero, and that the consumer starts work with zero asset, and plan to have zero assets at death. With these specifications, Modigiani and Brumberg derive the following result(s):
Ct = bW1 ------------------------------------------------- (1)
Ct = 1/((L-a)) (PV) ------------------------------------------ (2)
Equation (2) may be rewritten thus,
Ct = 1/((L-a)) Y1 + (N-a-1)/((L-a)) Y_t^a + 1/((L-a)) At – 1 -------------- (3)
Equation (1) simply says that current consumption is assumed to be proportional to the present value of wealth. To define wealth properly, equation (2) and (3) emerged, where L, N and a are the length of individuals total life, working life and present age, all dated from the time he starts works. Yt is labour income, Y_t^a is expected future labour income and A1 is current asset holdings. An example of equation (2) immediately yields the result that the propensity to consume life-time income is unity.
Equation (3) which is the core equation from the life-cycle hypothesis which says that current consumption is a linear and homogenous future (labour) income and current asset holdings with coefficients depending on the age of the household. The important of this model is that, it was able to explain the observed wealth of the community i.e (Aggregate wealth-income ratio) without recourse to the bequest motive i.e “life cycle saver” who saves during his earning span and dissaves the entire amount during his retirement span.
In summary, the theories (AIH, RICH, RIA, AND L CH) indicate that consumption besides being a function of disposable income, is also a function of real wealth; and real wealth determines permanent income or the present value of total resources. The relative emphasis placed on current income and permanent or expected income means that the theories may have different policy implications within the ambit of fiscal and monetary policies. Given the prime position occupied by Mpc (Marginal Propensity to consume) among national income determinants, these deserve proper investigation and refined methods of analysis.

John Ogochukwu said...

THEORY OF INVESTMENT
Investment: Could be defined as not capital formation, hence, it refers to such capital expenditure on consumer durables, residential construction (buildings) and plants and machinery. In other word, it could be also defined to as the purchase of real tangible assets such as machines, factors or stocks of inventories which are used in the production of goods and services for future use.
Theories of Investment seek to explain the investment behavior of business firms. They seek to tell us “when” firms should invest. The following are the theories:
(1) An Acceleration theory of investment: The accelerator theory of investment states that net investment is a function of changes in income. It explains net investment (Kt – Kt-1) as a function of growth in aggregate demand (y). Although the modern form of the acceleration hypothesis was forwarded by Clark in 1917, but the original idea was muted by Afflation in 1911. Two versions of the accelerator hypothesis exist.
(i) The Fixed/rigid Accelerator Hypothesis: This hypothesis assumes that the ratio of current desired capital stock (K_t^*) to current output y(t) is fixed. Thus:
K = K_t^*/y ------------------------------------------------------------------- (1)
Cross multiplying equation (1), we have K_t^* = Ky ------------------ (2)
Equation (2) shows a firm’s desired stock as a constant proportion of the output in the current period, where K is the factor of proportionality, which determines the stability or otherwise of the relationship. K depends on time period within which the analysis is carried out. The longer the time frame of analysis, the more the value of K tends to zero.
(2) The flexible Accelerator or Capital stock Adjustment theory
The flexible accelerator theory of investment amends the rigid/fixed accelerator model. Theory states that firm in anyone period is only able to realize a fraction of the difference between the existing capital stock and the desired optimal capital stock that is K* – Kt-1 in other words,
K_t^* - Kt-1 = λ(K* - Kt-1) ------------------------------------------------- (8)
Thus, net investment in any period may be only a fraction of the change in the desired capital stock. The basic flexible accelerator therefore
It = λK* - λ_(k_(t-1) ) --------------------------------------------------------- (9)
Where λ is the Adjustment parameter. It is the fraction of the change in the desired stock of capital that place each period. The value λ depends on factors such as the production capacity of the firm, conference in the production of higher output and ability to obtain the financial resources necessary to acquire replacement investment.

John Ogochukwu said...

Types of Investment
(1) Fixed Investment
(2) Inventory Investment
(3) Replacement Investment
Investment can also be classified as
(a) Autonomous Investment: Is the investment which is independent of income. It is fixed. It is also interest rate invariant.







(b) Induced Investment: It is that investment that depends on the level of income. If income goes up, the investment may also go up and verse versa.



FACTORS THAT DETERMINE INVESTMENT
(1) Expected rate of net profit: Profit hope to realize investment
(2) Current Rate of Interest: Users cost of capital- percentage increase will discourage the investors and investment will fall completely.
(3) Government policies: This is very crucial to consider before establishing or intending to venture into any kind of investment because high taxes depress the expected net profit but subsides enhance expected rate. Hence, Tax is a cost to business. High cooperate profit taxes translate to low retained earnings by firms and vice versa.
(4) Expectation of businessmen:
(5) Acquisition, maintenance and operating costs: If the above goes up the profit will be low thereby investment will be discouraged and vice versa.
It is the second component of the Keynesian model of Income.
Y = C = 1
It = Kt – K t-1 + Dt
Where It = Gross Investment in period t
Kt = Current capital stock at period t
K t-1 = Capital stock at previous period or the beginning of the period t
Dt = Replacement expenditure
Kt – K t-1 which is the net investment is a net investment and its major focus in macro economics analysis.

Nnenanya Samuel Chukwuagozie said...

UNIVERSITY OF NIGERIA NSUKKA
FACULTY OF SOCIAL SCIENCE
DEPARTMENT OF ECONOMICS


AN ASSIGNMENT WRITTEN IN PARTIAL FULFILLMENT FOR THE REQUIREMENT OF THE COURSE:
ECO 0511
(PROBLEM AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
NNENANYA SAMUEL CHUKWUAGOZIE
REG NO: PG/PGD/17/02504
LECTURER: DR. TONY ORJI


SEPTEMBER, 2018

QUESTION 1(a)
CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE MILLION DOLLAR QUESTIONS RAISE UNDER THE ISSUE SURROUNDING CAPITAL FUNDAMENTALISM.


No 1b 1
WHAT IS THE DESIRED LEVEL OF GROSS INVESTMENT FOR AN ECONOMY TO REALIZE THE TARGET GROWTH RATE OF REAL (GDP)?
By definition, Gross investment refers to the expenditure on buying capital goods over a specific period of time. On the other hand, net considers depreciation and is calculated by subtracting depreciation from gross investment. Gross investment can also be viewed as the amount a company invests in business assets that does not account for any depreciation. The Gross figure more accurately reflects the company’s actual financial commitment to an asset from which it can derive a return on investment.
Real Gross Domestic Product (GDP) is an inflation – adjusted measure that reflects the value of all goods and service produced by an economy in a given year, expressed in based – year prices, and is often referred to as “constant-price”.
“Inflation – corrected GDP or “Constant Dollar GDP”. Unlike Nominal GDP, real GDP can account for a change in price level and provided a more accurate figure of economic growth. For an economy to realize the desired level of target growth rate of real GDP, such economy should invest fully on gross investment because this is a kind of investment in which capital goods like plants, machinery, etc are used for the production of other goods which in return leads to high increase in the value of assets and securities and on the long-run leads to the largest growth rate of real GDP.

Nnenanya Samuel Chukwuagozie said...

QUESTION NO (1b) 2
HOW IS THE EX-ARTE INVESTMENT TO BE APPROPRIATED BETWEEN THE PUBLIC AND PRIVATE SECTOR TO HELP ACHIEVE THE REAL GROWTH RATE?
Ex-arte is a phrase meaning “before the event”. Example is used mostly in commercial world, where result of a particular action or series of actions, forecast advance (or intended). The real growth in an economy is critically dependent on the existing stock of capital and net accumulation in the stock through current investment. Since the stock of capital at one point of time is the output of the stream of investment made in the past, therefore, the growth rate of an economy in the final analysis is the function of investment of both current and past.
There is massive gap between the need for infrastructure. Investment around the world and the ability of Government which is the public sector to pay for those investments while the private sector should build, control and operates infrastructure project and subject to strict government oversight and regulation, can help to achieve the real growth rate. However, public sector should sets the groundwork to enable private investment and allow it to thrive and private sector should also try to be doing the necessary because both sectors are so important for each other for favourable or sound Economic growth or the real growth rate.





Question (1b) 3

How do we define the sectoral priorities within the public and private sectors such that investment allocation generate sectoral growth rate to match the overall growth rate of the economy.
The public and private sector investment allocation generate sectoral growth rate that match the overall growth rate of economy such as
1. Allow markets to function. The public sector recognizes the power of markets to drive optimal behaviour among market participants The Plan prioritises the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.
2. Uphold core values. The public and private sector is rooted in the core values that define the Nigerian society. It requires all citizens and stakeholders to adhere to
The Economic Recovering GP has three broad strategic objectives that will help achieve the vision of inclusive growth outlined above:
a) restoring growth,
b) investing in our people, and
c) Building a globally competitive economy.
• Restoring Growth: To restore growth, the Plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.

Nnenanya Samuel Chukwuagozie said...

• Investing in our People: Economic growth is beneficial for society when it creates opportunities and provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.
Social inclusion. The Federal Government will continue to provide support for the poorest and most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.
Job creation and youth empowerment. Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries. Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.
Improved human capital. The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and students to enroll in science and technology courses

Nnenanya Samuel Chukwuagozie said...

• Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It will increase competitiveness by investing in infrastructure and improving the business environment.
Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.
Improving the business environment: Nigeria’s difficult and often opaque business environment adds to the cost of doing business, and is a disincentive to domestic and foreign investors alike. Regulatory requirements must be more transparent, processing times must be faster, the overall economy must be more business-friendly. The ERGP will build on the efforts of the Presidential Enabling Business Environment Council (PEBEC) and track progress using the metrics of the World Bank’s Doing Business Report. The target is to achieve a top 100 ranking in the World Bank’s Doing Business index by 2020 (up from the current ranking of 169).
Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.
Key Execution Priorities
To achieve the objectives of the ERGP, the key execution priorities, are
Stabilizing the macroeconomic environment
Achieving agriculture and food security
Ensuring energy sufficiency (power and petroleum products)
Improving transportation infrastructure
Driving industrialization focusing on Small and Medium Scale Enterprises key outcomes:
Stable Macroeconomic Environment: The inflation rate is projected to trend downwards from the current level of almost 19 per cent to single digits by 2020. It is also projected that the exchange rate will stabilize as the monetary, fiscal and trade policies are fully aligned. This outcome will be achieved through policies that seek to remove uncertainty in the exchange rate and restore investors’ confidence in the market.

Nnenanya Samuel Chukwuagozie said...

Restoration of Growth: Real GDP is projected to grow by 4.6 percent on average over the Plan period, from an estimated contraction of 1.54 percent recorded in 2016. Real GDP growth is projected to improve significantly to 2.19 per cent in 2017, reaching 7 per cent at the end of the Plan period in 2020. The strong recovery and expansion of crude oil and natural gas production will result as challenges in the oil-producing areas are overcome and investment in the sector increases. Crude oil output is forecast to rise from about 1.8 mbpd in 2016 to 2.2 mbpd in 2017 and 2.5 mbpd by 2020. Relentless focus on electricity and gas will also drive growth and expansion in all other sectors.
Agricultural transformation and food security: Agriculture will continue to be a stable driver of GDP growth, with an average growth rate of 6.9 per cent over the Plan period. The Agricultural sector will boost growth by expanding crop production and the fisheries, livestock and forestry sub-sectors as well as developing the value chain. Investment in agriculture will drive food security by achieving self-sufficiency in tomato paste (in 2017), rice (in 2018) and wheat (in 2020). Thus, by 2020, Nigeria is projected to become a net exporter of key agricultural products, such as rice, cashew nuts, groundnuts, cassava and vegetable oil.

Power and petroleum products sufficiency: The ERGP aims to achieve 10 GW of operational capacity by 2020 and to improve the energy mix, including through greater use of renewable energy. The country is projected to become a net exporter of refined petroleum products by 2020.
Improved Stock of Transportation Infrastructure: By placing transportation infrastructure as one of its key execution priorities, effective implementation of this Plan is projected to significantly improve the transportation network (road, rail and port) in Nigeria by 2020. Given the scale of investment required to deliver this outcome, strong partnership with the private sector is expected to result in completion of strategic rail networks connecting major economic centres across the country, as well as improved federal road networks, inland waterways and airports.
Industrialized Economy: Strong recovery and growth in the manufacturing, SMEs and services sectors are also anticipated, particularly in agro-processing, and food and beverage manufacturing. Ongoing strategies to improve the ease of doing business will boost all manufacturing sector activities. Overall, the ERGP estimates an average annual growth of 8.5 per cent in manufacturing, rising from -5.8 per cent in 2016 to 10.6 per cent by 2020.
Job Creation and youth empowerment: The implementation of the Plan is projected to reduce unemployment from 13.9 per cent as of Q3 2016 to 11.23 per cent by 2020. This translates to the creation of over 15 million jobs during the Plan horizon or an average of 3.7 million jobs per annum. The focus of the job creation efforts will be youth employment, and ensuring that youth are the priority beneficiaries.
Improved Foreign Exchange Inflows: The reduction in the importation of petroleum products resulting from improvement in local refining capacity following the implementation of the ERGP is projected to reduce demand for foreign exchange. The economic diversification focus of the Plan is also projected to translate into enhanced inflows of foreign exchange from the non-oil sector.
On the whole, Nigeria is expected to witness stability in exchange rate and the entire macroeconomic environment. The country should also witness a major improvement in economic performance which should result in the following, amongst others: a) reduction in importation of food items and refined petroleum products, b) improved power supply, c) higher quality transport infrastructure, d) expansion in 20
the level of industrial production, e) improved competitiveness, f) greater availability of foreign exchange, g) job creation, h) reduction in poverty and i) greater inclusiveness in the spread of the benefits of economic growth.

Nnenanya Samuel Chukwuagozie said...

QUESTION (1B) NO 4

WHAT IS THE OPTIMAL BLEND OF NATIONAL SAVING AND FOREIGN SAVINGS OR EXTERNAL BORROWING TO FINANCE AGGREGATE INVESTMENT

This suggests that the country has saved a specific amount in external account while in reality the deficit reflect a gap or excess demand in its foreign exchange transaction for a given period of time. National income account which is formally written as S – I = X – M where symbol S, I, X and M indicate respectively natural savings, total investment, export of goods and services and import of goods and services. If the left hand side of these identity which indicate the savings investment gap is in the negative, is invariably follows that, the right hand side, the foreign exchange gap would be in the negative as well and vice versa.
The identity highlights one of the most important behavioural relationships of an economy namely the current account deficit added to the national savings equal to the level of total investment. Finally, investment must be financed by some combination of private domestic savings, government savings (surplus) and foreign savings (foreign capital inflow).

NO 5
WHAT ARE THE MAIN DETERMINANT AND PRINCIPAL DETERRENT TO DOMESTIC INVESTMENT AND FOREIGN INVESTMENT (PORTFOLIO AND DIRECT)?
The main determinant for domestic and foreign Investment (portfolio and direct) are:
(1) Political and Economic condition: These are very important elements that contribute positively, for any investor to think for investment in any area or country both domestic and foreign investors consider it before investing to avoid story.
(2) Macro-economic stability: Here if macroeconomic system or stability like inflation, government, policy, exchange rate, interest rate is favourable and stable the investors will trup-in to invest and there will be no fear in them for come in and invest thereby increase the GDP by at least 8% and attract Economic development.
(3) Certainty in economic policies and other incentives: This is also another factor that enhances Domestic.
(4) Low tax and other incentives: These are important factors that determine domestic and foreign investment because if taxation is low and there is incentives or subsides you will see thousands of investors for both domestic and foreign will be competing to invest because they have seen that they are going to make it in the long-run.
(5) Cost of Production: This is also a pre-requisite which many investors consider before they can think of moving on or investing in any country, both domestic and foreign investors consider this very paramount to know if its high or low, however, if its low they will invest but if not so it will scare or push them out from investing.

Nnenanya Samuel Chukwuagozie said...

(6) Potential domestic market: This is very important tool or determine for both domestic and foreign investors consider or look into before they can make a move. At the same time country that investors see that they have high sales in their country ultimately it will attract more investors than the other example of such country is China, Vietman and India. These are major three countries that attract more investors than the other countries. It’s simply because market sales in their countries more than other countries.
(7) Labour regulation, work, ethnics: A country where labour regulation permit continuously place or attract both domestic and foreign investment or investors in a huge quantum.
(8) Social and Economic infrastructure: This is also a basic factor that the investors are looking at before moving to any country because social and economic infrastructure will make their investment viable or boost.
(9) Easy of doing business: Any country or Area that business booms or is booming the both investors are bound to defect or move to such locality or region or country.
(10) Absent of bribery and corruption: This is another big factor that investor consider very well because no investor wants to hear bad story or associate with a corrupt person or country for no reason because it mar or inimical to both domestic and foreign investors as well. Sure a country that is bribery and corruption free, there will be a massive investors competing with each other to invest. Because definitely, there will be profit on the long-run.
The above mentioned or discussed are the major deterrent of domestic investment and foreign investment badly and that will scare or push both domestic and foreign investors out from such area, or country. As a matter of fact, the verse versa of the above discussed is the major issue that deterred domestic and foreign investment or investors. The absent of these ten (10) points in good mode or order will deter domestic and foreign investors into.

Nnenanya Samuel Chukwuagozie said...

(1b) No 6
WHY IS IT THAT SOME COUNTRIES ARE ABLE TO ATTRACT A HUGE QUANTUM OF FOREIGN DIRECT INVESTMENT OVER A LONG PERIOD OF TIME?
(1) A business conducive environment to the investors: A country that has a conducive business environment is ultimately to attract more investors to their country than a country with unfriendly environment. Business friendly environment largely depends on good governance, rule of law, political will and infrastructure of the country and rules and regulations.
(2) Congenial climate: This is another factor that any investor has to consider before moving to any country to invest. However, at the same time, a country with/endowed with a good climate will ultimately attract more investors that’s sure than the other that do not have.
(3) Political stability/situation: This is very essential and credit to any country that their political situation is conducive/stable and thereby it’s obvious that foreign direct investors will move over to such a country than the opposite (country). It’s also a prime determinant for attracting foreign direct investment, the investors consider it very well to avoid economic waste or lost of their hard earned income.
(4) The availability of raw materials/resources: The investors deemed it right to consider this as also the factor that makes them to invest more in one country than the other where there is no availability of the raw materials that may be needed for their production cannot be considered to move on for investment in such a country.
(5) Cost of Labour/wages: This is important determinant that makes some country attract more foreign direct investment while other are starved of such, a rational investor consider this very well before progressing to any foreign direct investment because labour has a direct Relationship with the profit the investor is aiming to gain which is the sole aim of the investors and for their voice to be heard in enterprises (IMF) but this is secondary.
(6) Friendly tax, custom regulations and attractive packages: It is another factor or reason that some country gain/attract more investment than the other because any rational investor has to consider the tax, custom regulations of any country they want to move to for investment.
(7) Tolerable and moderate inflation and reasonably stable exchange rate: Here is a very big factor that foreign direct investors look into consideration before moving on to any country to invest because high inflation and unstable exchange rate is not friendly to any investor to put his/her hard earned capital/income to such country while those that have tolerable and moderate inflation and reasonable exchange rate attract more investment in their country.
(8) Technological progress/industrialization: This is also one of the factors that makes a country to attract more investment/investors than the other because investors are always looking at country that have innovation, improvement ideas, skills, machinery and steady electricity supply for the proper functionality of their investment but any country that are technologically weak, they are bound to be starved for a foreign direct investment.

Nnenanya Samuel Chukwuagozie said...

1b No 7
WHAT ARE THE SHORT TERM AND LONG TERM (SHORT-RUN AND LONG-RUN) OF FINANCING GROSS INVESTMENT?
As the name suggests, Long term financing is a form of financing that is provided for a period of more than a year. Long term financing services are provided to those business entities that face a shortage of capital. There are various long term sources of finance.
It is different from short-term financing which is normally used to provide money that has to be paid back within a year. The period may be shorter than one year as well.
Examples of long-term financing include – a 30-year mortgage or a 10-year Treasury note.
Equity is another form of long-term financing, such as when a company issues stock to raise capital for a new project.
In financing Gross investment from foreign debt: When these funds injected back into the economy by the Government leads to a multiple increase in aggregate demand causing an increase in output and employment than foreign investment foreign boost the country’s economy but the lion profit made by the investors are taken back to their various countries but Gross investment will accelerate the economy far. It can be illustrated with the below model:
i. Y = C + I + G + (x - m)
The change in output will be equal to the multiplier times the change in government expenditure ∆y = (1-∆G)/(1-b)
ii. Foreign debt is used as a proxy for capturing total domestic debt of the economy in given period.
iii. Foreign debt is also used to capture the total amount of money expected by the Federal Government on debt payment abroad and its measure in billions.
iv. External debts are typically undertaken to finance public investments needed to boost the economic growth rate. It’s used to capture debt burden and economic growth.
v. It increases growth investment
vi. it will increase GDP
Gross f is gross investment, pop is the resources or money used in an economy. It’s very important on the domestic economy to enable to allocate resources and boost national resources.
vii. It is used to finance investment.

