The world is fast becoming a global village, a metaphor that is often invoked to depict global interdependence and the increasing interaction among and the integration of economic activities of human societies around the world (Ajayi, 2001). In concrete terms, globalization is the intensification of cross-border trade and increased financial and foreign direct investment flows among nations, promoted by rapid advances in and liberalization of communication and information technology (Islam, 1999 and Aninat, 2002). Thus, globalization conjures the picture of a borderless world with greater economic integration that enhances the living standards of people across the globe. Even then, globalization is not a novelty in the development process. On the contrary, the late 19th century was a period of dramatic integration of the world economy as evidenced by the rapid expansion in world trade, the founding of the Latin Monetary Union in 1865 and the emergence of the gold standard in 1878 (Onwuka, 1998 and O’Rourke and Williamson, 1999). Although the retreat into managed trade by the major trading countries between the first and second world wars dampened the outlook of global economic intercourse, the post–1945 multilateralism has virtually permeated all corners of the globe. Since 1990, increased economic cooperation has lifted the ratio of the growth of world export volume to the growth of gross world product to a range of 2.5-3 from an average of below 2 in the 1970s and 1980s (United Nations, 2001). Other benefits of globalization, which include exposure to new ideas and products, greater specialization and expanded opportunities for mergers and acquisitions, leading to growth in 298 O. M. Hassan size and power of corporations, their increased competitiveness and efficiency in the utilization of productive resources and major improvements in social development and human welfare are well documented in the literature (see, for example, Ayorinde, et. al. 1998; Rodrik, 1999; Sachs, 2000; Crafts, 2000; Masson, 2001; IMF, 2002 and Ocampo, 2003). The transnational corporations (TNC) with their intensive integration of production, distribution and services globally provide the impetus for this process. Between 1990 and 2001, for instance, their stock of outward foreign direct investments (FDI) increased from 1.7 trillion dollars to 6.6 trillion dollars and in 2001 alone their sales of 19 trillion dollars were more than twice as high as world exports that year (UNCTAD, 2002a). No doubt, increased trade and investment flows help countries to develop more quickly as trade generates income and the flows enable them to increase their stock of productive capital without compromising their level of consumption. And when such flows are in the form of FDI, they often improve access to international best practices in terms of managerial, marketing and technical know-how, skill acquisition and institutional deepening. Moreover, the intangible assets of TNC such as knowledge, technology, management know–how and market access serve not only as essential link between national economies, but also as a catalyst for investment and enterprise competitiveness as well as complements to domestic development resources in recipient countries (UNCTAD, 2001b). Technology, policy and competition are the forces driving globalization. This is attested to, for example, by advances in computing technology, which enable traders to meet demand for financial instruments such as swaps and futures with relative ease, thus allowing them to better manage their risks. In addition, improved transportation such as the advent of containerization in land–and sea–based shipping has reduced both the handling requirements and transit time by more than two thirds. The second force is policy liberalization. With this, most governments have removed barriers to trade and controls on the movement of capital and services, thereby allowing market forces to play themselves out. The third force, which is heightened competition, compels firms to explore new ways of increasing their efficiency, including shifting some of their activities abroad to reduce costs (UNCTAD, 2002a).
On the other hand the role Balance of Payments position play in the economy of any nation cannot be over emphasized and Nigeria is no exception. Balance of Payments is a systematic statistical record that summarizes a country international transaction with the rest of the world for a given period of time say one year. At 1964; fifty years after amalgamation of Nigeria in 1914, Nigeria was at the height of her promise: among other promising trends, it was the world’s largest producer of groundnuts, palm oil, and petroleum was making its debut in the national accounts. In the early 1980s, the oil market weakened, substantial external and fiscal imbalances emerged. These were financed by public sector borrowing, depleting international reserves and large accumulation on payment arrears on external trade credits and as such created problems in our Balance of payments. In 1984, austerity measures were introduced to redress the nagging deficits in the country’s balance of payments, these included; slashing of budgetary expenditures, administrative control for import licenses, increase and upward review of tariffs. In 1986, the Structural Adjustment Programme (SAP) was introduced, which amongst other things, combined exchange rates and trade policy reforms to promote economic efficiency and long term growth in the stabilization polices designed to restore balance of payments equilibrium and price stability.
