Cohesion policy

Investment climate, no doubt, significantly influenced the volume of economic activities of a country to impact on her economic development. This is why economic development can only be achieved in a conducive investment environment. Most countries of the world strived to make their investment climate conducive for investors by embarking on investment climate surveys and assessments to constantly avail policy makers with up-to-date information about the investment climate. Nigeria among the comity of nations desires rapid economic development and had to embark on various investment climate reform programmes to achieve this. The country need to make the investment climate conducive and friendly to investors to invest and engage in other economic endeavors to promote economic development. Full information about

the conditions of an investment climate can only be got from in-depth investigative studies of the investment climate to x-ray the push and pull factors of the business environment. Indeed investment climate assessment studies have been carried out in Nigeria to ascertain the level of conduciveness of the business environment. But most of these previous studies did not do much to improve the depth of knowledge regarding the state of the investment climate for better reform policy making. Most of them focused on the effect of only the primary investment climate determinants such as access to finance, trade openness, infrastructure, security and government policy as they affect economic development. They failed to adequately dig deep into the underlying secondary and tertiary factors that affected the primary determining factors of the investment climate which significantly affect its conduciveness for development. This study systematically explored these underlying secondary and tertiary factors of the investment environment determinants. The factors include saving habit of Nigerians, interest rate or cost of borrowing investment fund, loan repayment period granted to borrowers, the state of capital market development for long-term capital finances. Others are ports congestion, demurrage payment, insecurity at ports, airports, rail stations, size of annual national capital budget, infrastructural development policy of government, gas supply and water level capacity of dams for electricity generation, condition of roads, health and educational facilities, rate of vandalisation of existing infrastructure, rate of devastation by natural disasters as thunder storms and erosion, unemployment leading to insecurity and youth restiveness, kidnapping, taking up of arms such as Niger Delta militants and North-East Boko-haran insurgence. There are also political tension, cultism, ritualism, drug abuse, religious fanaticism, porous border for dumping, slow judicial process and corruption, public policies, manifestos/programmes of political party in power, continuity in implementation of existing economic programmes when there is change in government, planning system, nature of economic institutions in national development plan and other factors.

Also, most previous studies commonly used the input based human development indices (HDI) metric of per capita gross domestic income, life expectancy at birth and school enrolment to measure economic development. These metrics of human development were inadequate, limited in scope and less potent to capture the actual state of economic development achieved by a country with respect to human development and welfare. Human development index (HDI) is more or less a mere measurement of human development potentials and not human development

achieved or recorded. For instance the gross domestic income per capita often used in HDI’s measurement does not cover income remittances from abroad compared to the gross national income per capita which did. Enrollment in formal school system is a mere intention of formal knowledge to be acquired and not the actual knowledge already acquired by way of graduation (output) from the school system. Life expectancy at birth in HDI focused on preventive medicine in terms of immunization to reduce child mortality rate. It placed little or no emphasis on the environmental stress factors of insecurity, curative medical attention available and psychotherapy all of which can seriously affect the health and longevity of the individual. To resolve these deficiencies in HDI’s measurement, this study adopted the best and latest metric of inequality-adjusted human development index (IHDI). It was further modified by the inclusion of empowerment index (employment) which has direct relationship with human development potentials and the reduction of poverty rate among the people. The study exposed the transmission mechanism of the ameliorating power of employment on poverty rate to improve the people’s welfare. The achievement measured inequality-adjusted human development index (IHDI) used the gross national income per capita (standard of living), life expectancy (healthy living and longevity), and educational attainment (knowledge acquisition for productive thought and manpower development) as its indices hence it was considered to be a better measurement of economic development than HDI (UNDP, 2016). The gross national income per capita used in IHDI, incorporates income remittances to a country from abroad as well as the use of purchasing power parity ($PPP) to make adjustment for the differences in each country’s economic conditions which affect their respective domestic level of purchasing power and human welfare.

Educational achievement, measured by the number graduates that completed formal education at the planned level (output), was adopted by IHDI as against the mere enrolment of persons in formal school system (input) adopted by HDI.

Most previous studies also failed to integrate the investment climate determinants operating at firms’ level (endogenous level) with that of government or country-wide level (exogenous level) to exploit their synergy for development. Firms’ operations require deeper understanding of in-factors such as workers’ conditions of service, training, contribution to infrastructural development and other corporate social responsibilities. Firm’s operation can mar or complement government’s investment climate and economic reform policies. Government’s policies and

actions through economic planning, business regulation, institutional building, reform programmes, infrastructural development and security, among others, can affect the firms’

operation and fortunes greatly to affect development. The policy or synergic gulf between government’s policies and firms’ economic objectives often led to poor development and reform plans and their imminent failure. This study bridged this gap by adopting the triangulation principle (Lewis, 1998) that recommends the use of multi-approaches to deeply explore the characteristics of latent phenomenon such as investment climate and economic development.

Scanty studies exist on the impact of investment climate on capital development and efficiency in Nigeria. This study evaluates the macro and microeconomic basis of investment climate factors that affected the trend of capital development and efficiency via the use of capital-output ratio (COR) and incremental capital-output ratio (ICOR).

From the above discussion, it is certain that some knowledge gaps were created in previous studies of the effect of Nigeria’s investment climate on her economic development. These gaps have caused the economy to perform poorly and made the reform policies of government ineffective. The situation had also made it difficult for the country to achieve the objectives of economic development plans over the years to subject the country to perpetual economic underdevelopment. Besides, the objective of the country’s Vision 20:2020 economic pact would be difficult to attain going by the present state of the economy. All these economic woes resulted from the poor information obtained from previous studies on the investment climate for policy makers. All these gaps in the economy need to be closed by a comprehensive study as this, to put the economy on a fast-lane of development. The study comprehensively provided deeper explanation and understanding of the root causes of the problems of the Nigerian investment climate and economic development for efficacious policy making.

The knowledge gained from this study will be indispensably useful to economic managers and planners in developing programmes for promoting the investment environment, capital formation, capacity utilisation and overall human and economic development. It will also provide recipe for productivity expansion, entrepreneurship development, increase rate of returns on capital and profitability rate to investors to create employment and improve the standard of living of the people through poverty reduction, increased education and longevity (Jacabsohn, 2015).

CHAPTER THREE RESEARCH METHOD

This chapter discussed the techniques used for the collection, estimation, interpretation and analysis of data. It also examined the design of the study and the theoretical framework which informed the basis of model specification to meet the objectives of the study. The study adopted the ex-post facto design which is a quasi-experimental study method for investigating cause-effect relationship of facts that have already occurred in the past (Salkind, 2010). Investment climate is an efficiency booster of the factors of production and thus treated as part of the input used in a modified neoclassical production function. Economic development was the resultant output of the function. The discriminant factor analysis method was used on the disaggregated economic development indicators of gross national income per capita, life expectancy or healthy living, educational attainment or literacy and employment. Discriminant functional relationships were thus modeled and estimated by the cointegrated linear regression technique and the explorative factor analysis.