Nnenanya Samuel Chukwuagozie said...

Gross investment do not account for depression and for that it is very rational for a country to invest on it, even if it required foreign debt or borrowing because it will be beneficial in both short and long run rather than foreign direct because in foreign direct the enterprisers or investors will hijack the whole profit back to their country and leave some to their host country.
Provide capital for funding the operations. This helps in adjusting the cash flow. For many small businesses, it is necessary to secure additional funds to cover expenses, or to take the next step in growing the business. Before determining the best type of loan for the business, however, it is important to clearly outline what kind of need the loan will fulfill. Ascertaining what the money will be used for will help the borrowing business to choose the best way to finance their need. Short term loans are a lending option that work for many businesses that experience seasonal revenue fluctuations, or that otherwise require a small, quick loan to cover expenses that will be repaid in projected revenue in under a year.
Most short-term financing options are tied directly to immediate sales; they are relatively easy to qualify for as long as the business has a positive cash flow or outstanding invoices to use as collateral. Short-term loans are rarely secured with a larger asset. As a consequence, however, they are usually more expensive in terms of fees, interest rates and APR than longer-term loans, and are generally available for smaller amounts than secured loans. Short-term financing is not a recommended option for significant investments in the company – such as renting or purchasing new space – due to shorter payback periods, lower loan amounts and more expensive financing. For businesses that need additional capital for short-term inventory purchases or experience seasonal spikes in revenue, however, short-term loans are a viable option.
Short-term financing options have more frequent payments than longer-term financing –repayments are often taken out of daily sales, or require repayment within 30 to 90 days. In comparison, longer-term loans are usually a fixed amount paid off at regular intervals, such as biweekly or monthly.
There are several short-term financing models to choose from: a business line of credit, merchant cash advances, and accounts receivable financing.

Nnenanya Samuel Chukwuagozie said...

Question 1b No 8
WHAT DETERMINES THE EFFICIENCY AND PRODUCTIVITY OF INVESTMENT IN A COUNTRY BOTH SECTORAL AND OVERALL?
By definition, efficiency and productivity of investment is a function of the return and total cost of an investment management structure subject to the judiciary and other constraints within which investor must operate. Institutional investors implement their investment policies through investment management structures. Efficiency and productivity of investment in a country both overall are below:
(1) Maximizing capital or income: An efficient and productive investment can be achieved through a maximum management of capital invested into the firm to avoid collapsing or economic waste. If judiciously managed or utilized ultimately, they will be efficient and high level of productivity of the investment but if not so they will not be nothing like efficiency or productivity of investment.
(2) Rational labour productivity: This contributes largely for the efficiency and productive of investment because cost of labour has a directly relationship with the success of any investment, if cost of labour is low the efficient and productivity of the investment will increase (high) but verse versa.
(3) Good governance: This is very crucial factors that determines the efficiency and productivity of investment in a country in bother sectoral because if government of any country is functional or delivering there will be high efficient and productivity of investment and everybody in the country will benefit it directly or indirectly because it will ultimately increase GDP or national output.
(4) Low level of corruption: This is very dangerous factor if not controlled or eliminated completely. It will mar the efficient and productivity of investment in a country in both sectoral and overall because the efficient and productivity can never be achieved but if controlled or eliminated sure there will be efficiency and high productivity of investment in both sectoral and overall.
(5) Allocation and policy decisions: It implies that the trustees or investors need to integrate or implement risks and other vital issues that concern the firm or company for high efficiency and productivity of such investment in both sectoral and overall.
(6) Adequate or steady electricity supply, infrastructure and good roads: This is a very essential factor that boosts the efficiency and productivity of investment both in sectoral and overall, if there exists a steady electricity supply the investment will grow and yield more profit which is the main aim of the investment.
(7) Quality accounting: This is important and necessary to increase efficiency and productivity of investment in sectoral and overall.

Nnenanya Samuel Chukwuagozie said...

Question (3)
CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE
(A) THE THEORIES OF CONSUMPTION
Due to the crucial or vital role of consumption in the size of a nation’s aggregate income (national income), through its impact on employment and other macro-economic variables, a lot of theories have been propounded to explain the causes and behavior of consumption in both the short and long run. These include:
(1) Keyne’s Absolute income hypothesis: Keynes postulated that the propensity to consume was a functional relationship between a given level of real (current) income and the expenditure on consumption out of that given level of income. Thus, C = A + byd.
The propensity to consume represented by b is now more commonly known as the consumption function which is stable. Keynes hypothesized that the shape of the consumption curve is upward sloping, with a slop between zero and unity. Keynes proposition was based on “Fundamental psychological law” which states that men are disposed to increase their consumption as their income rises; but not as much as the increase in their income.
Keynes asserted that this psychological law applied to any modern community. From this it follows that the marginal propensity to consume (MPC) would lie between zero and one, Keynes further conjectured that the MPC would fail as income rises. This clearly means that the average propensity of national consumed, will decline with increases in total income.

The major assumptions underlying Keyne’s theory consumption function are as follows:
(a) Current consumption is a stable, positive function of current income, that’s C = Co + Cyd ------------------------------- (1)
(b) The MPC is less in the short run than in the long run. So, and increase in consumption will be smaller than an increase in disposable inc.
(c) In the long run, a smaller proportion of income will be consumed as income increases, and hence, the MPC will be less than the average propensity to consumed (APC).
(d) At low levels of disposable income, consumption will exceed income (MPC>1).
(e) Changes in the stock of their wealth will directly affect household level of consumption. However, early attempts to verify the assumptions (characteristics) of Keynes theory/hypothesis produced results which seemed to support some of the features while others are refuted, which culminated in the development of alternative theory to explain consumption behaviours.
(2) Duesenberry’s Relative Income theory/hypothesis
Professor J. S. Duesenberry of Harvard University, in 1994 came up with a theory to explain the secular upward drift of the short run consumption functions and to reconcile them with the long run consumption function. What Duesemberry sort to provide answer was; make makes people with a given income increase their consumption over time? This, why the short run consumption functions shift up over time? He found his answer in psychological and sociological factors. He posited that:

Nnenanya Samuel Chukwuagozie said...

(a) That an individual’s consumption and saving decisions are influenced by his social environment (Sociological factors). Thus, given a level of income, if he lives in environment dominated by the well to do in society than if he lives in less affluent area. Thus, people in Victoria Island in Lagos are like to spend more than those in some other areas like Ajegunle and Oshodi. Moreso, it makes for a proportional relationship between aggregate consumption and aggregate disposal income. The “determinant effect resulting from the high living standard of those with high income levels and the desire to keep up with the Joneses” constituted one way of explaining the cross sectional variation in APC.
The constancy of the APC in the long run though it varies in the short run could be seen thus. If we assume that average propensity to save d s/y depends on the present level of income Yt
relative to previous peak income (Yo),
Thus:
S/y = a + b (y/ yo) ------------------------------------------------- (1)
Since c/y = 1 – s/y ------------------------------------------------- (2)
then,
c/y = (1-a) –b (yt /yo) ---------------------------------------------- (3)
If income grows at a constant rate g, so that
yt = (1+g) yt-1 ------------------------------------------------------- (4)
If Yt-1 = Yo, then
Yt = (1 + g) yo ------------------------------------------------------- (5)
Substitute Equation (5) into Equation (3), gives
C/y = [(1-a) –b (1+g)] ----------------------------------------------- (6)
Hence, in the long run the Apc is constant and equal to the Mpc.
(b) That the consumption behavior of individuals exhibits a “ratchet effect during from the fact that people, having become used to a standard of living find it difficult to lower same even in the face of declining income. This is the psychological axiom of relative income hypothesis.
In addition, the direction of income change determines the relationship between Apc and Mpc in Duesenberry analysis of consumption behavior using the relative income hypothesis. These include:
(i) If income is rising and it is above previous income level, the Apc would be constant and it will be equal to Mpc.
(ii) If income is rising and is below previous income level, the Apc would fall and Mpc rises but less than Apc.
(iii) If current income falls below previous income level, the Apc rises and is more than Mpc.
(iv) If income grows at a constant rate, Apc would be constant rate, Apc would be constant also equals Mpc.
Furthermore, a major problem of Duesentaerry relative income hypothesis is the negation of the basic fundamentals of utility maximization and rationality effects nullified.
(3) Friedman’s Permanent income theory/hypothesis
According to Professor Milton Friedman of the University of Chicago, the main determinant of consumption expenditures is not current but “permanent income”. By permanent income, he means the average income which a household expects to earn over its planning horizon (planning horizon could be 3-5 years). Permanent income includes past, current and expected future income. Friedman’s theory of consumption may be summarized in these equations:
Cp = K(I, W. U)yp --------------------------------------------- (1)
Y = Yp + YT ----------------------------------------------------- (2)
C = Cp + CT ---------------------------------------------------- (3) and
P = P = 0 -------------------------------------------------------- (4)
YP YT CP CT YTCT

Nnenanya Samuel Chukwuagozie said...

The first equation is the core of the equation. It hypothesized that consumption of a household is proportional to its permanent income. Note that K, the factor of proportionality implies that households consume about the same proportion of their permanent income notwithstanding (Yp). K is also a constant equals Mpc and Apc. The values of K depends on the rate of interest (i), the ratio of non-human wealth to permanent income (W) and U, a permanent variable for utility (a variable capturing the household’s taste and preferences for consumption versus additions of health). According to Friedman, K is a variable constant which vary with the household’s stage in the life cycle. The major problem with Friedman permanent income hypothesis is the elusive nature of the key variables. From experience, it is difficult to obtain a measure of permanent income and consumption since they are subject to changes overtime due to expectation and past experience.
(4) Modiylian’s Life-Cycle (time) hypothesis/theory
The life-time income hypothesis also called the “life cycle” theory was advanced by F. Modigliani and R. E. Brumberg in 1954. According to them, an individual consumption depends not primarily on current income but rather on expected life-time income, and planning horizon in not 3-5years in Friedman’s model but rather his entire life time. The individual maximizes a household optimal utility function throughout his life time by saving “in fat years” to smooth out consumption in “lean years”.
An individual’s life time income and consumption pattern are depicted below:






From the above diagram, it shows that an individual will dissave in his youth and old age when his income is relatively low and will save during his middle age years when his income is high, due to family responsibility, his consumption may also be relatively high. However, Modiyiani and Brumberg were able to derive the result provided the interest rate is constant, the factor of proportionality between consumption and the individual’s present value or wealth or life time income is dependent solely on the age of the individual. They assume further that consumer hold expectation with certainty, interest rate is zero, and that the consumer starts work with zero asset, and plan to have zero assets at death. With these specifications, Modigiani and Brumberg derive the following result(s):
Ct = bW1 ------------------------------------------------- (1)
Ct = 1/((L-a)) (PV) ------------------------------------------ (2)
Equation (2) may be rewritten thus,
Ct = 1/((L-a)) Y1 + (N-a-1)/((L-a)) Y_t^a + 1/((L-a)) At – 1 -------------- (3)
Equation (1) simply says that current consumption is assumed to be proportional to the present value of wealth. To define wealth properly, equation (2) and (3) emerged, where L, N and a are the length of individuals total life, working life and present age, all dated from the time he starts works. Yt is labour income, Y_t^a is expected future labour income and A1 is current asset holdings. An example of equation (2) immediately yields the result that the propensity to consume life-time income is unity.

Nnenanya Samuel Chukwuagozie said...

Equation (3) which is the core equation from the life-cycle hypothesis which says that current consumption is a linear and homogenous future (labour) income and current asset holdings with coefficients depending on the age of the household. The important of this model is that, it was able to explain the observed wealth of the community i.e (Aggregate wealth-income ratio) without recourse to the bequest motive i.e “life cycle saver” who saves during his earning span and dissaves the entire amount during his retirement span.
In summary, the theories (AIH, RICH, RIA, AND L CH) indicate that consumption besides being a function of disposable income, is also a function of real wealth; and real wealth determines permanent income or the present value of total resources. The relative emphasis placed on current income and permanent or expected income means that the theories may have different policy implications within the ambit of fiscal and monetary policies. Given the prime position occupied by Mpc (Marginal Propensity to consume) among national income determinants, these deserve proper investigation and refined methods of analysis.
(B) CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE THEORY OF INVESTMENT
Investment: Could be defined as not capital formation, hence, it refers to such capital expenditure on consumer durables, residential construction (buildings) and plants and machinery. In other word, it could be also defined to as the purchase of real tangile assets such as machines, factors or stocks of inventories which are used in the production of goods and services for future use.
Theories of Investment seek to explain the investment behavior of business firms. They seek to tell us “when” firms should invest. The following are the theories:
(1) An Acceleration theory of investment: The accelerator theory of investment states that net investment is a function of changes in income. It explains net investment (Kt – Kt-1) as a function of growth in aggregate demand (y). Although the modern form of the acceleration hypothesis was forwarded by Clark in 1917, but the original idea was muted by Afflation in 1911. Two versions of the accelerator hypothesis exist.
(i) The Fixed/rigid Accelerator Hypothesis: This hypothesis assumes that the ratio of current desired capital stock (K_t^*) to current output y(t) is fixed. Thus:
K = K_t^*/y ------------------------------------------------------------------- (1)
Cross multiplying equation (1), we have K_t^* = Ky ------------------ (2)
Equation (2) shows a firm’s desired stock as a constant proportion of the output in the current period, where K is the factor of proportionality, which determines the stability or otherwise of the relationship. K depends on time period within which the analysis is carried out. The longer the time frame of analysis, the more the value of K tends to zero.
Weaknesses/shortcomings of the fixed Accelerator hypothesis

(2) The flexiable Accelerator or Capital stock Adjustment theory
The flexible accelerator theory of investment amends the rigid/fixed accelerator model. Theory states that firm in anyone period is only able to realize a fraction of the difference between the existing capital stock and the desired optimal capital stock that is K* – Kt-1 in other words,
K_t^* - Kt-1 = λ(K* - Kt-1) ------------------------------------------------- (8)
Thus, net investment in any period may be only a fraction of the change in the desired capital stock. The basic flexible accelerator therefore
It = λK* - λ_(k_(t-1) ) --------------------------------------------------------- (9)
Where λ is the Adjustment parameter. It is the fraction of the change in the desired stock of capital that place each period. The value λ depends on factors such as the production capacity of the firm, conference in the production of higher output and ability to obtain the financial resources necessary to acquire replacement investment.

Nnenanya Samuel Chukwuagozie said...

Types of Investment
(1) Fixed Investment
(2) Inventory Investment
(3) Replacement Investment
Investment can also be classified as
(a) Autonomous Investment: Is the investment which is independent of income. It is fixed. It is also interest rate invariant.









(b) Induced Investment: It is that investment that depends on the level of income. If income goes up, the investment may also go up and verse versa.






Factors that determines Investment/Determinant of Investment
(1) Expected rate of net profit: Profit hope to realize investment
(2) Current Rate of Interest: Users cost of capital- percentage increase will discourage the investors and investment will fall completely.
(3) Government policies: This is very crucial to consider before establishing or intending to venture into any kind of investment because high taxes depress the expected net profit but subsides enhance expected rate. Hence, Tax is a cost to business. High cooperate profit taxes translate to low retained earnings by firms and vice versa.
(4) Expectation of businessmen:
(5) Acquisition, maintenance and operating costs: If the above goes up the profit will be low thereby investment will be discouraged and vice versa.

It is the second component of the Keynesian model of Income.
Y = C = 1
It = Kt – K t-1 + Dt
Where
It = Gross Investment in period t
Kt = Current capital stock at period t
K t-1 = Capital stock at previous period or the beginning of the period t
Dt = Replacement expenditure
Kt – K t-1 which is the net investment is a net investment and its major focus in macro economics analysis.

Christian Agu said...

UNIVERSITY OF NIGERIA, NSUKKA
FACULTY OF THE SOCIAL SCIENCES
DEPARTMENT OF ECONOMICS

TOPIC:
CLINICALLY AND CRITICALLY DISCUSS THE MILLION DOLLAR QUESTIONS UNDER THE ISSUES SURROUNDING CAPITAL FUNDAMENTALISM

AN ASSIGNMENT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE COURSE: ECO 0511 (PROBLEMS AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
AGU CHRISTIAN
UNN/PG/2017-18/005195


LECTURER-IN-CHARGE: DR. TONY ORJI

SEPTEMBER, 2018


INTRODUCTION
Today we face an interesting paradox. The number of people in the world living in extreme poverty has decreased dramatically in the past three decades. In 1981 half of the population in the developing world lived in extreme poverty. By 2010, despite a 60 percent increase in the developing world’s population, that figure dropped to 21 percent.
While extreme poverty has diminished, however, the gap between the richest and poorest countries has increased dramatically. In 1776, when Adam Smith wrote The Wealth of Nations, the richest country in the world was approximately four times wealthier than the poorest. Today, the world’s richest country is more than 400 times richer than the poorest (World Bank, 2018).
Few economic ideas are as intuitive as the notion that increasing investment is the best way to raise future output. This idea was the basis for the theory “capital fundamentalism”. Under this view, differences in national stocks of capital were the primary determinants of differences in levels of national product.
Capital fundamentalists viewed capital accumulation as central to increasing the rate of economic growth. Evidence to support this view was based mostly on case studies of less developed countries.
There are various questions surrounding the concept of capital fundamentalism. Some of these questions are clinically discussed below:

Christian Agu said...

What is the desired level of gross investment for an economy to realize the target growth rate of real GDP?
Real Gross Domestic Product is the macroeconomic measure of the value of economic output adjusted for price changes.
Real GDP growth rate on the other hand measures how fast the economy is growing. It does it by comparing one quarter of the country’s GDP to the previous quarter.
The GDP growth rate is driven by the four components of GDP. The main driver of GDP growth is personal consumption. This includes the critical sector of retail sales. The second component is business investment, including construction and inventory levels. Government expenditure is the third driver of growth. Its largest categories are Social Security benefits, defense spending and Medicare benefits. The fourth component is net trade.
The GDP growth rate is the most important indicator of economic health. It changes during the four phases of the business cycle: peak, contraction, trough, and expansion.
When the economy is expanding, the GDP growth rate is positive. If it is growing, so will businesses, jobs and personal income. But if it expands beyond 3-4 percent, then it could hit the peak. At that point, the bubble bursts and economic growth stalls. If it is contracting, then businesses will hold off investing in new purchases, they will delay hiring new employees until they are confident the economy will improve. Those delays further depress the economy. Without jobs, consumers have less money to spend. If the GDP growth rate turns negative, then the country’s economy is in recession. With negative growth, GDP is less than the quarter or year before. It will continue to be negative until it hits a trough. That is the month things starts to turn around. After the trough, GDP turns positive again.
From the analysis above, it could be observed that the desired level of gross investment for an economy to realize the target growth rate of real GDP will be that investment level that will keep the economy on the expansion phase. This is because after the phase of expansion, the economy could hit the peak, and at that phase, the bubble bursts and economic growth stalls. At this point, the primary aim of investment would have been defeated.

How is the ex-ante investment to be apportioned between the public and private sector to help achieve the real growth rate?
The public sector is otherwise known as the government (sector). It is the portion of the economy composed of all levels of government controlled enterprises. Simply put, public sector is the segment of the economy under the control of the government. It does not include private companies, voluntary organizations, and households.
The private sector on the other hand is the part of a country’s economic system that is run by individuals and companies, rather than the government. Most private sector organizations are run with the intention of making profit.
The abiding myth of mainstream economics is that governments should minimize their role in the economy. More so, there is a popular saying that government does not have business doing business. They should however perform their statutory regulatory roles and also engage in investment in social infrastructure and social security. If all these are done, it will help boost the effectiveness of the private sector which should be saddled with the responsibility of investing in capital stock.

Christian Agu said...

How do we define the sectoral priorities within the public and private sectors such that investment allocations generate sectoral growth rate to match the overall growth rate of the economy?

In developing countries like Nigeria, the role of the public sector can never be underrated. The government has a lot of regulatory roles to play while still encouraging larger private participation in the economy.
The government can shape the economy with the use of its fiscal policies like the annual budget. With the annual budget, the government can directly or indirectly communicate its direction about the economy to the private sector.
The annual budget usually shows the sector(s) where the government wants to focus on. The private sector upon studying the budget will swiftly invest in that direction.

What is the optimal blend of national savings and foreign savings or external borrowing to finance the aggregate level of investment?