However, not every nation is a full member of the global village. The developed countries use their competitive advantage to boost their share of world trade and finance, and so largely benefit from globalization (Khor, 2001 and UNCTAD, 2003a). On the other hand, developing countries are losing out as they experience a worsening of existing imbalances and distortions in the global economy (Collier and Dollar, 2001). This view is shared by Zuma (2003) who argues that the unequal distribution of political, economic and military power has meant that whilst globalization created immense opportunities of wealth for some, it has produced two contrasting global villages: one which is indeed prosperous, rich and democratic for a few who live in it, and the other, in which the majority are poor, alienated and marginalized with hardly any voice to determine their own destiny. It has become obviously clear that there are actually two villages in the global economy. One is the developing countries which are mainly primary commodity producers and exporters. In 1985, they accounted for 61.2 per cent of primary products traded globally. Although this dropped to 56 per cent in 2000, this drop cannot compensate for the 68.2 per cent of manufactures based on natural resources or 66.8 per cent of manufacturers not based on natural resources that developed countries exported that year. The shares of developing countries in these categories of manufactures that same year were 26.6 per cent and 30.8 per cent respectively. In the case of FDI inflows, developed nations increased their share from 64.4 per cent during 1990-1995 to 68.4 per cent in 2001, whereas the share of developing countries fell from 33 per cent to 27.9 per cent during the same period. Moreover, industrial countries protect their markets, particularly in sectors in which developing countries have a recognized comparative advantage like textiles, clothing and footwear. Agriculture is also heavily protected usually in the form of subsidies, driving world prices down and hurting farmers in developing countries the more. The estimate of economic losses from agricultural protection in developed countries is around 150 billion dollars yearly; about 50 billion dollars of it in lost exports for developing countries (see McGuirk, 2002 &Lankas, 2002).
In the circumstance, Nigeria is at liberty to either position itself and maximizes the benefits of this New World Economic order or be left away as by-stander or marginal player in the international economic configuration (Tandon, 2000). Putting this into consideration, the globalization of the world economic system has, however, forced many developing countries such as Nigeria to initiate policy measures and establish institutional frameworks aimed at accelerating their growth and development in line with current global economic trend. The policy reforms undertaken by the Nigerian government since the 1980s had the objectives of making the entire economy more efficient, technologically up-to-date and competitive. This was done with the expectation that efficiency improvement, technological upgrade and competitiveness would ensure that the Nigerian economy will achieve rapid growth. In view of greater openness of the Nigerian economy due to trade liberalization, private sector can build and expand capacity with less regulation.
The impact of globalization on the development process of emerging economies have aroused closer and more critical examination of the vestiges of globalization as a result of the persistent failures of such economies. The economic situation of most less developed economies have continued to degenerate and often afflicted by poverty, squalor, deprivation, frustration and insecurity among their citizenry, all of which culminates in political instability(Shuaib I. M., Ekeria O. A. and Ogedengbe A. F., 2015). Increases in the outputs of major sectors of an economy, such as manufacturing and natural resource, either as a result of increases in the use of inputs or improvement in technology, will lead to economic growth. Advocates of globalization believe that policy reforms so far has improved economic growth and performance significantly while critics argue that the total withdrawal of restrictions on several matters have had negative effects on future growth and performance of the economy. They are also of the view that globalization has worsened inequalities across and within the countries, environmental degradation and vulnerability of the poor nations have increased and that developed countries have established dominance over developing countries culminating in neo-colonization.The challenge facing countries in attaining economic growth is that of creating an enabling atmosphere for essential use and the harnessing of economic resources. This challenge has become even more intensified by an increasingly interdependent global economic dispensation that tends to undermine and marginalize indolent economies. This has given rise to disparities among countries of the world in terms of their levels of attainment of economic growth. While some countries have achieved high rates of economic growth, which have led to enhanced standard of living within such countries, other countries of the world have performed dismally, attaining little, and in some cases nothing in terms of economic growth which translates into very low standard of living of their citizenry. Some economies have witnessed a sudden and remarkably very high growth rates even above the world average. This achievement is being referred to as growth miracles. On the other hand those economies that have performed abysmally below world average are referred to as growth disasters. Real productive activities engender economic growth by ensuring a continuous improvement in the methods of production, discovery of new resources and thus creating the necessary conditions for effective utilization of resources. A multiple sector positive performance is essential for the growth of the overall economy, but a sector of the economy that attracts higher levels of economic activities could stimulate the productive fibre of other sectors towards real production and provide the requisite impetus for sustainable growth of the economy. Although many scholars focus on the economic dimension, the process of globalization is not restricted to the economic sphere alone. It also has social, political, environmental, cultural, and religious impact on a country. As pointed out by Schirato and Webb (2003), “globalization is a process integrating not just the economy but, culture, technology and governance”. However, some writers characterize globalization as the third phase of colonization, the second phase being neo-colonialism. On this view, Western countries are employing globalization to extend and strengthen the fundamentally exploitative relations established between colonial powers and the colonized over the past 400 years (Mulinge and Munyae, 2001: 113). Industrialized countries are essentially entrenching a global capitalist system and consumer culture by establishing a global market controlled by the most dominant interests within the ruling elites of these multinational companies. Some of the negative effects of globalization on Nigeria include.