National savings is the sum of private and public savings. It is generally equal to a nation’s income minus consumption and government purchases. In simple economic models, the national savings is assumed to be the same as national investment, which is the total amount spent on securities and similar investment vehicles. That is, anything not spent by consumers or the government is assumed to be saved. A high national savings rate indicates lower levels of debt, which is positive. However, in an economy driven by consumer spending, a high savings rate may indicate uncertainty or lack of consumption, which can lead to a slowdown or a recession. More so, high national savings may result in lower economic growth, as persons, companies and the government are saving instead of purchasing goods and services.
On the other hand, foreign savings may come from both private and official sources. Private foreign saving (capital) may take four different forms: direct investment, portfolio investment, commercial bank loans and trade credit. Many LDCs are aided by direct foreign investment, which supplies scarce capital.
Official foreign savings are usually made available to LDCs in the form of foreign aid which may be either outright gift or low interest loan. When an aid is given to an LDC, some concessional element is involved (such as low interest and/or long repayment period).
A large number of countries have been able to finance a significant fraction of domestic investment using foreign finance for extended periods. Many of these are in low income countries where public finance is more important than private finance.
Foreign savings are not a good substitute for domestic savings, since more often than not a situation of large and persistent current account deficits do not end happily. Rather, they end abruptly with compression of the current account, real exchange rate depreciation, and a sharp slowdown in investment. As a result of all these, growth is slower than when countries rely on domestic savings.
It is important for any nation to encourage national savings by a way of encouraging individuals to save, for it is mostly the aggregate of individual savings that make up the national savings. This is because national savings tend to be more productive, investment wise, than foreign savings.

Christian Agu said...

What are the main determinants and principal determinants to domestic investment and the foreign investment (portfolio and foreign direct investment)?

Domestic investment is made by the citizens of a country. It is an investment in the companies and products of someone’s own country rather than in those of foreign countries. Real domestic investment in the economy is an acceptable way of increasing capital formation in the economy thus increasing productivity, output and economic growth. It is expenditure made to increase the total capital stock in an economy.
Below are the main determinants of domestic investment:
Gross Domestic Product (GDP)
The rate of private sector output
Availability of credit to the private sector
Cost of financing, that is, rate of interest
The rate of household savings
Monetary policy
Fiscal policy
Political atmosphere
Foreign investment on the other hand involves capital flow from one country to another, granting extensive ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners have an active role in management as a part of their investment. It can be made by individuals, but are most often endeavours pursued by companies and corporations with substantial assets looking to extend their reach. As globalization increases, more and more companies have branches in countries around the world. For some companies, opening new manufacturing and production plants in a different country is attractive because of the opportunities of cheaper production, labour and lower or fewer taxes.
Foreign investment can be classified into two: Foreign Direct Investment (FDI) and Portfolio Investment.
Foreign direct investments (FDIs) are the physical investment and purchases made by a company in a foreign country, typically by opening plants and buying buildings, machines, factories and other equipment in the foreign country. These types of investments find a far greater deal in favour, as they are generally considered long-term investment and help booster the foreign country’s economy.
Portfolio investments involve corporations, financial institutions and private investors buying stakes or positions in foreign companies that trade on a foreign stock exchange.
Thus, while foreign direct investment takes the form of ‘real’ capital formation, portfolio investment is just the purchase of securities or acquisition of financial assets. In the case of foreign direct investment, the supplier of foreign capital such as Multinational Corporation actually operates the business. But portfolio investment just helps finance a business, and host country (i.e., the capital receiving country) manages and run the enterprise.
The main determinants of foreign investment are:
The market size
Political atmosphere
Infrastructural base
GDP growth rate
Tax system
Relative labour endowment
Regional trade agreement
These factors will to a very large extent determine the degree of foreign investment in a country.

Christian Agu said...

Why is it that some countries are able to attract a huge quantum of foreign direct investment while others remain starved of such investment over a long period of time?

As stated earlier, foreign direct investments are made by multinational corporations that purchase long-term financial assets like buildings and machines. There a lot of reasons why some countries, especially underdeveloped ones are being starved of foreign direct investment. Some of these reasons are highlighted below:
Unfriendly business environment: Most underdeveloped countries have bad business environment. This ranges from poor government policies, fluctuating interest rate, among others.
Poor infrastructural base: For any business enterprise to strive there is the need for adequate infrastructure such as good road network, uninterrupted power supply, good communication system, and sound health care facilities, among others. All these infrastructures are alien to most underdeveloped countries, hence the lack of foreign direct investment in them.
Political instability: Most institutions of policy making in underdeveloped countries are weak. This allows for policy changes especially whenever there is a change in government. Since the political atmosphere in most underdeveloped countries are said to be fragile, recurrent changes in government becomes inevitable, and this invariably leads to incessant policy changes. Investors prefer to invest in an atmosphere of political stability.
High crime rate and insecurity: Peace and security are vital elements in running any enterprise. Most third world countries have failed to provide security in their countries. Hence civil strife, social unrest and terrorism are common phenomenon in this part of the world. Since the main motive of any investor is to make profit, no one will be willing to invest in an atmosphere of unrest where return on investment may not be guaranteed.

Christian Agu said...

What are the short term and long term consequences of financing gross investment from foreign debt rather than foreign direct investment?
Foreign debt (or external debt) is the total debt a country owes to foreign creditors, complemented by internal debt owed to domestic lenders. The debtors can be the government, corporations or citizens of that country. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank.
The negative impact of external debt on Nigeria economic growth hardly come to the mind of the policy makers at the point of contracting the loan. Loan or borrowing to fund gaps in government revenue has become norm in Sub-Saharan Africa especially in Nigeria.
Nigeria external debt can be traced back to 1958 when 28 million US dollars was contracted from the World Bank for railway construction.
The first major external borrowing of one (1) billion US dollars referred to as Jumbo loan was contracted from the International Capital Market (ICM) in 1978 increasing the total debt to 2.2 billion U.S dollars.
Ever since then, Nigeria external debt keeps on rising from one government to the other.
It is interesting to note that large volume of external debt does not necessarily leads to slow economic growth; it is a nation’s inability to meet its debt service payments fueled by inadequate knowledge on the nature, structure and magnitude of the debt in question that slow down the economy.
Countries like Japan has a very large volume of external debt profile but at the same time has large volume of external reserves in US dollar.
High debt service burden resulting from improper management of the nation borrowing and wealth has the following daring consequences:
Fall in aggregate demand in the nation over time
Increase in poverty and hunger especially in the rural areas
Increases in the profile of unemployment among youths who are the most vulnerable
Fall in the economic growth resulting to economic recession
Religion, Political and socioeconomic crisis in the country as every part of the country feels neglected
Poor investment platform and environment where business thrives.

Christian Agu said...

What determines the efficiency and productivity of investment in a country, both sectoral and overall investment?

Economic efficiency implies an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one entity would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production.
Investment efficiency in the same vein is a function of the risk, return and total cost of an investment management structure, subject to the fiduciary and other constraints within which investors must operate. Institutional investors implement their investment policies through investment management structures. These constraints include financial elements and non-financial elements such as an investor’s time available to manage the investment arrangements, accountability as fiduciary or legislative requirements. Investment efficiency should therefore be regarded as a combination of financial efficiency and non-financial efficiency.

Christian Agu said...


THE CONCEPT OF CONSUMPTION

Consumption is a major concept in Economics and is also studied in many other social sciences. Economists are particularly interested in the relationship between consumption and income, as modeled with the consumption function: C = a + bYd.
Different schools of economists define consumption differently. According to mainstream economists, only the final purchase of goods and services by individuals constitutes consumption, while other types of expenditure – in particular, fixed investment, intermediate consumption, and government spending – are placed in separate categories. Other economists define consumption much more broadly, as the aggregate of all economic activity that does not entail the design, production and marketing of goods and services.
Simply put, consumption can be described as the final purchase of goods and services by individuals.

THEORIES OF CONSUMPTION

There are many different theories on income and consumption behaviour. Some of the more mainstream concepts in consumption theory are discussed below:

Keynesian Theory and Real Income

One of the most popular and well-known theories is the Keynesian theory, offered by economist John Maynard Keynes. This theory states that current real income is the most important determinant of consumption in the short run. Simply said, you spend according to how much income you have coming in. This is the basis for most consumption theory.
The term 'real' that is used in describing income refers to how your income is affected by inflation, or the natural rise in prices of goods and services. So to elaborate, if your income went up five percent in a year, but the price of goods or inflation went up five percent also, your real income remained flat. You can't really buy or consume any more goods than you could before.

Absolute Income Hypothesis

The basic tenet of the absolute income theory is that the individual consumer determines what fraction of his current income he will devote to consumption on the basis of the absolute level of that income. Other things being equal, a rise in his absolute income will lead to a decrease in the fraction of that Income devoted to consumption.
According to absolute income theory (AIT) the level of consumption expenditures depends on the absolute level of income, with APC declining as the level of income increases. Since the level of national income grows over time, the AIT concludes that the APC should diminish continuously. As such, according to AIT, the consumption-income relationship is non-proportional.

Christian Agu said...

Relative Income Hypothesis

An answer to this apparent inconsistency is provided by the relative income hypothesis, which seems to have been first propounded by Dorothy Brady and Rose Friedman. Its underlying assumption is that saving rate depends not on the level of income but on the relative position of the individual on the income scale. As such relative-income hypothesis implies the assumption that spending is related to a family’s relative position in the income distribution of approximately similar families.
Thus, the relative income theory argues that the fraction of a family’s income spent on consumption depends on the level of its income relative to the income of neighbouring families and not on the absolute level of the family’s income. If a family’s income increases but its relative position on the income scale remains unchanged because incomes of other families have also risen at the same rate, its division of income between C and S will remain unchanged. According to the relative income theory, each family, in deciding on the fraction of its income to be spent, is uninfluenced by the fact that it is twice as well off in absolute terms and is influenced only by the fact that it is no better off at all in relative terms.

The Permanent Income Hypothesis

It is a theory that attempts to explain away apparent inconsistencies of empirical data on the relationship of saving to income. Data for a single year show that, as income rises, savings account for an increasing share of income, while data for a long period of years show that, even though total income rises over the years, total savings account for a fairly stable share of total income. Milton Friedman states that this does not occur because of changes in consumption habits at every income level but because a study of measured income and consumption involves inaccurate concepts of what these habits really are.
The best known exposition of the PIH is developed by Professor Milton Friedman - formerly of the University of Chicago. He says permanent income is roughly akin to lifetime income, based on the real and financial wealth at the disposal of the individual plus the value of one’s human capital in the form of inherent and acquired skills and training. The average expected return on the sum of all such wealth at the disposition of an individual would be his permanent income. But measured income is different from permanent income according to Friedman.

Christian Agu said...

Life Cycle Hypothesis

Life cycle hypothesis is another important attempt to explain the difference between cyclical short-run consumption function and secular long-run consumption function. It has been developed by Franco Modigliani, Albert Ando and later by Brumberg - called the life cycle hypothesis or MBA approach. It is said that life cycle hypothesis is similar to PIH developed by Friedman.
Although, the two approaches are similar in principal yet they are different in certain respects. Friedman’s version of PIH has gained more attention in recent years. In the Friedman’s approach a consumer unit is assumed to determine its standard of living on the basis of expected returns from its resources over its life time. These returns are expected to be constant from year to year, though in actual practice some fluctuation would result over time with changes in the anticipated amount of capital resources.
The life cycle hypothesis states the income consumption relationship as:
Ct = KVt
where Ct is the current consumption by an individual, K is the factor of proportionality and Vt is the present value of the resources accruing to the individual over the rest of his life. The total resources available to the individual over his entire life span are the sum of individuals net worth at the end of the proceeding period plus his income during the current period from the non-property sources plus the total of the discounted values of the non-property incomes expected in the future time periods.

Christian Agu said...

THE CONCEPT OF INVESTMENT

An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but used in the future to create wealth.
The term “investment” can refer to any mechanism used for generating future income. In the financial sense, this includes the purchase of bonds, stocks or real estate property. Additionally, a constructed building or other facility used to produce goods can be seen as investment. The production of goods required to produce other goods may also be seen as investing.

THEORIES OF INVESTMENT

Some of the new theories of investment in macroeconomics are as follows:

The Accelerator Theory of Investment

The accelerator principle states that an increase in the rate of output of a firm will require a proportionate increase in its capital stock. The capital stock refers to the desired or optimal capital stock, K.
Assuming that capital-output ratio is some fixed constant, v, the optimum capital stock is a constant proportion of output so that in any period t, Kt = vYt, where Kt is the optimal capital stock in period t, v (the accelerator) is a positive constant and Y is output in period t.
Any change in output will lead a change in the capital stock.
Thus, Kt – Kt-1 = v (Yt – Yt-1) and In = v (Yt – Yt-1), Int = Kt – Kt-1 = v∆Yt
Where ∆Yt = Yt – Yt-1, and Int is net investment.
In the above equation, the level of net investment is proportional to change in output. If the level of output remains constatnt (∆Y = 0), net investment would be zero. For net investment to be positive constant, output must increase.

The Flexible Accelerator Theory or Lags in Investment

The flexible accelerator theory removes one of the major weaknesses of the simple acceleration principle that the capital stock is optimally adjusted without any time lag.
In the flexible accelerator, there are lags in the adjustment process between the levels of capital stock. This theory is also known as the capital stock adjustment model.

Christian Agu said...

The Profits Theory of Investment

The profit theory regards profits, in particular undistributed profits, as a source of internal funds for financing investment.
Investment depends on profits and profits, in turn, depend on income. In this theory, profits relate to the level of current profits and to the recent past.
If total income and total profits are high, the retained earnings of firms are also high, and vice versa. Retained earnings are of great importance for small and large firms when the capital market is imperfect because it is cheaper to use them.
Thus if profits are high, the retained earnings are also high. The cost of capital is low and the optimal capital stock is large. That is why firms prefer to reinvest their extra profit for making investments instead of keeping them in banks in order to buy securities or to give dividends to shareholders. Contrariwise, when their profits fall, they cut their investment projects. This is the liquidity version of profits theory.

The Duesenberry’s Accelerator Theory of Investment

J.S. Duesenberry in his book Business Cycles and Economic Growth presents an extension of the simple accelerator and integrates the profits theory and the acceleration theory of investment.
Duesenberry has based his theory on the following propositions:
(1) Gross investment starts exceeding depreciation when capital stock grows.
(2) Investment exceeds savings when income grows.
(3) The growth rate of income and the growth rate of capital stock are determined entirely by the ratio of capital stock to income. He regards investment as a function of income (Y), capital stock (K), profits (π) and capital consumption allowances (R). All these are independent variables and can be represented as
I = f(Y t-1, Kt-1, πt-1, Rt)
Where ‘t’ refers to the current period and (t-1) to the previous period. According to Duesenberry, profits depend positively on national income and negatively on capital stock.
π=aY- bK
Taking account of lags, this becomes
π₁=aYt-1– b Kt-1
Where ‘t’ refers to profits during period t, Yt-1 and Kt-1 are income and capital stock of the previous period respectively and a and b are constants. Capital consumption allowances are expressed as
R, = kKt-1
The above equation shows that capital consumption allowances are a fraction (k) of capital stock (K t-1).

Christian Agu said...

The Financial Theory of Investment

The financial theory of investment has been developed by James Duesenberry. It is also known as the cost of capital theory of investment. The accelerator theories ignore the role of cost of capital in investment decision by the firm.
They assume that the market rate of interest represents the cost of capital to the firm which does not change with the amount of investment it makes. It means that unlimited funds are available to the firm at the market rate of interest.
In other words, the supply of funds to the firm is very elastic. In reality, an unlimited supply of funds is not available to the firm in any time period at the market rate of interest. As more and more funds are required by it for investment spending, the cost of funds (rate of interest) rises. To finance investment spending, the firm may borrow in the market at whatever interest rate funds are available.

Jorgensons’ Neoclassical Theory of Investment

Jorgenson has developed a neoclassical theory of investment. His theory of investment behaviour is based on the determination of the optimal capital stock. His investment equation has been derived from the profit maximisation theory of the firm.
It’s Assumptions: Jorgenson’s theory is based on the following assumptions:
1. The firm operates under perfect competition.
2. There is no uncertainty.
3. There are no adjustment costs.
4. There is full employment in the economy where prices of labour and capital are perfectly flexible.
5. There is a perfect financial market which means the firm can borrow or lend at a given rate of interest.
6. The production function relates output to the input of labour and capital.
7. Labour and capital are homogeneous inputs producing a homogeneous output.
8. Inputs are employed up to a point at which their MPPs are equal to their real unit costs.
9. There are diminishing returns to scale.
10. There is the existence of “putty-putty” capital which means that even after investment is made, it is instantly adapted without any costs to a different technology.
11. The capital stock is fully utilized.
12. Changes in current prices always produce ceteris paribus proportional changes in future prices.
13. The price of capital goods equals the discounted value of the rental charges.
14. The firm maximizes the present value of its current and future profits with perfect foresight in relation to all future values.

Christian Agu said...

Tobin’s Q Theory of Investment

Nobel laureate economist James Tobin has proposed the q theory of investment which links a firm’s investment decisions to fluctuations in the stock market. When a firm finances its capital for investment by issuing shares in the stock market, its share prices reflect the investment decisions of the firm.
Firm’s investment decisions depend on the following ratio, called Tobin’s q:
q = Market Value of Capital Stock/Replacement Cost of Capital
The market value of firm’s capital stock in the numerator is the value of its capital as determined by the stock market. The replacement cost of firm’s capital in the denominator is the actual cost of existing capital stock if it is purchased at today’s price. Thus Tobin’s q theory explains net investment by relating the market value of firm’s financial assets (the market value of its shares) to the replacement cost of its real capital (shares).
According to Tobin, net investment would depend on whether q is greater than (q>1) or less than 1 (q<1). If q> 1, the market value of the firm’s shares in the stock market is more than the replacement cost of its real capital, machinery etc.
The firm can buy more capital and issue additional shares in the stock market. In this way, by selling new shares, the firm can earn profit and finance new investment. Conversely, if q<1, the market value of its shares is less than its replacement cost and the firm will not replace capital (machinery) as it wears out.

DIYOKE EKENEDILINNA.E said...

UNIVERSITY OF NIGERIA NSUKKA
FACULTY OF SOCIAL SCIENCE
DEPARTMENT OF ECONOMICS

TOPIC

NATURAL RESOURCES UTILIZATION, UNDER UTILIZATION AND MISUTILIZATION IN THE 36 STATES OF NIGERIA

AN ASSIGNMENT WRITTEN IN PARTIAL FULFILLMENT FOR THE REQUIREMENT OF THE COURSE:
ECO 0511
(PROBLEM AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
DIYOKE EKENEDILINNA. EMMANUEL

LECTURER: DR. TONY ORJI


SEPTEMBER, 2018

QUESTION 1(a)
CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE MILLION DOLLAR QUESTIONS RAISE UNDER THE ISSUE SURROUNDING CAPITAL FUNDAMENTALISM.


No 1b 1
WHAT IS THE DESIRED LEVEL OF GROSS INVESTMENT FOR AN ECONOMY TO REALIZE THE TARGET GROWTH RATE OF REAL (GDP)?
Gross investment can be defined as the expenditure on buying capital goods over a specific period of time. Gross investment can also be seen as the amount a company invests in business assets that does not account for any depreciation. The Gross figure more accurately reflects the company’s actual financial commitment to an asset from which it can derive a return on investment.
Real Gross Domestic Product (GDP) is an inflation – adjusted measure that reflects the value of all goods and service produced by an economy in a given year, expressed in based – year prices, and is often referred to as “constant-price”.
Unlike Nominal GDP, real GDP can account for a change in price level and provided a more accurate figure of economic growth. For an economy to realize the desired level of target growth rate of real GDP, such economy should invest fully on gross investment because this is a kind of investment in which capital goods like plants, machinery, etc are used for the production of other goods which in return leads to high increase in the value of assets and securities and on the long-run leads to the largest growth rate of real GDP.


QUESTION NO (1B) 2
HOW IS THE EX-ARTE INVESTMENT TO BE APPROPRIATED BETWEEN THE PUBLIC AND PRIVATE SECTOR TO HELP ACHIEVE THE REAL GROWTH RATE?
Ex-ante or Ex-post is another word for actual returns and is Latin for "after the fact." The use of historical returns has customarily been the most well-known approach to forecast the probability of incurring a loss on an investment on any given day. Ex-post is the opposite of ex-ante, which means "before the event." It is used mostly in commercial world, where result of a particular action or series of actions, forecast advance (or intended). The real growth in an economy is critically dependent on the existing stock of capital and net accumulation in the stock through current investment. Since the stock of capital at one point of time is the output of the stream of investment made in the past, therefore, the growth rate of an economy in the final analysis is the function of investment of both current and past.
There is massive gap between the need for infrastructure. Investment around the world and the ability of Government which is the public sector to pay for those investments while the private sector should build, control and operates infrastructure project and subject to strict government oversight and regulation, can help to achieve the real growth rate. However, public sector should sets the groundwork to enable private investment and allow it to thrive and private sector should also try to be doing the necessary because both sectors are so important for each other for favourable or sound Economic growth or the real growth rate.

DIYOKE EKENEDILINNA. E said...

Question (1b) 3

How do we define the sectoral priorities within the public and private sectors such that investment allocation generate sectoral growth rate to match the overall growth rate of the economy.
The public and private sector investment allocation generate sectoral growth rate that match the overall growth rate of economy such as
Allow markets to function. The public sector recognizes the power of markets to drive optimal behaviour among market participants The Plan prioritises the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.
Uphold core values. The public and private sector is rooted in the core values that define the Nigerian society . It requires all citizens and stakeholders to adhere to
The Econmic Recovering GP has three broad strategic objectives that will help achieve the vision of inclusive growth outlined above:
restoring growth,
investing in our people, and
Building a globally competitive economy.
Restoring Growth: To restore growth, the Plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.

diyoke ekene said...

Investing in our People: Economic growth is beneficial for society when it creates opportunities and provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.
Social inclusion. The Federal Government will continue to provide support for the poorest and most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.
Job creation and youth empowerment. Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries. Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.
Improved human capital. The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage s
encourage students to enrol in science and technology courses
Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It will increase competitiveness by investing in infrastructure and improving the business environment.
Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on

diyoke ekene said...

ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.
Improving the business environment: Nigeria’s difficult and often opaque business environment adds to the cost of doing business, and is a disincentive to domestic and foreign investors alike. Regulatory requirements must be more transparent, processing times must be faster, the overall economy must be more business-friendly. The ERGP will build on the efforts of the Presidential Enabling Business Environment Council (PEBEC) and track progress using the metrics of the World Bank’s Doing Business Report. The target is to achieve a top 100 ranking in the World Bank’s Doing Business index by 2020 (up from the current ranking of 169).
Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.
Key Execution Priorities
To achieve the objectives of the ERGP, the key execution priorities, are
Stabilizing the macroeconomic environment
Achieving agriculture and food security
Ensuring energy sufficiency (power and petroleum products)
Improving transportation infrastructure
Driving industrialization focusing on Small and Medium Scale Enterprises key outcomes:
Stable Macroeconomic Environment: The inflation rate is projected to trend downwards from the current level of almost 19 per cent to single digits by 2020. It is also projected that the exchange rate will stabilize as the monetary, fiscal and trade policies are fully aligned. This outcome will be achieved through policies that seek to remove uncertainty in the exchange rate and restore investors’ confidence in the market.
Restoration of Growth: Real GDP is projected to grow by 4.6 percent on average over the Plan period, from an estimated contraction of 1.54 percent recorded in 2016. Real GDP growth is projected to improve significantly to 2.19 per cent in 2017, reaching 7 per cent at the end of the Plan period in 2020. The strong recovery and expansion of crude oil and natural gas production will result as challenges in the oil-producing areas are overcome and investment in the sector increases. Crude oil output is forecast to rise from about 1.8 mbpd in 2016 to 2.2 mbpd in 2017 and 2.5 mbpd by 2020. Relentless focus on electricity and gas will also drive growth and expansion in all other sectors.
Agricultural transformation and food security: Agriculture will continue to be a stable driver of GDP growth, with an average growth rate of 6.9 per cent over the Plan period. The Agricultural sector will boost growth by expanding

diyoke ekene said...

crop production and the fisheries, livestock and forestry sub-sectors as well as developing the value chain. Investment in agriculture will drive food security by achieving self-sufficiency in tomato paste (in 2017), rice (in 2018) and wheat (in 2020). Thus, by 2020, Nigeria is projected to become a net exporter of key agricultural products, such as rice, cashew nuts, groundnuts, cassava and vegetable oil.

Power and petroleum products sufficiency: The ERGP aims to achieve 10 GW of operational capacity by 2020 and to improve the energy mix, including through greater use of renewable energy. The country is projected to become a net exporter of refined petroleum products by 2020.
Improved Stock of Transportation Infrastructure: By placing transportation infrastructure as one of its key execution priorities, effective implementation of this Plan is projected to significantly improve the transportation network (road, rail and port) in Nigeria by 2020. Given the scale of investment required to deliver this outcome, strong partnership with the private sector is expected to result in completion of strategic rail networks connecting major economic centres across the country, as well as improved federal road networks, inland waterways and airports.
Industrialized Economy: Strong recovery and growth in the manufacturing, SMEs and services sectors are also anticipated, particularly in agro-processing, and food and beverage manufacturing. Ongoing strategies to improve the ease of doing business will boost all manufacturing sector activities. Overall, the ERGP estimates an average annual growth of 8.5 per cent in manufacturing, rising from -5.8 per cent in 2016 to 10.6 per cent by 2020.
Job Creation and youth empowerment: The implementation of the Plan is projected to reduce unemployment from 13.9 per cent as of Q3 2016 to 11.23 per cent by 2020. This translates to the creation of over 15 million jobs during the Plan horizon or an average of 3.7 million jobs per annum. The focus of the job creation efforts will be youth employment, and ensuring that youth are the priority beneficiaries.
Improved Foreign Exchange Inflows: The reduction in the importation of petroleum products resulting from improvement in local refining capacity following the implementation of the ERGP is projected to reduce demand for foreign exchange. The economic diversification focus of the Plan is also projected to translate into enhanced inflows of foreign exchange from the non-oil sector.
On the whole, Nigeria is expected to witness stability in exchange rate and the entire macroeconomic environment. The country should also witness a major improvement in economic performance which should result in the following, amongst others: a) reduction in importation of food items and refined petroleum products, b) improved power supply, c) higher quality transport infrastructure, d) expansion in 20
the level of industrial production, e) improved competitiveness, f) greater availability of foreign exchange, g) job creation, h) reduction in poverty and i) greater inclusiveness in the spread of the benefits of economic growth.

diyoke ekene said...

QUESTION (1B) NO 4

WHAT IS THE OPTIMAL BLEND OF NATIONAL SAVING AND FOREIGN SAVINGS OR EXTERNAL BORROWING TO FINANCE AGGREGATE INVESTMENT

This suggests that the country has saved a specific amount in external account while in reality the deficit reflect a gap or excess demand in its foreign exchange transaction for a given period of time. National income account which is formally written as S – I = X – M where symbol S, I, X and M indicate respectively natural savings, total investment, export of goods and services and import of goods and services. If the left hand side of these identity which indicate the savings investment gap is in the negative, is invariably follows that, the right hand side, the foreign exchange gap would be in the negative as well and vice versa.
The identity highlights one of the most important behavioural relationships of an economy namely the current account deficit added to the national savings equal to the level of total investment. Finally, investment must be financed by some combination of private domestic savings, government savings (surplus) and foreign savings (foreign capital inflow).

NO 5
WHAT ARE THE MAIN DETERMINANT AND PRINCIPAL DETERRENT TO DOMESTIC INVESTMENT AND FOREIGN INVESTMENT (PORTFOLIO AND DIRECT)?
The main determinant for domestic and foreign Investment (portfolio and direct) are:
(1) Political and Economic condition: These are very important elements that contribute positively, for any investor to think for investment in any area or country both domestic and foreign investors consider it before investing to avoid story.
(2) Macro economic stability: Here if macroeconomic system or stability like inflation, government, policy, exchange rate, interest rate is favourable and stable the investors will trup-in to invest and there will be no fear in them for come in and invest thereby increase the GDP by at least 8% and attract Economic development.
(3) Certainty in economic policies and other incentives: This is also anothe

diyoke ekene said...

factor that enhances Domestic.
(4) Low tax and other incentives: These are important factors that determine domestic and foreign investment because if taxation is low and there is incentives or subsides you will see thousands of investors for both domestic and foreign will be competing to invest because they have seen that they are going to make it in the long-run.
(5) Cost of Production: This is also a pre-requisite which many investors consider before they can think of moving on or investing in any country, both domestic and foreign investors consider this very paramount to know if its high or low, however, if its low they will invest but if not so it will scare or push them out from investing.
(6) Potential domestic market: This is very important tool or determine for both domestic and foreign investors consider or look into before they can make a move. At the sametime country that investors see that they have high sales in their country ultimately it will attract more investors than the other example of such country is China, Vietman and India. These are major three countries that attract more investors than the other countries. It’s simply because market sales in their countries more than other countries.
(7) Labour regulation, work, ethnics: A country where labour regulation permit continuously place or attract both domestic and foreign investment or investors in a huge quantum.
(8) Social and Economic infrastructure: This is also a basic factor that the investors are looking at before moving to any country because social and economic infrastructure will make their investment viable or boost.
(9) Easy of doing business: Any country or Area that business booms or is booming the both investors are bound to defect or move to such locality or region or country.
(10) Absent of bribery and corruption: This is another big factor that investor consider very well because no investor wants to hear bad story or associate with a corrupt person or country for no reason because it mar or inimical to both domestic and foreign investors as well. Sure a country that is bribery and corruption free, there will be a massive investors competing with each other to invest. Because definitely, there will be profit on the long-run.
The above mentioned or discussed are the major deterrent of domestic investment and foreign investment badly and that will scare or push both domestic and foreign investors out from such area, or country. As a matter of fact, the verse versa of the above discussed is the major issue that deterred domestic and foreign investment or investors. The absent of these ten (10) points in good mode or order will deter domestic and foreign investors into.

(1b) No 6
WHY IS IT THAT SOME COUNTRIES ARE ABLE TO ATTRACT A HUGE QUANTUM OF FOREIGN DIRECT INVESTMENT OVER A LONG PERIOD OF TIME?
(1) A business conducive environment to the investors: A country that has a conducive business environment is ultimately to attract more investors to their

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country than a country with unfriendly environment. Business friendly environment largely depends on good governance, rule of law, political will and infrastructure of the country and rules and regulations.
(2) Congenial climate: This is another factor that any investor has to consider before moving to any country to invest. However, at the same time, a country with/endowed with a good climate will ultimately attract more investors that’s sure than the other that do not have.
(3) Political stability/situation: This is very essential and credit to any country that their political situation is conducive/stable and thereby it’s obvious that foreign direct investors will move over to such a country than the opposite (country). It’s also a prime determinant for attracting foreign direct investment, the investors consider it very well to avoid economic waste or lost of their hard earned income.
(4) The availability of raw materials/resources: The investors deemed it right to consider this as also the factor that makes them to invest more in one country than the other where there is no availability of the raw materials that may be needed for their production cannot be considered to move on for investment in such a country.
(5) Cost of Labour/wages: This is important determinant that makes some country attract more foreign direct investment while other are starved of such, a rational investor consider this very well before progressing to any foreign direct investment because labour has a direct Relationship with the profit the investor is aiming to gain which is the sole aim of the investors and for their voice to be heard in enterprises (IMF) but this is secondary.
(6) Friendly tax, custom regulations and attractive packages: It is another factor or reason that some country gain/attract more investment than the other because any rational investor has to consider the tax, custom regulations of any country they want to move to for investment.
(7) Tolerable and moderate inflation and reasonably stable exchange rate: Here is a very big factor that foreign direct investors look into consideration before moving on to any country to invest because high inflation and unstable exchange rate is not friendly to any investor to put his/her hard earned capital/income to such country while those that have tolerable and moderate inflation and reasonable exchange rate attract more investment in their country.
(8) Technological progress/industrialization: This is also one of the factors that makes a country to attract more investment/investors than the other because investors are always looking at country that have innovation, improvement ideas, skills, machinery and steady electricity supply for the proper functionality of their investment but any country that are technologically weak, they are bound to be starved for a foreign direct investment.

1b No 7
WHAT ARE THE SHORT TERM AND LONG TERM (SHORT-RUN AND LONG-RUN) OF FINANCING GROSS INVESTMENT?
As the name suggests, Long term financing is a form of financing that is provided for a period of more than a year. Long term financing services are provided to those business entities that face a shortage of capital. There are various long term sources of finance.
It is different from short-term financing which is normally used to provide money that has to be paid back within a year. The period may be shorter than one year as well.

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Examples of long-term financing include – a 30-year mortgage or a 10-year Treasury note. Equity is another form of long-term financing, such as when a company issues stock to raise capital for a new project.
In financing Gross investment from foreign debt: When these funds injected back into the economy by the Government leads to a multiple increase in aggregate demand causing an increase in output and employment than foreign investment foreign boost the country’s economy but the lion profit made by the investors are taken back to their various countries but Gross investment will accelerate the economy far. It can be illustrated with the below model:
i. Y = C + I + G + (x - m)
The change in output will be equal to the multiplier times the change in government expenditure y =
ii. Foreign debt is used as a proxy for capturing total domestic debt of the economy in given period.
iii. Foreign debt is also used to capture the total amount of money expected by the Federal Government on debt payment abroad and its measure in billions.
iv. External debts are typically undertaken to finance public investments needed to boost the economic growth rate. It’s used to capture debt burden and economic growth.
v. It increases growth investment
vi. it will increase GDP
Gross f is gross investment, pop is the resources or money used in an economy. It’s very important on the domestic economy to enable to allocate resources and boost national resources.
vii. It is used to finance investment.
Gross investment do not account for depression and for that it is very rational for a country to invest on it, even if it required foreign debt or borrowing because it will be beneficial in both short and long run rather than foreign direct because in foreign direct the enterprisers or investors will hijack the whole profit back to their country and leave some to their host country.
Provide capital for funding the operations. This helps in adjusting the cash flow. For many small businesses, it is necessary to secure additional funds to cover expenses, or to take the next step in growing the business. Before determining the best type of loan for the business, however, it is important to clearly outline what kind of need the loan will fulfill. Ascertaining what the money will be used for will help the borrowing business to choose the best way to finance their need. Short term loans are a lending option that work for many businesses that experience seasonal revenue fluctuations, or that otherwise require a small, quick loan to cover expenses that will be repaid in projected revenue in under a year.
Most short-term financing options are tied directly to immediate sales; they are relatively easy to qualify for as long as the business has a positive cash flow or outstanding invoices to use as collateral. Short-term loans are rarely secured with a larger asset. As a consequence, however, they are usually more expensive in terms of fees, interest rates and APR than longer-term loans, and are generally available for smaller amounts than secured loans. Short-term financing is not a recommended option for significant investments in the company – such as renting or purchasing new space – due to shorter payback periods, lower loan amounts and more expensive financing. For businesses that need additional capital for short-term inventory purchases or experience seasonal spikes in revenue, however, short-term loans are a viable option.
Short-term financing options have more frequent payments than longer-term financing –repayments are often taken out of daily sales, or require repayment within 30 to 90 days. In comparison, longer-term loans are usually a fixed amount paid off at regular intervals, such as biweekly or monthly.
There are several short-term financing models to choose from: a business line of credit, merchant cash advances, and accounts receivable financing.

diyoke ekene said...

WHAT DETERMINES THE EFFICIENCY AND PRODUCTIVITY OF INVESTMENT IN A COUNTRY BOTH SECTORAL AND OVERALL?
By definition, efficiency and productivity of investment is a function of the return and total cost of an investment management structure subject to the judiciary and other constraints within which investor must operate. Institutional investors implement their investment policies through investment management structures. Efficiency and productivity of investment in a country both overall are below:
(1) Maximizing capital or income: An efficient and productive investment can be achieved through a maximum management of capital invested into the firm to avoid collapsing or economic waste. If judiciously managed or utilized ultimately, they will be efficient and high level of productivity of the investment but if not so they will not be nothing like efficiency or productivity of investment.
(2) Rational labour productivity: This contributes largely for the efficiency and productive of investment because cost of labour has a directly relationship with the success of any investment, if cost of labour is low the efficient and productivity of the investment will increase (high) but verse versa.
(3) Good governance: This is very crucial factors that determines the efficiency and productivity of investment in a country in bother sectoral because if government of any country is functional or delivering there will be high efficient and productivity of investment and everybody in the country will benefit it directly or indirectly because it will ultimately increase GDP or national output.
(4) Low level of corruption: This is very dangerous factor if not controlled or eliminated completely. It will mar the efficient and productivity of investment in a country in both sectoral and overall because the efficient and productivity can never be achieved but if controlled or eliminated sure there will be efficiency and high productivity of investment in both sectoral and overall.
(5) Allocation and policy decisions: It implies that the trustees or investors need to integrate or implement risks and other vital issues that concern the firm or company for high efficiency and productivity of such investment in both sectoral and overall.
(6) Adequate or steady electricity supply, infrastructure and good roads: This is a very essential factor that boosts the efficiency and productivity of investment both in sectoral and overall, if there exists a steady electricity supply the investment will grow and yield more profit which is the main aim of the investment.

diyoke ekene said...

(7) Quality accounting: This is important and necessary to increase efficiency and productivity of investment in sectoral and overall.







Question (3)
CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE
(A) THE THEORIES OF CONSUMPTION
Due to the crucial or vital role of consumption in the size of a nation’s aggregate income (national income), through its impact on employment and other macro-economic variables, a lot of theories have been propounded to explain the causes and behavior of consumption in both the short and long run. These include:
(1) Keyne’s Absolute income hypothesis: Keynes postulated that the propensity to consume was a functional relationship between a given level of real (current) income and the expenditure on consumption out of that given level of income. Thus, C = A + byd.
The propensity to consume represented by b is now more commonly known as the consumption function which is stable. Keynes hypothesized that the shape of the consumption curve is upward sloping, with a slop between zero and unity. Keynes proposition was based on “Fundamental psychological law” which states that men are disposed to increase their consumption as their income rises; but not as much as the increase in their income.
Keynes asserted that this psychological law applied to any modern community. From this it follows that the marginal propensity to consume (MPC) would lie between zero and one, Keynes further conjectured that the MPC would fail as income rises. This clearly means that the average propensity of national consumed, will decline with increases in total income.

The major assumptions underlying Keyne’s theory consumption function are as follows:
(a) Current consumption is a stable, positive function of current income, that’s C = Co + Cyd ------------------------------- (1)
(b) The MPC is less in the short run than in the long run. So, and increase in consumption will be smaller than an increase in disposable inc.
(c) In the long run, a smaller proportion of income will be consumed as income increases, and hence, the MPC will be less than the average propensity to consumed (APC).
(d) At low levels of disposable income, consumption will exceed income (MPC>1).
(e) Changes in the stock of their wealth will directly affect household level of consumption. However, early attempts to verify the assumptions (characteristics) of Keynes theory/hypothesis produced results which seemed to support some of the features while others are refuted, which culminated in the development of alternative theory to explain consumption behaviours.
(2) Duesenberry’s Relative Income theory/hypothesis
Professor J. S. Duesenberry of Harvard University, in 1994 came up with a theory to explain the secular upward drift of the short run consumption functions and to reconcile them with the long run consumption function. What Duesemberry sort to provide answer was; make makes people with a given income increase their consumption over time? This, why the short run consumption functions shift up over time? He found his answer in psychological and sociological factors. He posited that:
(a) That an individual’s consumption and saving decisions are influenced by his social environment (Sociological factors). Thus, given a level of income, if he lives in environment dominated by the well to do in society than if he lives in less affluent area. Thus, people in Victoria Island in Lagos are like to spend more than those in some other areas like Ajegunle and Oshodi. Moreso, it makes for a proportional relationship between aggregate consumption and aggregate disposal income. The “determinant effect resulting from the high living standard of those with high income levels and the desire to keep up with the Joneses” constituted one way of explaining the cross sectional variation in APC.
The constancy of the APC in the long run though it varies in the short run could be seen thus. If we assume that average propensity to save d s/y depends on the present level of income Yt
relative to previous peak income (Yo),
Thus:

diyoke ekene said...