Scientific globalization is the medium through which the science research front is now universally accessible, so that the practice of science now has hardly any geographical boundaries, while technological globalization leads to the creation of uniform technical specifications and standards in industry. Information and communication technology (ICT) is playing a key role in globalization and integration. It has facilitated the heralding of a “Third Wave”, comparable to the First Wave, the Agricultural Revolution and the Second Wave, the Industrial Revolution. One major negative consequence of ICT most especially the internet and cable networks to Nigeria is the exposure of the youth to negative western culture. Omekwu (2006) captured this thus:
“The more dangerous dimensions of the digital revolution include pornography, money laundering, cultism, international terrorism and child abuse, which all constitute a threat to African cultural heritage. It is extremely difficult for African countries with strong Islamic and Christian cultures to tolerate the level of pornographic activities that go on the Internet. In traditional African culture, nudity is still not a virtue. In many African universities and urban centers, nudity has become and Africa’s rich and elegant dress styles are becoming outdated”. Also, the Internet provides the opportunity for the proliferation of cyber crime, which is a global phenomenon, and Nigeria is not immune from it. The perpetrators of this crime, which is often, referred to as ‘419’, ‘Yahoo Yahoo’ or ‘Yahoo plus’ are usually the criminal minded youth and several thousands of unemployed graduates in the country. Globalization has had a negative impact on the environment through deforestation. According to Wikipedia Encyclopaedia, globalization is often viewed as a root cause of deforestation. The overuse of natural resources due to increased demand and also the removal of ecosystems due to population growth have had a large negative impact on the environment. Extensive deforestation has occurred world-wide with the logging industry being fuelled by the need for disposable products. Thus, deforestation whether it is for an increase in demand or for expansion is causing a loss of biological diversity on the planet (Francesob, 2010). Nigeria is not exempted from the impact of deforestation. The country’s rain forest is depleting fast majorly as a result of international trade. Apart from contributing to the depletion of the ozone layer, deforestation also affects water cycle. Trees extract groundwater through their roots and release it into the atmosphere. When part of a forest is removed, the trees no longer evaporate away this water, resulting in a much drier climate. Deforestation reduces the content of water in the soil and groundwater as well as atmospheric moisture. Deforestation reduces soil cohesion, so that erosion, flooding and landslides occur. Globalization has brought about various forms of environmental pollution. Environmental pollution has been described as the contamination of the environment by biological, chemical, and or physical agents that are harmful to human, animal or plant, life and the general environment, and may arise through the natural events, industrial and human activities or the interaction of all (Otukong, 2002: 3). Pollution of the environment is attributed to the increase in industries, burning of fossil fuels to run the industries, machines and for transport of both raw and finished products to different places. The activities of oil industries and multinational corporations in oil producing areas of the country, mostly in the Niger Delta area is a major source of environmental concern in the country. Oil industry activities – exploration, production, refining, and transportation – have caused widespread social and ecological disturbances. These include explosions from seismic surveys, pollution from pipeline leaks, blowouts, flaring, drilling floods, and refinery effluents, as well as land alienation and widespread disruption of natural terrain from construction of oil-related industrial infrastructure and installations. Oil producing areas in Rivers, Delta and Cross Rivers are most affected. The impact of the exploratory and extractive activities of global forces – Shell whose operation in Nigeria alone accounts for 14 % of its total global operations, Mobil Agip, Cheveron, Texaco, Total, etc. – have basically affected the social organization of the Ogoni people and the Niger Delta in general (Kelbessa, 2007).
However, whereas several studies have revealed unsettled controversies concerning the contribution of globalization to the economic growth of less developed countries (LDCs), such studies which argued in favor of globalization for LDCs include (Nzekwu, 1999; Levine and Renelt, 1992). Those who argued that globalization has contributed negatively to the economic growth of LDCs include (Ayres, 1998; Gyimah-Brempong, 2007). The goal of the present study is to ascertain the core impact of globalization and balance of payments on the Nigerian economy.
The general objective of the study is to evaluate impact of globalization and balance of payments on the Nigerian economy. However, the specific objectives are stated as follows:
The following questions are formulated in order to evaluate the validity of the study
The following hypotheses are employed which are subject to investigation and testing:
HO 1
HO 2
HO 3
HO 4:
HO 5:
1.6 Significance of the Study
The result of this research work will be of benefit to the following group of individuals:
The study focuses on a time period (1985-2014) of which data and variables were limited to the period was chosen because in economic history in Nigeria, it is a period characterized by fundamental restructuring and advent of deregulation in the Nigerian economy. The study is also limited to the evaluation of only four explanatory variables which are foreign direct investment, foreign portfolio investment, trade openness, external debt service ratio and balance of payments and how they affect the Gross Domestic Product Growth Rate the proxy for representing economic growth in Nigeria.
1.8 Limitations of the Study
The limitations of the study are specific problems and constraints that in one way or the other have affected the execution of this work. Such constraints include funds and time limitation in the bid to combine the study with academic activities within the period allowed for the study. Also the scarcity of relevant data and materials has posed to be a significant limitation to the study. However, these will not have any negative effect on the outcome this research work.