S/y = a + b (y/ yo) ------------------------------------------------- (1)
Since c/y = 1 – s/y ------------------------------------------------- (2)
then,
c/y = (1-a) –b (yt /yo) ---------------------------------------------- (3)
If income grows at a constant rate g, so that
yt = (1+g) yt-1 ------------------------------------------------------- (4)
If Yt-1 = Yo, then
Yt = (1 + g) yo ------------------------------------------------------- (5)
Substitute Equation (5) into Equation (3), gives
C/y = [(1-a) –b (1+g)] ----------------------------------------------- (6)
Hence, in the long run the Apc is constant and equal to the Mpc.
(b) That the consumption behavior of individuals exhibits a “ratchet effect during from the fact that people, having become used to a standard of living find it difficult to lower same even in the face of declining income. This is the psychological axiom of relative income hypothesis.
In addition, the direction of income change determines the relationship between Apc and Mpc in Duesenberry analysis of consumption behavior using the relative income hypothesis. These include:
If income is rising and it is above previous income level, the Apc would be constant and it will be equal to Mpc.
If income is rising and is below previous income level, the Apc would fall and Mpc rises but less than Apc.
If current income falls below previous income level, the Apc rises and is more than Mpc.
If income grows at a constant rate, Apc would be constant rate, Apc would be constant also equals Mpc.
Furthermore, a major problem of Duesentaerry relative income hypothesis is the negation of the basic fundamentals of utility maximization and rationality effects nullified.
(3) Friedman’s Permanent income theory/hypothesis
According to Professor Milton Friedman of the University of Chicago, the main determinant of consumption expenditures is not current but “permanent income”. By permanent income, he means the average income which a household expects to earn over its planning horizon (planning horizon could be 3-5 years). Permanent income includes past, current and expected future income. Friedman’s theory of consumption may be summarized in these equations:
Cp = K(I, W. U)yp --------------------------------------------- (1)
Y = Yp + YT ----------------------------------------------------- (2)
C = Cp + CT ---------------------------------------------------- (3) and
P = P = 0 -------------------------------------------------------- (4)
YP YT CP CT YTCT
The first equation is the core of the equation. It hypothesized that consumption of a household is proportional to its permanent income. Note that K, the factor of proportionality implies that households consume about the same proportion of their permanent income notwithstanding (Yp). K is also a constant equals Mpc and Apc. The values of K depends on the rate of interest (i), the ratio of non-human wealth to permanent income (W) and U, a permanent variable for utility (a variable capturing the household’s taste and preferences for consumption versus additions of health). According to Friedman, K is a variable constant which vary with the household’s stage in the life cycle. The major problem with Friedman permanent income hypothesis is the elusive nature of the key variables. From experience, it is difficult to obtain a

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measure of permanent income and consumption since they are subject to changes overtime due to expectation and past experience.
(4) Modiylian’s Life-Cycle (time) hypothesis/theory
The life-time income hypothesis also called the “life cycle” theory was advanced by F. Modigliani and R. E. Brumberg in 1954. According to them, an individual consumption depends not primarily on current income but rather on expected life-time income, and planning horizon in not 3-5years in Friedman’s model but rather his entire life time. The individual maximizes a household optimal utility function throughout his life time by saving “in fat years” to smooth out consumption in “lean years”.
An individual’s life time income and consumption pattern are depicted below:








From the above diagram, it shows that an individual will dissare in his youth and old age when his income is relatively low and will save during his middle age years when his income is high, due to family responsibility, his consumption may also be relatively high. However, Modiyiani and Brumberg were able to derive the result provided the interest rate is constant, the factor of proportionality between consumption and the individual’s present value or wealth or life time income is dependent solely on the age of the individual. They assume further that consumer hold expectation with certainty, interest rate is zero, and that the consumer starts work with zero asset, and plan to have zero assets at death. With these specifications, Modigiani and Brumberg derive the following result(s):
Ct = bW1 ------------------------------------------------- (1)
Ct = (PV) ------------------------------------------ (2)
Equation (2) may be rewritten thus,
Ct = Y1 + + At – 1 -------------- (3)
Equation (1) simply says that current consumption is assumed to be proportional to the present value of wealth. To define wealth properly, equation (2) and (3) emerged, where L, N and a are the length of individuals total life, working life and present age, all dated from the time he starts works. Yt is labour income, is expected future labour income and A1 is current asset holdings. An example of equation (2) immediately yields the result that the propensity to consume life-time income is unity.
Equation (3) which is the core equation from the life-cycle hypothesis which says that current consumption is a linear and homogenous future (labour) income and current asset holdings with coefficients depending on the age of the household. The important of this model is that, it was able to explain the observed wealth of the community i.e (Aggregate wealth-income ratio) without recourse to the bequest motive i.e “life cycle saver” who saves during his earning span and dissares the entire amount during his retirement span.
In summary, the theories (AIH, RICH, RIA, AND L CH) indicate that consumption besides being a function of disposable income, is also a function of

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real wealth; and real wealth determines permanent income or the present value of total resources. The relative emphasis placed on current income and permanent or expected income means that the theories may have different policy implications within the ambit of fiscal and monetary policies. Given the prime position occupied by Mpc (Marginal Propensity to consume) among national income determinants, these deserve proper investigation and refined methods of analysis.
(B) CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE THEORY OF INVESTMENT
Investment: Could be defined as not capital formation, hence, it refers to such capital expenditure on consumer durables, residential construction (buildings) and plants and machinery. In other word, it could be also defined to as the purchase of real tangile assets such as machines, factors or stocks of inventories which are used in the production of goods and services for future use.
Theories of Investment seek to explain the investment behavior of business firms. They seek to tell us “when” firms should invest. The following are the theories:
(1) An Acceleration theory of investment: The accelerator theory of investment states that net investment is a function of changes in income. It explains net investment (Kt – Kt-1) as a function of growth in aggregate demand (y). Although the modern form of the acceleration hypothesis was forwarded by Clark in 1917, but the original idea was muted by Afflation in 1911. Two versions of the accelerator hypothesis exist.
(i) The Fixed/rigid Accelerator Hypothesis: This hypothesis assumes that the ratio of current desired capital stock ( to current output y(t) is fixed. Thus:
K = /y ------------------------------------------------------------------- (1)
Cross multiplying equation (1), we have = Ky ------------------ (2)
Equation (2) shows a firm’s desired stock as a constant proportion of the output in the current period, where K is the factor of proportionality, which determines the stability or otherwise of the relationship. K depends on time period within which the analysis is carried out. The longer the time frame of analysis, the more the value of K tends to zero.
Weaknesses/shortcomings of the fixed Accelerator hypothesis

(2) The flexiable Accelerator or Capital stock Adjustment theory
The flexible accelerator theory of investment amends the rigid/fixed accelerator model. Theory states that firm in anyone period is only able to realize a fraction of the difference between the existing capital stock and the desired optimal capital stock that is K* – Kt-1 in other words,
- Kt-1 = (K* - Kt-1) ------------------------------------------------- (8)
Thus, net investment in any period may be only a fraction of the change in the desired capital stock. The basic flexible accelerator therefore
It = K* - --------------------------------------------------------- (9)
Where is the Adjustment parameter. It is the fraction of the change in the desired stock of capital that place each period. The value depends on factors such as the production capacity of the firm, conference in the production of higher output and ability to obtain the financial resources necessary to acquire replacement investment.
Types of Investment
(1) Fixed Investment
(2) Inventory Investment
(3) Replacement Investment

diyoke ekene said...

Investment can also be classified as
Autonomous Investment: Is the investment which is independent of income. It is fixed. It is also interest rate invariant.







Induced Investment: It is that investment that depends on the level of income. If income goes up, the investment may also go up and verse versa.





Factors that determines Investment/Determinant of Investment
(1) Expected rate of net profit: Profit hope to realize investment
(2) Current Rate of Interest: Users cost of capital- percentage increase will discourage the investors and investment will fall completely.
(3) Government policies: This is very crucial to consider before establishing or intending to venture into any kind of investment because high taxes depress the expected net profit but subsides enhance expected rate. Hence, Tax is a cost to business. High cooperate profit taxes translate to low retained earnings by firms and vice versa.
(4) Expectation of businessmen:
(5) Acquisition, maintenance and operating costs: If the above goes up the profit will be low thereby investment will be discouraged and vice versa.

It is the second component of the Keynesian model of Income.
Y = C = 1
It = Kt – K t-1 + Dt
Where
It = Gross Investment in period t
Kt = Current capital stock at period t
K t-1 = Capital stock at previous period or the beginning of the period t
Dt = Replacement expenditure
Kt – K t-1 which is the net investment is a net investment and its major focus in macro economics analysis.

SORONNADI JOSHUA CHISOM said...

UNIVERSITY OF NIGERIA, NSUKKA
FACULTY OF SOCIAL SCIENCE
DEPARTMENT OF ECONOMICS

AN ASSIGNMENT WRITTEN IN PARTIAL FULFILLMENT FOR THE REQUIREMENT OF THE COURSE: ECO 0511
(PROBLEM AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
SORONNADI JOSHUA CHISOM
UNN/PG/PGD/2017/02612

LECTURER: DR. A. ORJI

JULY, 2018

1. What is the desired level of growth investment for an Economy to realize the target growth rate of real GDP?
The healthy GDP growth rate is one that is out stainable so that the economy stays in the expansion phase of the business cycle as long as possible GDP is the nation grow domestic product that the entire economic output for the past year the GDP growth rate is how much more the economy produced than in the previous quoits. The ideal rate is between 2 – 3 percent.
In a healthy economy, unemployment, and inflation are in balance. The natural rate of unemployment will be between 4.7 percent and 5.8 percent. The target inflation rate will be 2.0 percent.
You’d think the more growth the better. But a healthy GDP growth rate is like a body temperatures of 28.6 degrees. Obviously, if your temperature is lower than the ideal, you know you’re sick. If it’s too low, you’re next death. But a higher temperature can also mean you’re sick. If it’s over 100, you have a fever. If it’s above 104 degrees for any period, you’re death ill.
If the economy growth too slowly, or even contracts, it’s obviously not healthy. But if it grows too fast, that’s not ideal, either. If fact, if GDP growth starts spiking above 4 percent for several quartos, it usually mans these in an asst bubble. In the business cycle, the phase that follows expansion in the peak.
If nothing is done, the economy will go into a recession. That’s because when the economy grows too fast it overheats. There’s too much money choosing too few real growth opportunities. Invasion starts putting excess money into mediocre investments. When they low money, they panic thy start selling, casing more investments to have money. It doesn’t end until prices are low enough to stop madness and attract investors again.
For example. In the United States of America, the federal reserve in the nation’s central bank. It use monetary policy to keep the economy in the ideal zone. It raises interest rates if the economy is growing too fast, and lowers them if it’s growing too slowly the sedation to address the causes of the business cycle.

Examples
In 1999-2000, there were innovational exultances around high technology stocks. By 1999, U.S. GDP growth was 5.1 percent in the third quarter and a whopping 7.1 percent in the fourth quarter. In 2005- 2006, the asset bubble was in housing. The economy grew 4.3 percent in the fast quarter of 2006 during both bubbles GDP growth spiked above 3 percent for several quarters in a now
When GDP growth rate is above the ideal, it can cause inflation. During 1999-2000, U.S inflation was 2.7 percent- 3 percent. Between 2003- 2005, it was 3 percent to 4 percent. That’s well above the 2 percent target inflation rate.
Once the bubble laurite, the economy enters the contraction phase of the business cycle GDP growth usually falls off sharply and goes into negative territory, which signals a recessions. During 2008-2009, U. &. GDP contracted in five quarters. Between 2000-2002, it only now above 2percent in one quarter and shared in two quarters
Healthy Rate of Growth is 2 Percent to 3 Percent
Economists agree the optimal GDP growth rate is greater than 2 percent but less than 4 percent. In between the 2001 recession and the 2008 recessions the annual economic growth rate was healthy.
• 2.9 percent in 2003
• 3.8 percent in 2004
• 3.5 percent in 2005
• 2.9 percent in 2006
• 1.9 percent in 2007
During the 2008 recession, in the United States, GDP growth rates were abysmal. The troubles in housing had hophead to the inventions in montages lacked securities, as the financial cuss infected the sect of the economy.
• Q1 – 2.3 percent
• Q2 – 2.1 percent
• Q3 – 2.1 percent
• Q4 – 8.4 percent

SORONNADI JOSHUA CHISOM said...

2. How is the ex-ante investment to be apportioned between the public and private sectors to help achieve the real growth rate?
Ex-ante refers to future events, such as the potential returns of a particular security, or the returns of a company. Transcribed from Latin, it means “before the event.”
Much of the analysis conducted in the markets is ex-ante, focusing on the impacts of long-term cash flows, earnings and revenue. While this type of ex-ante analysis focuses on company fundamentals, it often relates back to asset prices. For example, buy-side analysts often use fundamental factors to determine a price target for a stock, then compare the predicted result to actual performance.
"Ex-ante" essentially involves any type of prediction ahead of an event, or before market participants become aware of the pertinent facts. Earnings estimates, for example, involve ex-ante analysis. They take into account the predicted performance of all of a company’s business units, and in some cases individual products. This also involves modeling uses for cash, such as capital investments, dividends and stock buybacks. None of these outcomes can be known for certain, but making a prediction sets an expectation that serves as a basis of comparison versus reported actuals.
One type of ex-ante analysis that’s particularly useful to investors is gauging ex-ante earnings-per-share analysis in the aggregate. Consensus estimates, in particular, help to set a baseline for corporate earnings. It’s also possible to gauge which analysts among the group covering a particular stock tend to be the most predictive when their expectations are notably above or below those of their peers.
Sometimes, analysts also provide ex-ante predictions when a merger widely is expected, but before it takes place. Such analysis takes into account potential cost savings related to paring redundant activities, as well as possible revenue synergies brought about by cross-selling.
While all forecasting is ex-ante, some analysis still involves analysis immediately after an event takes place. For example, there’s often considerable uncertainty related to fundamental company performance following a merger. The merger itself is the initial event, but the ex-ante analysis, in this case, makes projections related to the next major upcoming event, such as the first time the combined firm reports earnings.
For all ex-ante analysis, it’s often impossible to account for all variables. Also, the market itself sometimes behaves seemingly erratically. For this reason, price targets that take into account many fundamental variables sometimes miss the mark due to exogenous market shocks that affect nearly all stocks. For this reason, no ex-ante analysis can be relied upon entirely.

SORONNADI JOSHUA CHISOM said...

3. How do we define the sectorial priorities within the public and private sectors such that investment allocations generate sectorial growth rate to match the overall growth rate of the Economy?
Sectorial priorities are those most important things that require urgent attention in a particular sector of either private or public sectors such that their investments may generate a substantial amount of growth rate.
The top priorities ranked as “important” or “very important” among public agencies were: increasing productivity through increased efficiency, management of workforce talent, organizational ethics, and cost leadership.
Research on public sector management has considered how agencies identify priorities and how agencies’ priorities relate to their overall performance. As a great deal of this research has focused on strategies to increase productivity in the public sector , it is not surprising that nearly all state agencies in the States as Employers-of-Choice Survey also recognized this as a major priority. Increasing productivity through increased efficiency can be a critical strategy to meeting agency objectives.
The top priorities identified by private employers in the National Study were: productivity, managing the workforce effectively, expanding market niche, and cost leadership. Of these top four priorities, three of them (productivity, managing the workforce effectively, and cost leadership) were also among the top four priorities in the public sector.
Productivity has long been a focus for researchers in the private sector, a trend that will likely continue as organizations try to increase efficiency in the current economic climate. Notably, the respondents in the National Study also ranked increased productivity as their highest priority. When asked about potential opportunities to enhance organizational outcomes, respondents frequently cited improving productivity as one way to better overall performance.

SORONNADI JOSHUA CHISOM said...

4. What is the optimal blend of National Savings and Foreign savings or external borrowing to finance the aggregate level of investment?
National savings is the sum of private and public savings. It is generally equal to a nation's income minus consumption and government purchases.
In this simple economic model with a closed economy there are three uses for GDP (the goods and services it produces in a year). If Y is national income (GDP), then the three uses of C consumption, I investment, and government purchases can be expressed as:
Y = C + I +G
The accumulation of external debt is a common phenomenon of the third World countries at the stage of economic growth and development where the supply of national savings is low, current account payment deficit is high and import of capital is needed to increase domestic resources. No government is an island on its own; it would require aid so as to perform efficiently and effectively. One major source of aid is foreign borrowing or external debt. The idea behind external debt is due to the fact that countries especially the developing ones lack sufficient internal financial resources and this calls for the need for foreign aid (Noko, 2016).
The dual-gap analysis provides the framework which shows that the development of a nation is a function of investment and that such investment which require domestic savings is not sufficient to ensure that development take place (Oloyede, 2002). Hence, the importance of external debt on the growth process of a nation cannot be overemphasized. Hameed, Ashraf, and Chaudhary (2008) stated that external borrowing ought to accelerate economic growth especially when domestic financial resources are inadequate and need to be supplemented with funds abroad. Many developing countries particularly Nigeria is found to be wallowing in debt. The external debt problem facing Nigeria has been receiving increasing attention in which adequate solutions are yet to be found. A clear and persistent lesson of the debt crisis has been that adequate debt management is essential if external resources are to be used efficiently. Many developing countries resort to external borrowing to bridge the domestic resource gap in order to accelerate economic development. It then means that any developing country can resort to external borrowing provided that the proceeds are utilized in a productive way that will facilitate the eventual servicing and liquidation of the debt.

SORONNADI JOSHUA CHISOM said...

5. What are the main determinants and principle deterrent to Domestic Investment and Foreign Investment?
The determinants and principle deterrent to domestic investment and foreign investment are the following;
Agriculture
An impressive performance of the agricultural sector is of paramount importance. The majority of the population in India is engaged either in agriculture or in its allied activities and agriculture contributes considerably to the growth of the Indian economy. Some companies use agricultural raw materials as inputs, while others are suppliers of such inputs. Apart from this, it has been repeatedly observed in India that if the monsoon has been active, then the agricultural income rises. With the increasing agricultural income, the demand for industrial products and services also increases. Hence, the performance of agricultural sector has a great bearing on industrial production and corporate performance in our country.
Gross Domestic Product (GDP)
Thus, the GDP reflects the overall performance of the economy. Personal consumption expenditure, gross private domestic investment, government expenditure on goods and services, net export of goods and services are some of the important factors related to gross domestic product. A healthy growth rate of the GDP reflects the overall performance of the economy. A higher growth rate brings cheers to the stock market.

Savings and Investment
Savings and investments represent that portion of Gross National Product which is saved and invested. Essentially, capital formation is the function of savings and investment. Commercial banks mobilize the savings of people and make them available for productive ventures. Further, the stock market channelizes the savings of the investors into the corporate bodies. In other words, savings of the people are distributed over various financial assets like shares, deposits, debentures, mutual fund units etc. The pattern of savings and investment of the people significantly alters the trend in stock market. A higher level of savings and investment accelerates the pace of growth of the stock market.
Inflation
Inflation means the rise in prices. Inflation is a state in which the value of money is falling as prices are rising. As a result, higher rates of inflation erode purchasing power of consumers, thereby resulting in lower demand for products. Therefore, high rates of inflation affect the performance of companies adversely. So, an investor should carefully analyze the inflationary trend in the economy and study its impact on the performance of the company. While doing so, he must also foresee the inflationary trend that is likely to prevail for the foreseeable future.
Rates of interest
The rate of interest prevailing in the economy determines the cost and availability of credit to the companies. A lower interest rate means lower cost of finance for business organizations. With the declining cost of finance, the profitability of the companies increases. On the other hand, higher rate of interest increases cost of finance which in turn, results in higher cost of production. Higher cost of production leads to lower demand of products and lower profitability.

SORONNADI JOSHUA CHISOM said...

Research and technological developments
The scope of development of industry will depend upon research and technological developments that are taking place in the economy. Perhaps, the Government is the largest investor and spender of money. The amount of resources spent by a Government on technological developments significantly influences the performance of companies. Hence, investors invest in those companies and countries, which are making use of the technological developments supported by the Government.
Infrastructural facilities
Availability of adequate infrastructure is an essential pre-requisite condition for the growth of agriculture and industry in any country. Generally, infrastructure consists of adequate supply of power, roads, railways, a wide network of communication, sound banking and financial sectors, etc. Adequate infrastructural facilities increase the performance of the companies while inadequate infrastructure leads to inefficiency, lower productivity and lower profitability. Development of infrastructure is essentially the responsibility of the Government and it has a major role to play in this regard. So, the investor, before finalizing his investment options, should carefully consider the commitment of the Government towards infrastructural development and its impact on the performance of the companies.
Political stability
Stable political conditions are essential for the development of the industry. Industries are an essential corollary to the development of the economy. Only a stable political system can take care of the long-term needs of the industry and foster its development. No industry can prosper when the country is passing through political instability.

SORONNADI JOSHUA CHISOM said...

6. Why is it that some Countries are able to attract a huge quantum of foreign direct Investment (FDI) while others remain starved of such Investment over a long period of time?
Foreign direct investment (FDI) represents capital invested in a country that provides manufacturing and service capabilities for both native consumers and world markets. FDI is instrumental in bringing goods and services to the global marketplace, and the influx of foreign investment not only displays investor confidence in the business and the geopolitical climate of the host country, such capital also links national economies.
The benefits of FDI flow to both the supplier of capital as well as to the host region. China is one country that has stepped up to capitalize on these benefits.
Several factors affect the amount of FDI that pours into a Country
Capital Availability
FDI is comprised of capital that an outside investor is willing to place (and risk) within a local region. Conditions in the global capital markets and general economic environment play a role in determining the flow of FDI into country. A thriving global economy, capital markets and business environment create large swaths of investable capital, a portion of which is converted to FDI. Large amounts of investable capital that proportionately overwhelm the number of sound local investment ideas can cause institutional, company and individual investors to invest their wealth in emerging and developing markets.
Competitiveness
A Countries attractiveness as a destination for investment capital rests on its development of infrastructure, resource availability (physical and labor), productivity and workforce skills, and the development of the business value chain. The level of maturation of these elements can make a country more attractive for FDI relative to other nations. Another component for attracting FDI involves the availability of low-cost, skilled employees who possess the necessary aptitudes, experience and proficiencies to create, manufacture, and provide goods and services that can compete in global markets.
Regulatory Environment
When a national government enacts and enforces rules and policies aimed at favoring state entities at the expense of privately held firms, such an environment can be detrimental to initiatives that aim to attract FDI. As such, the regulatory environment can either encourage or impede foreign direct investment in a country. Excessive regulations tend to hinder entrepreneurial and commercial activities, as managers and employees must spend more time and money to comply with rules and regulations.
Stability
Political and economic stability can facilitate an influx of FDI. Stability represents predictability and the opportunity for enterprises to gain better foresight into the future. Alternatively, constant social unrest, rioting, rebellions and social turmoil are settings not conducive to business. Economic instability can also contribute to hyperinflation, which can render the currency virtually obsolete.
Local Market and Business Climate
The most glaring aspect of a country is the sheer size of its population and market, and the prospects for growth that result from this size. The ability of enterprises -backed by foreign capital - to sell to a sizeable local market makes a country an attractive destination for FDI. 6. Openness to Regional and International Trade
Market openness serves several important roles in attracting FDI. Of critical importance is a business' ability to sell its products and services to both local and foreign markets. If a countries-based enterprises have limited or no access to foreign customers - particularly the United States, Western Europe,Japan and others -then the local market may not be enough to warrant a significant investment in money and energy

SORONNADI JOSHUA CHISOM said...

7. What are the short-term and long-term consequences of financing gross investments from foreign debt rather than foreign direct investment?
High government debt ratios often raise concerns among the public about strong rises in inflation or even hyperinflation, based on the fear that large debt will strongly incentivize the government to inflate away its debt. In reality, though, the link between government debt and inflation is much more subtle.


How foreign debt can become a problem
• Excessive confidence in borrowing to promote economic growth and development. Equally, there could be over-confidence in lenders to lend money in short-term without evaluation of possible problems.
• Investment that is misplaced and fails to achieve a decent rate of return to help pay the debt interest payments. For example, developing countries may struggle to make use of funds for industrialization if they lack the necessary skills and infrastructure.
• Unexpected devaluation in the exchange rate, which increases the real value of debt interest payments denominated in dollars.
• A decline in commodity prices which leads to a decline in the terms of trade for developing economies and relative fall in export earnings.
• Demand-side shock which reduces GDP. For example, conflict or global recession which hits demand and GDP.
•Servicing external debt (paying debt interest payments) ceteris paribus, reduces GDP because the monetary payments flow out of the country. These debt payments reduce the amount available to invest in improving public services, which can help economic development.
•Growing levels of debt can discourage foreign and private investment because of concerns that the debt is becoming unsustainable.
•If a country is struggling to meet interest payments, they may be tempted to borrow to meet debt interest payments, but then the problem can spiral and magnify.
•Countries in regional areas may suffer from a regional downgrade in credit assessment. For example, many Sub-Saharan African countries experienced rising external debt ratios, and this made investors reluctant to lend at cheap rates.

SORONNADI JOSHUA CHISOM said...

8. What determines the Efficiency and Productivity of Investment In a Country both Sectorial and Overall
1. Innovation: Creating new technologies leads to the development of high value-added activities and improves the performance of existing economic activities. Historically, a small number of countries have created new technologies, while many other countries have adopted the new technologies through adaptation, trade, and foreign direct investment (Coe, Helpman, and Hoffmaister 1997).
2. Education: Advancing knowledge and skills, with strong basic foundation and sufficient specialization, is necessary for adopting, attaining, and spreading new and better technologies, production processes, and outputs (Erosa, Koreshkova, and Restuccia 2010).
3. Market efficiency: Timely and effective allocation of human and physical capital enhances overall productivity, as inefficient firms exit markets, efficient firms grow, and new firms emerge (Hsieh and Klenow 2009).
4. Physical infrastructure: Transport, paved roads, telecommunication, stable electricity supply, access to improved water and sanitation, and other tangible infrastructure provide timely and cost-effective access to markets, and good physical environments for overall economic activities (Straub 2008).
5. Institutional infrastructure: High-quality institutions provide friendly environments and policies that lead to economic development. Governance and economic institutions are important components of institutions and their quality is generally associated with productivity.

SORONNADI JOSHUA CHISOM said...

Theories of Consumption
1. Relative Income Theory of Consumption:
An American economist J.S. Duesenberry put forward the theory of consumer behaviour which lays stress on relative income of an individual rather than his absolute income as a determinant of his consumption. Another important departure made by Duesenberry from Keynes’s consumption theory is that, according to him, the consumption of a person does not depend on his current income but on certain previously reached income level.
According to Duesenberry’s relative income hypothesis, consumption of an individual is not the function of his absolute income but of his relative position in the income distribution in a society, that is, his consumption depends on his income relative to the incomes of other individuals in the society. For example, if the incomes of all individuals in a society increase by the same percent¬age, then his relative income would remain the same, though his absolute income would have in¬creased
2. Life Cycle Theory of Consumption:
An important post-Keynesian theory of consumption has been put forward by Modigliani and Ando which is known as life cycle theory. According to life cycle theory, the consumption in any period is not the function of current income of that period but of the whole lifetime expected income.
Thus, in life cycle hypothesis the individual is assumed to plan a pattern of consumption expenditure based on expected income in their entire lifetime. It is further assumed that individual maintains a more or less constant or slightly increasing level of consumption
3. Permanent Income Theory of Consumption:
Permanent income theory of consumers’ behaviour has been put forward by a well-known American economist, Milton Friedman. Though Friedman’s permanent income hypothesis differs from life cycle consumption theory in details, it has important common features with the latter. Like the life cycle approach, according to Friedman, consumption is determined by long-term expected income rather than current level of income.

SORONNADI JOSHUA CHISOM said...

Theories of Investment
1. The Accelerator Theory of Investment
2. The Flexible Accelerator Theory or Lags in Investment
3. The Profits Theory of Investment
4. Duesenberry’s Accelerator Theory of Investment
5. The Financial Theory of Investment
6. Jorgensons’ Neoclassical Theory of Investment
7. Tobin’s Q Theory of Investment
1. The Accelerator Theory of Investment:
The accelerator principle states that an increase in the rate of output of a firm will require a proportionate increase in its capital stock
2. The Flexible Accelerator Theory or Lags in Investment:
The flexible accelerator theory removes one of the major weaknesses of the simple acceleration principle that the capital stock is optimally adjusted without any time lag. In the flexible accelerator, there are lags in the adjustment process between the level of output and the level of capital stock.
3. The Profits Theory of Investment:
The profits theory regards profits, in particular undistributed profits, as a source of internal funds for financing investment. Investment depends on profits and profits, in turn, depend on income. In this theory, profits relate to the level of current profits and of the recent past.
4. Duesenberry’s Accelerator Theory of Investment:
J.S. Duesenberry in his book Business Cycles and Economic Growth presents an extension of the simple accelerator and integrates the profits theory and the acceleration theory of investment.
5. The Financial Theory of Investment:
The financial theory of investment has been developed by James Duesenberry. It is also known as the cost of capital theory of investment. The accelerator theories ignore the role of cost of capital in investment decision by the firm.
6. Jorgensons’ Neoclassical Theory of Investment:
Jorgenson has developed a neoclassical theory of investment. His theory of investment behaviour is based on the determination of the optimal capital stock. His investment equation has been derived from the profit maximisation theory of the firm.
7. Tobin’s Q Theory of Investment:
Nobel laureate economist James Tobin has proposed the q theory of investment which links a firm’s investment decisions to fluctuations in the stock market. When a firm finances its capital for investment by issuing shares in the stock market, its share prices reflect the investment decisions of the firm.
REFERENCES
Marvin Dumont (2018). Top 6 Factors That Drive Investment in China https://www.investopedia.com/articles/economics/09/factors-drive-investment-in-china.asp#ixzz5RNRW4eZJ
Perkins, D. H. (2001). Industrial and financial policy in China and Vietnam. In J.E and S. Yusuf (Eds.), Rethinking the Asian Miracle. New York, Oxford University Press.
Adepoju, A.A., Salau, A.S., &Obayelu, A.E., (2007). The Effects of External Debt Management on Sustainable Economic Growth and Development: Lessons from Nigeria, MPRA. Paper No. 2147.
Coe, David Theodore, Elhanan Helpman, and Alexander W. Hoffmaister. (1997). “North-South R&D Spillovers.” Economic Journal 107 (440): 134–49. doi:10.1111/1468-0297.00146
Erosa, Andrés, Tatyana Koreshkova, and Diego Restuccia. (2010). “How Important Is Human Capital? A Quantitative Theory Assessment of World Income Inequality.” Review of Economic Studies 77 (4): 1421–49. doi:10.1111/j.1467-937X.2010.00610.x.
Hsieh, Chang-Tai, and Peter J. Klenow. 2009. “Misallocation and Manufacturing TFP in China and India.” Quarterly Journal of Economics 124 (4): 1403–48. doi:10.1162/qjec.2009.124.4.1403.
Straub, Stéphane. 2008. “Infrastructure and Growth in Developing Countries : Recent Advances and Research Challenges.” 4460. World Bank Policy Research Working Paper. doi:10.1596/1813-9450-4460.
https://www.investopedia.com/terms/e/exante.asp#ixzz5RRbV7AaT

Offor Christiana said...

UNIVERSITY OF NIGERIA, NSUKKA
FACULTY OF SOCIAL SCIENCES
DEPARTMENT OF ECONOMICS


AN ASSIGNMENT
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE COURSE ECO 0511
(PROBLEMS AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
OFFOR CHRISTIANA EBERE
REG NO: IN VIEW

LECTURER: DR. ORJI ANTHONY


SEPTEMBER, 2018
CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE MILLION DOLLAR QUESTIONS RAISE UNDER THE ISSUE SURROUNDING CAPITAL FUNDAMENTALISM?
QUESTION ONE
No 1
What is the desired level of gross investment for an economy to realize the target growth rate of real (GDP)?
Gross investment refers to the expenditure on buying capital goods over a specific period of time. On the other hand, net considers depreciation and is calculated by subtracting depreciation from gross investment. Gross investment can also be viewed as the amount a company invests in business assets that does not account for any depreciation. The Gross figure more accurately reflects the company’s actual financial commitment to an asset from which it can derive a return on investment.
Real Gross Domestic Product (GDP) is an inflation – adjusted measure that reflects the value of all goods and service produced by an economy in a given year, expressed in based – year prices, and is often referred to as “constant-price”,
“Inflation – corrected GDP or “Constant Dollar GDP”. Unlike Nominal GDP, real GDP can account for a change in price level and provided a more accurate figure of economic growth. For an economy to realize the desired level of target growth rate of real GDP, such economy should invest fully on gross investment because this is a kind of investment in which capital goods like plants, machinery, etc are used for the production of other goods which in return leads to high increase in the value of assets and securities and on the long-run leads to the largest growth rate of real GDP.
No 2
How is the ex-arte investment to be appropriated between the public and private sector to help achieve the real growth rate?
Ex-arte is a phrase meaning “before the event”. Example is used mostly in commercial world, where result of a particular action or series of actions, forecast advance (or intended). The real growth in an economy is critically dependent on the existing stock of capital and net accumulation in the stock through current investment. Since the stock of capital at one point of time is the output of the stream of investment made in the past, therefore, the growth rate of an economy in

Offor Christiana said...

the final analysis is the function of investment of both current and past.
There is massive gap between the need for infrastructure. Investment around the world and the ability of Government which is the public sector to pay for those investments while the private sector should build, control and operates infrastructure project and subject to strict government oversight and regulation, can help to achieve the real growth rate. However, public sector should sets the groundwork to enable private investment and allow it to thrive and private sector should also try to be doing the necessary because both sectors are so important for each other for favourable or sound Economic growth or the real growth rate.

No 3
How do we define the sectoral priorities within the public and private sectors such that investment allocation generate sectoral growth rate to match the overall growth rate of the economy?
The public and private sector investment allocation generate sectoral growth rate that match the overall growth rate of economy such as allow markets to function. The public sector recognizes the power of markets to drive optimal behaviour among market participants The Plan priorities the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.
Uphold core values. The public and private sector is rooted in the core values that define the Nigerian society. Economic Recovering Gross Profit has three broad strategic objectives that will help achieve the vision of inclusive growth outlined below: (1) restoring growth, (2) investing in our people, and (3) building a globally competitive economy.
Restoring Growth: To restore growth, the plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.
Investing in our People: Economic growth is beneficial for society when it creates opportunities and provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.
Social inclusion: The Federal Government will continue to provide support for the poorest and most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.
Job creation and youth empowerment: Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries.

Offor Christiana said...

Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.
Improved human capital: The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage students to enroll in science and technology courses.

Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It will increase competitiveness by investing in infrastructure and improving the business environment.
Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.
Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.

No 4
What is the optimal blend of national savings and foreign savings or external borrowing to finance the aggregate level of investment?

Offor Christiana said...

No 4
What is the optimal blend of national savings and foreign savings or external borrowing to finance the aggregate level of investment?
This suggests that the country has saved a specific amount in external account while in reality the deficit reflect a gap or excess demand in its foreign exchange transaction for a given period of time. National income account which is formally written as S – I = X – M where symbol S, I, X and M indicate respectively natural savings, total investment, export of goods and services and import of goods and services. If the left hand side of these identity which indicate the savings investment gap is in the negative, is invariably follows that, the right hand side, the foreign exchange gap would be in the negative as well and vice versa.
The identity highlights one of the most important behavioural relationships of an economy namely the current account deficit added to the national savings equal to the level of total investment. Finally, investment must be financed by some combination of private domestic savings, government savings (surplus) and foreign savings (foreign capital inflow).
No 5
What are the main determinant and principal deterrent to domestic investment and foreign investment (portfolio and direct)?
The main determinant for domestic and foreign Investment (portfolio and direct) are:
(1) Political and Economic condition: These are very important elements that contribute positively, for any investor to think for investment in any area or country both domestic and foreign investors consider it before investing to avoid story.
(2) Macro-economic stability: Here if macroeconomic system or stability like inflation, government, policy, exchange rate, interest rate is favourable and stable the investors will trup-in to invest and there will be no fear in them for come in and invest thereby increase the GDP by at least 8% and attract Economic development.
(3) Certainty in economic policies and other incentives: This is also another factor that enhances Domestic.
(4) Low tax and other incentives: These are important factors that determine domestic and foreign investment because if taxation is low and there is incentives

Offor Christiana said...

or subsides you will see thousands of investors for both domestic and foreign will be competing to invest because they have seen that they are going to make it in the long-run.
(5) Cost of Production: This is also a pre-requisite which many investors consider before they can think of moving on or investing in any country, both domestic and foreign investors consider this very paramount to know if its high or low, however, if its low they will invest but if not so it will scare or push them out from investing.
(6) Potential domestic market: This is very important tool or determine for both domestic and foreign investors consider or look into before they can make a move. At the same time country that investors see that they have high sales in their country ultimately it will attract more investors than the other example of such country is China, Vietman and India. These are major three countries that attract more investors than the other countries. It’s simply because market sales in their countries more than other countries.
(7) Labour regulation, work, ethics: A country where labour regulation permits a continuous or fixed labour, such a country attracts both domestic and foreign investments and investors in a huge quantum.
(8) Social and Economic infrastructure: This is also a basic factor that the investors are looking at before moving to any country because social and economic infrastructure will make their investment viable or boost.
(9) Easy of doing business: Any country or Area that business booms or is booming the both investors are bound to defect or move to such locality or region or country.
(10) Absent of bribery and corruption: This is another big factor that investor consider very well because no investor wants to hear bad story or associate with a corrupt person or country for no reason because it mar or inimical to both domestic and foreign investors as well. Sure a country that is bribery and corruption free, there will be a massive investors competing with each other to invest. Because definitely, there will be profit on the long-run.
The above mentioned or discussed are the major deterrent of domestic investment and foreign investment badly and that will scare or push both domestic and foreign investors out from such area, or country. As a matter of fact, the verse versa of the above discussed is the major issue that deterred domestic and foreign investment or investors. The absent of these ten (10) points in good mode or order will deter domestic and foreign investors into.


Offor Christiana said...

No 6
Why is it that some countries are able to attract a huge quantum of foreign direct investment over a long period of time?
(1) A business conducive environment to the investors: A country that has a conducive business environment is ultimately to attract more investors to their country than a country with unfriendly environment. Business friendly environment largely depends on good governance, rule of law, political will and infrastructure of the country and rules and regulations.
(2) Congenial climate: This is another factor that any investor has to consider before moving to any country to invest. However, at the same time, a country with/endowed with a good climate will ultimately attract more investors that’s sure than the other that do not have.
(3) Political stability/situation: This is very essential and credit to any country that their political situation is conducive/stable and thereby it’s obvious that foreign direct investors will move over to such a country than the opposite (country). It’s also a prime determinant for attracting foreign direct investment, the investors consider it very well to avoid economic waste or lost of their hard earned income.
(4) The availability of raw materials/resources: The investors deemed it right to consider this as also the factor that makes them to invest more in one country than the other where there is no availability of the raw materials that may be needed for their production cannot be considered to move on for investment in such a country.
(5) Cost of Labour/wages: This is important determinant that makes some country attract more foreign direct investment while other are starved of such, a rational investor consider this very well before progressing to any foreign direct investment because labour has a direct Relationship with the profit the investor is aiming to gain which is the sole aim of the investors and for their voice to be heard in enterprises (IMF) but this is secondary.
(6) Friendly tax, custom regulations and attractive packages: It is another factor or reason that some country gain/attract more investment than the other because any rational investor has to consider the tax, custom regulations of any country they want to move to for investment.
(7) Tolerable and moderate inflation and reasonably stable exchange rate: Here is a very big factor that foreign direct investors look into consideration before moving on to any country to invest because high inflation and unstable exchange rate is not friendly to any investor to put his/her hard earned capital/income to such

Offor Christiana said...

country while those that have tolerable and moderate inflation and reasonable exchange rate attract more investment in their country.
(8) Technological progress/industrialization: This is also one of the factors that makes a country to attract more investment/investors than the other because investors are always looking at country that have innovation, improvement ideas, skills, machinery and steady electricity supply for the proper functionality of their investment but any country that are technologically weak, they are bound to be starved for a foreign direct investment.
No 7
What are the short-term and long-term (or Short-run and Long-run) of financing gross investment from foreign debt rather than foreign direct investment?
In financing Gross investment from foreign debt: When these funds injected back into the economy by the Government leads to a multiple increase in aggregate demand causing an increase in output and employment than foreign investment foreign boost the country’s economy but the lion profit made by the investors are taken back to their various countries but Gross investment will accelerate the economy far. It can be illustrated with the below model:
i. Y = C + I + G + (x - m)
The change in output will be equal to the multiplier times the change in government expenditure ∆y = (1-∆G)/(1-b)
ii. Foreign debt is used as a proxy for capturing total domestic debt of the economy in given period.
iii. Foreign debt is also used to capture the total amount of money expected by the Federal Government on debt payment abroad and its measure in billions.
iv. External debts are typically undertaken to finance public investments needed to boost the economic growth rate. It’s used to capture debt burden and economic growth.
v. It increases growth investment
vi. it will increase GDP
Gross f is gross investment, pop is the resources or money used in an economy. It’s very important on the domestic economy to enable to allocate resources and boost national resources.
vii. It is used to finance investment.
Finally, Gross investment do not account for depression and for that it is very rational for a country to invest on it, even if it required foreign debt or borrowing because it will be beneficial in both short and long run rather than foreign direct because in foreign direct the enterprisers or investors will hijack the whole profit back to their country and leave some to their host country.

Offor Christiana said...

No 8
What determines the efficiency and productivity of investment in a country both sectoral and overall?
By definition, efficiency and productivity of investment is a function of the return and total cost of an investment management structure subject to the judiciary and other constraints within which investor must operate. Institutional investors implement their investment policies through investment management structures. Efficiency and productivity of investment in a country both overall are below:
(1) Maximizing capital or income: An efficient and productive investment can be achieved through a maximum management of capital invested into the firm to avoid collapsing or economic waste. If judiciously managed or utilized ultimately, they will be efficient and high level of productivity of the investment but if not so they will not be nothing like efficiency or productivity of investment.
(2) Rational labour productivity: This contributes largely for the efficiency and productive of investment because cost of labour has a directly relationship with the success of any investment, if cost of labour is low the efficient and productivity of the investment will increase (high) but verse versa.
(3) Good governance: This is very crucial factors that determines the efficiency and productivity of investment in a country in bother sectoral because if government of any country is functional or delivering there will be high efficient and productivity of investment and everybody in the country will benefit it directly or indirectly because it will ultimately increase GDP or national output.
(4) Low level of corruption: This is very dangerous factor if not controlled or eliminated completely. It will mar the efficient and productivity of investment in a country in both sectoral and overall because the efficient and productivity can never be achieved but if controlled or eliminated sure there will be efficiency and high productivity of investment in both sectoral and overall.
(5) Allocation and policy decisions: It implies that the trustees or investors need to integrate or implement risks and other vital issues that concern the firm or company for high efficiency and productivity of such investment in both sectoral and overall.
(6) Adequate or steady electricity supply, infrastructure and good roads: This is a very essential factor that boosts the efficiency and productivity of investment both in sectoral and overall, if there exists a steady electricity supply the investment will grow and yield more profit which is the main aim of the investment.
(7) Quality accounting: This is important and necessary to increase efficiency and productivity of investment in sectoral and overall.

Offor Christiana said...

QUESTION TWO
No: 1
CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE
THE THEORIES OF CONSUMPTION
Due to the crucial or vital role of consumption in the size of a nation’s aggregate income (national income), through its impact on employment and other macro-economic variables, a lot of theories been propounded to explain the causes and behavior of consumption in both the short and long run. These include:
(1) Keyne’s Absolute income hypothesis: Keynes postulated that the propensity to consume was a functional relationship between a given level of real (current) income and the expenditure on consumption out of that given level of income. Thus, C = A + byd.
The propensity to consume represented by b is now more commonly known as the consumption function which is stable. Keynes hypothesized that the shape of the consumption curve is upward sloping, with a slop between zero and unity. Keynes proposition was based on “Fundamental psychological law” which states that men are disposed to increase their consumption as their income rises; but not as much as the increase in their income.
Keynes asserted that this psychological law applied to any modern community. From this it follows that the marginal propensity to consume (MPC) would lie between zero and one, Keynes further conjectured that the MPC would fail as income rises. This clearly means that the average propensity of national consumed, will decline with increases in total income.

The major assumptions underlying Keyne’s theory consumption function are as follows:
(a) Current consumption is a stable, positive function of current income, that’s C = Co + Cyd ------------------------------- (1)
(b) The MPC is less in the short run than in the long run. So, and increase in consumption will be smaller than an increase in disposable income.
(c) In the long run, a smaller proportion of income will be consumed as income increases, and hence, the MPC will be less than the average propensity to consumed (APC).
(d) At low levels of disposable income, consumption will exceed income (MPC>1).
(e) Changes in the stock of their wealth will directly affect household level of consumption. However, early attempts to verify the assumptions (characteristics) of Keynes theory/hypothesis produced results which seemed to support some of the features while others are refuted, which culminated in the development of alternative theory to explain consumption behaviours.

Offor Christiana said...

Duesenberry’s Relative Income theory/hypothesis
Professor J. S. Duesenberry of Harvard University, in 1994 came up with a theory to explain the secular upward drift of the short run consumption functions and to reconcile them with the long run consumption function. What Duesemberry sort to provide answer was; make makes people with a given income increase their consumption over time? This, why the short run consumption functions shift up over time? He found his answer in psychological and sociological factors. He posited that:
(a) That an individual’s consumption and saving decisions are influenced by his social environment (Sociological factors). Thus, given a level of income, if he lives in environment dominated by the well to do in society than if he lives in less affluent area. Thus, people in Victoria Island in Lagos are like to spend more than those in some other areas like Ajegunle and Oshodi. Moreso, it makes for a proportional relationship between aggregate consumption and aggregate disposal income. The “determinant effect resulting from the high living standard of those with high income levels and the desire to keep up with the Joneses” constituted one way of explaining the cross sectional variation in APC.
The constancy of the APC in the long run though it varies in the short run could be seen thus. If we assume that average propensity to save d s/y depends on the present level of income Yt
relative to previous peak income (Yo),
Thus:
S/y = a + b (y/ yo) ------------------------------------------------- (1)
Since c/y = 1 – s/y ------------------------------------------------- (2)
then,
c/y = (1-a) –b (yt /yo) ---------------------------------------------- (3)
If income grows at a constant rate g, so that
yt = (1+g) yt-1 ------------------------------------------------------- (4)
If Yt-1 = Yo, then
Yt = (1 + g) yo ------------------------------------------------------- (5)
Substitute Equation (5) into Equation (3), gives
C/y = [(1-a) –b (1+g)] ----------------------------------------------- (6)
Hence, in the long run the Apc is constant and equal to the Mpc.
(b) That the consumption behavior of individuals exhibits a “ratchet effect during from the fact that people, having become used to a standard of living find it difficult to lower same even in the face of declining income. This is the psychological axiom of relative income hypothesis.
In addition, the direction of income change determines the relationship between Apc and Mpc in Duesenberry analysis of consumption behavior using the relative income hypothesis. These include:
(i) If income is rising and it is above previous income level, the Apc would be constant and it will be equal to Mpc.
(ii) If income is rising and is below previous income level, the Apc would fall and Mpc rises but less than Apc.
(iii) If current income falls below previous income level, the Apc rises and is more than Mpc.
(iv) If income grows at a constant rate, Apc would be constant rate, Apc would be constant also equals Mpc.
Furthermore, a major problem of Duesentaerry relative income hypothesis is the negation of the basic fundamentals of utility maximization and rationality effects nullified.
(3) Friedman’s Permanent income theory/hypothesis
According to Professor Milton Friedman of the University of Chicago, the main determinant of consumption expenditures is not current but “permanent income”. By permanent income, he means the average income which a household expects to earn over its planning horizon (planning horizon could be 3-5 years). Permanent income includes past, current and expected future income. Friedman’s theory of consumption may be summarized in these equations:
Cp = K(I, W. U)yp --------------------------------------------- (1)
Y = Yp + YT ----------------------------------------------------- (2)

Offor Christiana said...

c/y = (1-a) –b (yt /yo) ---------------------------------------------- (3)
If income grows at a constant rate g, so that
yt = (1+g) yt-1 ------------------------------------------------------- (4)
If Yt-1 = Yo, then
Yt = (1 + g) yo ------------------------------------------------------- (5)
Substitute Equation (5) into Equation (3), gives
C/y = [(1-a) –b (1+g)] ----------------------------------------------- (6)
Hence, in the long run the Apc is constant and equal to the Mpc.
(b) That the consumption behavior of individuals exhibits a “ratchet effect during from the fact that people, having become used to a standard of living find it difficult to lower same even in the face of declining income. This is the psychological axiom of relative income hypothesis.
In addition, the direction of income change determines the relationship between Apc and Mpc in Duesenberry analysis of consumption behavior using the relative income hypothesis. These include:
(i) If income is rising and it is above previous income level, the Apc would be constant and it will be equal to Mpc.
(ii) If income is rising and is below previous income level, the Apc would fall and Mpc rises but less than Apc.
(iii) If current income falls below previous income level, the Apc rises and is more than Mpc.
(iv) If income grows at a constant rate, Apc would be constant rate, Apc would be constant also equals Mpc.
Furthermore, a major problem of Duesentaerry relative income hypothesis is the negation of the basic fundamentals of utility maximization and rationality effects nullified.
(3) Friedman’s Permanent income theory/hypothesis
According to Professor Milton Friedman of the University of Chicago, the main determinant of consumption expenditures is not current but “permanent income”. By permanent income, he means the average income which a household expects to earn over its planning horizon (planning horizon could be 3-5 years). Permanent income includes past, current and expected future income. Friedman’s theory of consumption may be summarized in these equations:
Cp = K(I, W. U)yp --------------------------------------------- (1)
Y = Yp + YT ----------------------------------------------------- (2)
C = Cp + CT ---------------------------------------------------- (3) and
P = P = 0 -------------------------------------------------------- (4)
YP YT CP CT YTCT
The first equation is the core of the equation. It hypothesized that consumption of a household is proportional to its permanent income. Note that K, the factor of proportionality implies that households consume about the same proportion of their permanent income notwithstanding (Yp). K is also a constant equals Mpc and Apc. The values of K depends on the rate of interest (i), the ratio of non-human wealth to permanent income (W) and U, a permanent variable for utility (a variable capturing the household’s taste and preferences for consumption versus additions of health). According to Friedman, K is a variable constant which vary with the household’s stage in the life cycle. The major problem with Friedman permanent income hypothesis is the elusive nature of the key variables. From experience, it is difficult to obtain a measure of permanent income and consumption since they are subject to changes overtime due to expectation and past experience.
(4) Modiylian’s Life-Cycle (time) hypothesis/theory
The life-time income hypothesis also called the “life cycle” theory was advanced by F. Modigliani and R. E. Brumberg in 1954. According to them, an individual consumption depends not primarily on current income but rather on

Offor Christiana said...

expected life-time income, and planning horizon in not 3-5years in Friedman’s model but rather his entire life time. The individual maximizes a household optimal utility function throughout his life time by saving “in fat years” to smooth out consumption in “lean years”.
An individual’s life time income and consumption pattern are depicted below:








From the above diagram, it shows that an individual will dissave in his youth and old age when his income is relatively low and will save during his middle age years when his income is high, due to family responsibility, his consumption may also be relatively high. However, Modiyiani and Brumberg were able to derive the result provided the interest rate is constant, the factor of proportionality between consumption and the individual’s present value or wealth or life time income is dependent solely on the age of the individual. They assume further that consumer hold expectation with certainty, interest rate is zero, and that the consumer starts work with zero asset, and plan to have zero assets at death. With these specifications, Modigiani and Brumberg derive the following result(s):
Ct = bW1 ------------------------------------------------- (1)
Ct = 1/((L-a)) (PV) ------------------------------------------ (2)
Equation (2) may be rewritten thus,
Ct = 1/((L-a)) Y1 + (N-a-1)/((L-a)) Y_t^a + 1/((L-a)) At – 1 -------------- (3)
Equation (1) simply says that current consumption is assumed to be proportional to the present value of wealth. To define wealth properly, equation (2) and (3) emerged, where L, N and a are the length of individuals total life, working life and present age, all dated from the time he starts works. Yt is labour income, Y_t^a is expected future labour income and A1 is current asset holdings. An example of equation (2) immediately yields the result that the propensity to consume life-time income is unity.
Equation (3) which is the core equation from the life-cycle hypothesis which says that current consumption is a linear and homogenous future (labour) income and current asset holdings with coefficients depending on the age of the household. The important of this model is that, it was able to explain the observed wealth of the community i.e (Aggregate wealth-income ratio) without recourse to the bequest motive i.e “life cycle saver” who saves during his earning span and dissaves the entire amount during his retirement span.
In summary, the theories (AIH, RICH, RIA, AND L CH) indicate that consumption besides being a function of disposable income, is also a function of real wealth; and real wealth determines permanent income or the present value of total resources. The relative emphasis placed on current income and permanent or expected income means that the theories may have different policy implications within the ambit of fiscal and monetary policies. Given the prime position occupied by Mpc (Marginal Propensity to consume) among national income determinants, these deserve proper investigation and refined methods of analysis.
No: 2
THEORY OF INVESTMENT
Investment: Could be defined as not capital formation, hence, it refers to such capital expenditure on consumer durables, residential construction (buildings) and plants and machinery. In other word, it could be also defined to as the purchase of real tangible assets such as machines, factors or stocks of inventories which are used in the production of goods and services for future use.

Offor Christiana said...

Theories of Investment seek to explain the investment behavior of business firms. They seek to tell us “when” firms should invest. The following are the theories:
(1) An Acceleration theory of investment: The accelerator theory of investment states that net investment is a function of changes in income. It explains net investment (Kt – Kt-1) as a function of growth in aggregate demand (y). Although the modern form of the acceleration hypothesis was forwarded by Clark in 1917, but the original idea was muted by Afflation in 1911. Two versions of the accelerator hypothesis exist.
(i) The Fixed/rigid Accelerator Hypothesis: This hypothesis assumes that the ratio of current desired capital stock (K_t^*) to current output y(t) is fixed. Thus:
K = K_t^*/y ------------------------------------------------------------------- (1)
Cross multiplying equation (1), we have K_t^* = Ky ------------------ (2)
Equation (2) shows a firm’s desired stock as a constant proportion of the output in the current period, where K is the factor of proportionality, which determines the stability or otherwise of the relationship. K depends on time period within which the analysis is carried out. The longer the time frame of analysis, the more the value of K tends to zero.
(2) The flexible Accelerator or Capital stock Adjustment theory
The flexible accelerator theory of investment amends the rigid/fixed accelerator model. Theory states that firm in anyone period is only able to realize a fraction of the difference between the existing capital stock and the desired optimal capital stock that is K* – Kt-1 in other words,
K_t^* - Kt-1 = λ(K* - Kt-1) ------------------------------------------------- (8)
Thus, net investment in any period may be only a fraction of the change in the desired capital stock. The basic flexible accelerator therefore
It = λK* - λ_(k_(t-1) ) --------------------------------------------------------- (9)
Where λ is the Adjustment parameter. It is the fraction of the change in the desired stock of capital that place each period. The value λ depends on factors such as the production capacity of the firm, conference in the production of higher output and ability to obtain the financial resources necessary to acquire replacement investment.
Types of Investment
(1) Fixed Investment
(2) Inventory Investment
(3) Replacement Investment
Investment can also be classified as
Autonomous Investment: Is the investment which is independent of income. It is fixed. It is also interest rate invariant.







Induced Investment: It is that investment that depends on the level of income. If income goes up, the investment may also go up and verse versa.






Offor Christiana said...








FACTORS THAT DETERMINE INVESTMENT
(1) Expected rate of net profit: Profit hope to realize investment
(2) Current Rate of Interest: Users cost of capital- percentage increase will discourage the investors and investment will fall completely.
(3) Government policies: This is very crucial to consider before establishing or intending to venture into any kind of investment because high taxes depress the expected net profit but subsides enhance expected rate. Hence, Tax is a cost to business. High cooperate profit taxes translate to low retained earnings by firms and vice versa.
(4) Expectation of businessmen:
(5) Acquisition, maintenance and operating costs: If the above goes up the profit will be low thereby investment will be discouraged and vice versa.
It is the second component of the Keynesian model of Income.
Y = C = 1
It = Kt – K t-1 + Dt
Where It = Gross Investment in period t
Kt = Current capital stock at period t
K t-1 = Capital stock at previous period or the beginning of the period t
Dt = Replacement expenditure
Kt – K t-1 which is the net investment is a net investment and its major focus in macro economics analysis.
CONCLUSION
The whole studies focused on investment, capital formation in the growth of our economy. In this case, implementation of proper investment and capital maximization will help in achieving the desired economic growth and a huge quantum GDP. I believe that every citizen will smile for the economic development of our dream

Momoh destiny ikhienosimhe said...

UNIVERSITY OF NIGERIA, NSUKKA
FACULTY OF SOCIAL SCIENCES
DEPARTMENT OF ECONOMICS


AN ASSIGNMENT
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE COURSE ECO 0511
(PROBLEMS AND POLICIES OF ECONOMIC DEVELOPMENT)

BY
MOMOH DESTINY IKHIENOSIMHE
REG NO: PG/PGD/17/02523

LECTURER: DR. ORJI ANTHONY


SEPTEMBER, 2018

Momoh destiny ikhienosimhe said...

CLINICALLY AND CRITICALLY DISCUSS AND ANALYZE THE MILLION DOLLAR QUESTIONS RAISE UNDER THE ISSUE SURROUNDING CAPITAL FUNDAMENTALISM?
QUESTION ONE
No 1
What is the desired level of gross investment for an economy to realize the target growth rate of real (GDP)?
Gross investment refers to the expenditure on buying capital goods over a specific period of time. On the other hand, net considers depreciation and is calculated by subtracting depreciation from gross investment. Gross investment can also be viewed as the amount a company invests in business assets that does not account for any depreciation. The Gross figure more accurately reflects the company’s actual financial commitment to an asset from which it can derive a return on investment.
Real Gross Domestic Product (GDP) is an inflation – adjusted measure that reflects the value of all goods and service produced by an economy in a given year, expressed in based – year prices, and is often referred to as “constant-price”,
“Inflation – corrected GDP or “Constant Dollar GDP”. Unlike Nominal GDP, real GDP can account for a change in price level and provided a more accurate figure of economic growth. For an economy to realize the desired level of target growth rate of real GDP, such economy should invest fully on gross investment because this is a kind of investment in which capital goods like plants, machinery, etc are used for the production of other goods which in return leads to high increase in the value of assets and securities and on the long-run leads to the largest growth rate of real GDP.
No 2
How is the ex-arte investment to be appropriated between the public and private sector to help achieve the real growth rate?
Ex-arte is a phrase meaning “before the event”. Example is used mostly in commercial world, where result of a particular action or series of actions, forecast advance (or intended). The real growth in an economy is critically dependent on the existing stock of capital and net accumulation in the stock through current investment. Since the stock of capital at one point of time is the output of the stream of investment made in the past, therefore, the growth rate of an economy in the final analysis is the function of investment of both current and past.
There is massive gap between the need for infrastructure. Investment around the world and the ability of Government which is the public sector to pay for those investments while the private sector should build, control and operates infrastructure project and subject to strict government oversight and regulation, can help to achieve the real growth rate. However, public sector should sets the groundwork to enable private investment and allow it to thrive and private sector should also try to be doing the necessary because both sectors are so important for each other for favourable or sound Economic growth or the real growth rate.

Momoh destiny ikhienosimhe said...

No 3
How do we define the sectoral priorities within the public and private sectors such that investment allocation generate sectoral growth rate to match the overall growth rate of the economy?
The public and private sector investment allocation generate sectoral growth rate that match the overall growth rate of economy such as allow markets to function. The public sector recognizes the power of markets to drive optimal behaviour among market participants The Plan priorities the use of the market as a means of resource allocation, where appropriate. However, the Plan also recognises the need to strengthen regulatory oversight to minimise market abuse.
Uphold core values. The public and private sector is rooted in the core values that define the Nigerian society. Economic Recovering Gross Profit has three broad strategic objectives that will help achieve the vision of inclusive growth outlined below: (1) restoring growth, (2) investing in our people, and (3) building a globally competitive economy.
Restoring Growth: To restore growth, the plan focuses on achieving macroeconomic stability and economic diversification. Macroeconomic stability will be achieved by undertaking fiscal stimulus, ensuring monetary stability and improving the external balance of trade. Similarly, to achieve economic diversification, policy focus will be on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy and MSME led growth in industry, manufacturing and key services by leveraging science and technology. The revival of these sectors, increased investment in other sectors, less reliance on foreign exchange for intermediate goods and raw materials and greater export orientation will improve macroeconomic conditions, restore growth in the short term and help to create jobs and bring about structural change.
Investing in our People: Economic growth is beneficial for society when it creates opportunities and provides support to the vulnerable. The ERGP will invest in the Nigerian people by increasing social inclusion, creating jobs and improving the human capital base of the economy.
Social inclusion: The Federal Government will continue to provide support for the poorest and most vulnerable members of society by investing in social programmes and providing social amenities. Targeted programmes will reduce regional inequalities, especially in the North East and Niger Delta.
Job creation and youth empowerment: Interventions to create jobs are a core part of the ERGP, which aims to reduce unemployment and under-employment, especially among youth. The ERGP accordingly prioritizes job creation through the adoption of a jobs and skills programme for Nigeria including deepening existing N-Power programmes, and launching other public works programmes. The partnership for job creation will also focus on the policies required to support growth and diversification of the economy by placing emphasis on Made-in-Nigeria, public procurement which takes account of local content and labour intensive production processes. All initiatives under job creation would prioritize youth as beneficiaries. Accordingly, all capacity building and skills acquisition interventions will be targeted at youth-dominated sectors such as ICT, creative industries, and services. Furthermore, concerted efforts would be made to encourage youth to venture into other labour intensive sectors such as agriculture and construction.
Improved human capital: The Federal Government will invest in health and education to fill the skills gap in the economy, and meet the international targets set under the UN’s Sustainable Development Goals (SDGs). The ERGP will improve the accessibility, affordability and quality of healthcare and will roll out the National Health Insurance Scheme across the entire country. It will also guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage students to enroll in science and technology courses.

Momoh destiny ikhienosimhe said...

Building a Globally Competitive Economy: Restoring Nigeria’s economic growth and laying the foundations for long-term development requires a dynamic, agile private sector that can innovate and respond to global opportunities. The ERGP aims to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It will increase competitiveness by investing in infrastructure and improving the business environment.
Investing in infrastructure: The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks. It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements.
Promoting Digital-led growth: To make the Nigerian economy more competitive in the 21st century global economy, its industrial policy must be linked to a digital-led strategy for growth. The ERGP will build on The Smart Nigeria Digital Economy Project to increase the contribution from ICT and ICT-enabled activity to GDP. The overall goals of a digital-led strategy for growth centre on the establishment of an ICT ecosystem in Nigeria. This is enabled through significantly expanding broadband coverage, increasing e-government, and establishing ICT clusters, starting in the SEZs. Government will also drive a programme to build the skills in this sector, focusing on training IT Engineers in software development, programming, network development and cyber security.

No 4
What is the optimal blend of national savings and foreign savings or external borrowing to finance the aggregate level of investment?
This suggests that the country has saved a specific amount in external account while in reality the deficit reflect a gap or excess demand in its foreign exchange transaction for a given period of time. National income account which is formally written as S – I = X – M where symbol S, I, X and M indicate respectively natural savings, total investment, export of goods and services and import of goods and services. If the left hand side of these identity which indicate the savings investment gap is in the negative, is invariably follows that, the right hand side, the foreign exchange gap would be in the negative as well and vice versa.
The identity highlights one of the most important behavioural relationships of an economy namely the current account deficit added to the national savings equal to the level of total investment. Finally, investment must be financed by some combination of private domestic savings, government savings (surplus) and foreign savings (foreign capital inflow).

Momoh destiny ikhienosimhe said...

No 5
What are the main determinant and principal deterrent to domestic investment and foreign investment (portfolio and direct)?
The main determinant for domestic and foreign Investment (portfolio and direct) are:
(1) Political and Economic condition: These are very important elements that contribute positively, for any investor to think for investment in any area or country both domestic and foreign investors consider it before investing to avoid story.
(2) Macro-economic stability: Here if macroeconomic system or stability like inflation, government, policy, exchange rate, interest rate is favourable and stable the investors will trup-in to invest and there will be no fear in them for come in and invest thereby increase the GDP by at least 8% and attract Economic development.
(3) Certainty in economic policies and other incentives: This is also another factor that enhances Domestic.
(4) Low tax and other incentives: These are important factors that determine domestic and foreign investment because if taxation is low and there is incentives or subsides you will see thousands of investors for both domestic and foreign will be competing to invest because they have seen that they are going to make it in the long-run.
(5) Cost of Production: This is also a pre-requisite which many investors consider before they can think of moving on or investing in any country, both domestic and foreign investors consider this very paramount to know if its high or low, however, if its low they will invest but if not so it will scare or push them out from investing.
(6) Potential domestic market: This is very important tool or determine for both domestic and foreign investors consider or look into before they can make a move. At the same time country that investors see that they have high sales in their country ultimately it will attract more investors than the other example of such country is China, Vietman and India. These are major three countries that attract more investors than the other countries. It’s simply because market sales in their countries more than other countries.
(7) Labour regulation, work, ethics: A country where labour regulation permits a continuous or fixed labour, such a country attracts both domestic and foreign investments and investors in a huge quantum.
(8) Social and Economic infrastructure: This is also a basic factor that the investors are looking at before moving to any country because social and economic infrastructure will make their investment viable or boost.
(9) Easy of doing business: Any country or Area that business booms or is booming the both investors are bound to defect or move to such locality or region or country.
(10) Absent of bribery and corruption: This is another big factor that investor consider very well because no investor wants to hear bad story or associate with a corrupt person or country for no reason because it mar or inimical to both domestic and foreign investors as well. Sure a country that is bribery and corruption free, there will be a massive investors competing with each other to invest. Because definitely, there will be profit on the long-run.
The above mentioned or discussed are the major deterrent of domestic investment and foreign investment badly and that will scare or push both domestic and foreign investors out from such area, or country. As a matter of fact, the verse versa of the above discussed is the major issue that deterred domestic and foreign investment or investors. The absent of these ten (10) points in good mode or order will deter domestic and foreign investors into.

Momoh destiny ikhienosimhe said...


No 6
Why is it that some countries are able to attract a huge quantum of foreign direct investment over a long period of time?
(1) A business conducive environment to the investors: A country that has a conducive business environment is ultimately to attract more investors to their country than a country with unfriendly environment. Business friendly environment largely depends on good governance, rule of law, political will and infrastructure of the country and rules and regulations.
(2) Congenial climate: This is another factor that any investor has to consider before moving to any country to invest. However, at the same time, a country with/endowed with a good climate will ultimately attract more investors that’s sure than the other that do not have.
(3) Political stability/situation: This is very essential and credit to any country that their political situation is conducive/stable and thereby it’s obvious that foreign direct investors will move over to such a country than the opposite (country). It’s also a prime determinant for attracting foreign direct investment, the investors consider it very well to avoid economic waste or lost of their hard earned income.
(4) The availability of raw materials/resources: The investors deemed it right to consider this as also the factor that makes them to invest more in one country than the other where there is no availability of the raw materials that may be needed for their production cannot be considered to move on for investment in such a country.
(5) Cost of Labour/wages: This is important determinant that makes some country attract more foreign direct investment while other are starved of such, a rational investor consider this very well before progressing to any foreign direct investment because labour has a direct Relationship with the profit the investor is aiming to gain which is the sole aim of the investors and for their voice to be heard in enterprises (IMF) but this is secondary.
(6) Friendly tax, custom regulations and attractive packages: It is another factor or reason that some country gain/attract more investment than the other because any rational investor has to consider the tax, custom regulations of any country they want to move to for investment.
(7) Tolerable and moderate inflation and reasonably stable exchange rate: Here is a very big factor that foreign direct investors look into consideration before moving on to any country to invest because high inflation and unstable exchange rate is not friendly to any investor to put his/her hard earned capital/income to such country while those that have tolerable and moderate inflation and reasonable exchange rate attract more investment in their country.
(8) Technological progress/industrialization: This is also one of the factors that makes a country to attract more investment/investors than the other because investors are always looking at country that have innovation, improvement ideas, skills, machinery and steady electricity supply for the proper functionality of their investment but any country that are technologically weak, they are bound to be starved for a foreign direct investment.

Momoh destiny ikhienosimhe said...

No 7
What are the short-term and long-term (or Short-run and Long-run) of financing gross investment from foreign debt rather than foreign direct investment?
In financing Gross investment from foreign debt: When these funds injected back into the economy by the Government leads to a multiple increase in aggregate demand causing an increase in output and employment than foreign investment foreign boost the country’s economy but the lion profit made by the investors are taken back to their various countries but Gross investment will accelerate the economy far. It can be illustrated with the below model:
i. Y = C + I + G + (x - m)
The change in output will be equal to the multiplier times the change in government expenditure y =
ii. Foreign debt is used as a proxy for capturing total domestic debt of the economy in given period.
iii. Foreign debt is also used to capture the total amount of money expected by the Federal Government on debt payment abroad and its measure in billions.
iv. External debts are typically undertaken to finance public investments needed to boost the economic growth rate. It’s used to capture debt burden and economic growth.
v. It increases growth investment
vi. it will increase GDP
Gross f is gross investment, pop is the resources or money used in an economy. It’s very important on the domestic economy to enable to allocate resources and boost national resources.
vii. It is used to finance investment.
Finally, Gross investment do not account for depression and for that it is very rational for a country to invest on it, even if it required foreign debt or borrowing because it will be beneficial in both short and long run rather than foreign direct because in foreign direct the enterprisers or investors will hijack the whole profit back to their country and leave some to their host country.
No 8
What determines the efficiency and productivity of investment in a country both sectoral and overall?
By definition, efficiency and productivity of investment is a function of the return and total cost of an investment management structure subject to the judiciary and other constraints within which investor must operate. Institutional investors implement their investment policies through investment management structures. Efficiency and productivity of investment in a country both overall are below:
(1) Maximizing capital or income: An efficient and productive investment can be achieved through a maximum management of capital invested into the firm to avoid collapsing or economic waste. If judiciously managed or utilized ultimately, they will be efficient and high level of productivity of the investment but if not so they will not be nothing like efficiency or productivity of investment.
(2) Rational labour productivity: This contributes largely for the efficiency and productive of investment because cost of labour has a directly relationship with the success of any investment, if cost of labour is low the efficient and productivity of the investment will increase (high) but verse versa.
(3) Good governance: This is very crucial factors that determines the efficiency and productivity of investment in a country in bother sectoral because if government of any country is functional or delivering there will be high efficient and productivity of investment and everybody in the country will benefit it directly or indirectly because it will ultimately increase GDP or national output.
(4) Low level of corruption: This is very dangerous factor if not controlled or eliminated completely. It will mar the efficient and productivity of investment in a country in both sectoral and overall because the efficient and productivity can never be achieved but if controlled or eliminated sure there will be efficiency and high productivity of investment in both sectoral and overall.

Momoh destiny ikhienosimhe said...

(5) Allocation and policy decisions: It implies that the trustees or investors need to integrate or implement risks and other vital issues that concern the firm or company for high efficiency and productivity of such investment in both sectoral and overall.
(6) Adequate or steady electricity supply, infrastructure and good roads: This is a very essential factor that boosts the efficiency and productivity of investment both in sectoral and overall, if there exists a steady electricity supply the investment will grow and yield more profit which is the main aim of the investment.
(7) Quality accounting: This is important and necessary to increase efficiency and productivity of investment in sectoral and overall.

ASSIGNMENT 2
Clinically and critically discuss and analyse
a) The theory(ies) of consumption
b) The theories of investment
Due to the crucial role of consumption in determining the size of a nation’s aggregate income (national income), through its impact on employment and other macroeconomic variables, a lot of theories/hypotheses have been propounded to explain the causes and behavior of consumption in both the short and long run. These include:
1) Keynes’ Absolute income Hypothesis: Keynes postulated that the propensity to consume was a functional relationship between a given level of real (current) income and the expenditure on consumption out that given level of income. Thus,
C = a + byd
The propensity to consume represented by b is now more commonly known as the consumption function which is stable. Keynes hypothesized that the shape of the consumption curve is upward sloping, with a slop between zero and unity. Keynes proposition was based on fundamental “psychological law” which states that men are disposed to increase their consumption as their income rises: but not as much as the increase in their income. Keynes asserted to any modern community from this, it follows that the marginal propensity to consume (MPC) would lie between zero and one, Keynes further conjectured that the MPC would fall as income rises. This clearly means that the average propensity to consume (APC), which is the share of national income consumed, will decline with increases in total income.
The major assumptions underlying Keynes’ Hypothesized consumption function are as follows:
(a) Current consumption is a stable, positive function of current income; i.e.
C = C0 + Cyd ----------------------------- (1)
(b) The MPC is less in the short run than in the long run. So, an increase in consumption will be smaller than an increase in disposable income.
(c) In the long run, a smaller proportion of income will be consumed as income increases, and hence the MPC will be less than the average propensity to consume (APC).
(d) At low levels of disposable income, consumption will exceed income, (MPC>1).
(e) Changes in the stock of their wealth will directly affect household level of consumption.

Momoh destiny ikhienosimhe said...

From the assumption above, it means that the level of consumption which is a major component of aggregate expenditure can be accurately predicted given the level of income. Assumption b implies that if disposable income should rise or fall, the immediate effect on consumption, and therefore aggregate expenditure will be smaller in the long run because household adjust to their new income levels with a lag-characteristic.
Assumption C shows that as national income rises, consumption will form a smaller and smaller fraction of aggregate expenditure, and thus the share of investment and/or government expenditure must rise if full employment is to be maintained.
Assumption D and E imply the possibility that some other variables beside disposable income affect consumption (i.e. co in equation 1 in assumption a) and thus nullify the effect of assumption C.







Equation (1) of assumption a is consumption function in which C0 is the value of consumption when disposable income is zero (non income determinants of consumption) and be is the increase in consumption caused by a unit increase in disposable income which is the MPC.
From assumption (a) and (b), it follows the relationship implied in equation (1) of assumption a being depicted diagrammatically, from the diagram, it can be seen that if disposable income is Y2, consumption will be C1, represented by point B on the consumption curve. The line OC is the Loci of the points that show equality between income and consumption expenditure. As stated in assumption 3, the average propensity to consume (c/y) declines over time i.e.
C = C0 + byd ------------------------------------- (1)
= + b -------------------------------------------- (2)
Hence, c/yd (APC) declines as income rises approaching in the limit the MPC, b. When income is equal to consumption expenditure i.e where the consumption line crosses the income line, APC = 1. To the right of A, income exceeds consumption and the APC < 1, to the left of A, APC > 1. The APC declines as income rises and that is always less than the MPC.

Momoh destiny ikhienosimhe said...

2. Friedman’s permanent income Hypothesis
According to Professor Milton Friedman of the University of Chicago, the main determinant of consumption expenditures is not current income but “permanent income”. By permanent income, he means the average income which a household expects to earn over its planning horizon (planning horizon could be for 3-5 years). Permanent income includes past, current and expected future income.
Friedman’s theory of consumption may be summarized in these equations:
Cp = K (I, W. U) Yp ------------------------------- (1)
Y = Yp + YT --------------------------------------- (2)
C = Cp + CT ---------------------------------------- (3)
and
P = P = P = 0 --------------------------------------- (4)
Yp YT Cp CT YT CT -----
The first equation is the core of the theory. It hypothesized that consumption of a household is proportional to its permanent income. Note that K, the factor of proportionality implies that households consume about the same proportion of their permanent income notwithstanding (Yp). K is also a constant equals MPC and APC. The value of k depends on the rate of interest (i), the ratio of non-human wealth to permanent income (w) and u, a permanent variable for utility (a variable capturing the household’s taste and preferences for consumption versus additions of wealth). According to Friedman, K is a variable constant which vary with the household’s stage in the life cycle.
Equations 2 and 3 are definitional. Equation 2 shows that current (measured) disposable income y is made up of permanent income Yp and transition income Yt. Where Yp (permanent income) comprises the income which the households expect to receive into the future. While YT is an addition to or subtraction from Yp which was unexpected: a windfall income or calamity e.g. pool belting and unemployment respectively.
In equation 4, P stands for the correlation coefficient between the variables designated by the subscripts. Hence, all it says is that the transitory components of income and consumption are uncorrelated with their corresponding permanent components. Given this specification, it follows immediately that all positive transitory income (ie. all temporary income gains) will be saved and symmetrically, all negative transitory income (i.e. all temporary income losses) will be wholly offset by dissaving. Succinctly, Friedman permanent income hypothesis (PIH) was the monetarist’s response to Keynes’ Absolute income Hypothesis (AIH). Friedman was able to remedy the defects in absolute income hypothesis (AIH) be successfully introducing wealth as a consumption determining variable (See equation 1). Moreover, he was able to reconcile the inconsistencies that were detailed in Keynes’s absolute income hypothesis. This he does by taking long term, wide measure of income as determinant of consumption. Also, since permanent consumption and permanent income are long run time series data which suggests that APC is constant. In addition, the theory proposes the proportional nature of the basic long run relationship while predicting a short run non proportional relationship for Cross section data.
A major problem with Friedman permanent income hypothesis is the elusive nature of the key variables. From experience, it is difficult to obtain a measure of permanent income and consumption since they are subject to changes overtime due to expectation and past experience.
THEORIES OF INVESTMENT
The theories of investment seek to explain the investment behavior of firms. These theories include:

Momoh destiny ikhienosimhe said...

1. The Accelerator theory of investment: This theory states that current net investment is a function of change in income. This theory was propounded by Afflation in 1911 and popularized by people like Clark in 1917. Investments accelerate as income changes. These theories are of two versions:
(a) The fixed accelerator theory of investment
(b) The flexible accelerator theory of investment

(a) The fixed Accelerator Theory of investment: This assumed that the desired capital stock is a proportion of changes in income. That is desire capital stock plus current income is constant.
K --------------------------------------------- (1)
Kt = Desired capital stock
Yt = Current Income
Kt = Kyt = (2)
It = kt – kt-1 = k --------------------------- (3)
At optimum point, existing capital stock is equal to desire capital stock
Kt-1 = Kt – 1 = Kyt – 1 ---------------- (4)
Substitute equation 4 into equation 3
It = kyt –kyt-1 = kDy ------------------ (5)
Note Kt = Kyt
Equation (5) is the accelerator theory which says that investment is a proportion of income i.e k is the factor of proportionality if investment change income will also change.
Introducing depreciation, equation (6) could be written as:
IGt = k (Yt – Yt- 1) + Dt ----------------------------- (6)
where
Crt is a gross investment at time t.
The critique
There are various theory of critique namely:
1. The assumption of feasity between the desire capital stock and income is not true. I.e the ideal of constant return to scale is not true there are cases of increasing return to scale and decreasing return to scale.
2. Capital stock increment is not automatic. There are cases of lag that may exist due to capital orderate.
3. Capital are not full use because of the incidence of idle cash.
4. Business expectation was neglected by the theory.
Due to these criticism the flexible accelerator theory came on.
(b) The flexible accelerator theory states that net investment at time is only a fraction of the change in the desired capital stock i.e
Kt – Kt-1 = �� (Kt – Kt-1) ----------------------- (7)
Where
�� is the adjustment factor investment at time t
It = ��Kt – ��kt-1 ------------------- (8)
�� is the Adjustment factor which represent the productivity capacity of the firm, availability of fund, provision of interest rate and confidence level. Introducing depreciation to equation (8), it could be written as
t = dkt – 1 ----------------------- (9)
It = ��Kt – ��kt-1 + dkt – 1 -------------------(10)
equation 10 could be written on
It = ��Kt – (��-d) kt -1 ------------------------ (11)
From equation 2 equation 11 could be written as
Kt = kyt -------------------------------------- (12)
Substitute equation 12 into 11
It = K ��yt – (��-d) kt -1 ------------------------------ (13)
equation 13 is the flexible accelerator theory which is the same thing as the flexible accelerator is a constant proportion of income with recourse to the adjustment factor represented by ��.
Weakness of flexible accelerator theory
(1) The theory is very good because it takes cognizance the ability of the firm to access fund and manage such fund. But the theory is not good because it neglect business expectation.

THE EXPECTATION AND THE DESIRE CAPTIAL THEORY
The state of business confidence is called expectation. Expectation increases with demand. Given the capital stock desire capital stock is a proportion of expected income.
Kt = �� Yet -------------------------------------- (13)
Yet = Wo Yt + W1 Yt -1 + W2 Yr -2 + Wn Yt --------- (14)
Cagam model where �� is the desired capital
Y = is the expected income
W = is the weight
This represent the level of important and the closer the weight to the dependent variable, the higher the impact. The closeness is determine by Wo, W1, W2 ------ n
equation (14) could be reduced to

Equation (18) is the expectation model which states that investment depends on adjustment factor () and the level of business expectation

Momoh destiny ikhienosimhe said...

depreciation and existing capital stock. The difference of the fixed accelerator theory and the flexible accelerator theory is business expectation. It takes lag i.e yt-1

Marginal hypothesis of investment
a) What determine a firm’s decision to invest
b) When to invest
c) How much to invest
All the question where answer by Lord Kenyen’s with his marginal efficiency of capital (marginal efficiency of investment criteria).
Decision to invest
Business men will always invest if the yield or rate of return over cost (what you get as profit) is greater than the market (ie. the rate at which money is borrowed).
Note
The rate of return over cost (RROC) is called marginal efficiency of capital (MEC) or simply Internal rate of Return (IRR)
IRR = MEC = RROC
Using accounting methods formulas
SI = Prt --------------------------------------------- (i)
A = P + (prt) ------------------------------------------------- (ii)
A = P (I +r)t ------------------------------------------------- (iii)
Present value: The present value is the value of a future sum of money today. And is represented as pv.
Formula for present value is Pv = ----------------- (iv)
Pv = A (I + r ------------------------------------------------ (v)
Net present value: The net present is the sum of present value and is represent as Npv. Formula for net present value is NPv =
IRR = NPV = 0
I.e where present value is equal to zero. (ie where the company breaks even point in business. Internal rate of return, this is where the company stop investment. Note: When the net present value is equal to zero (NPV = 0), a company should stop to invest or should stop investment.
Decision to invest comes in the cases like this:
a) When marginal (M) is greater than interest rate (r) accept investment proposal.
b) When marginal (M) is less than interest rate (r) reject investment proposal.
c) When marginal (M) is equal to interest rate (r) indifference.
Mathematically we have:
a) When m > r = accept investment
b) When M<r = reject investment
c) When M = r =indifference

Note
That when net present value is positive, investment can continue and when net present value is negative it means the business is not profitable and therefore, cannot continue.
If the net present value NPV is positive, A company should continue to invest until is equal to zero = 0) which is IRR internal rate of return where a company should stop investment.

Momoh destiny ikhienosimhe said...

3) Tobins’ Q Theory of Investment
Theory was developed by Jame Tobin in 1969. The theory states that the investment decision is a function of ration of market value of a firm financial asset to their replace cost state as
Q =
Where
Q is the tobin’s coefficient
MVA = market value of asset (existing)
CRA = Asset replace cost
Decision Rule
q 1
For the business man to invest he should therefore, invest when Q is equal to one (1)
Q = 1 = indifference
Q = 1 = accept investment proposal (i.e the business is favourable)
Q < 1 = reject investment (i.e the business is unfavourable).
The higher the market value the higher to invest and the lower the market valued the lower to invest.

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