ABSTRACT
One of the most critical urban development issues facing Nigeria is the financing of urban infrastructure and delivery of urban services. The study arises because of impact of urban infrastructure and services on economic development of developing countries especially Nigeria. The major challenge facing Nigeria today is how to restore urban infrastructure and services which have over the years of military regime decayed and collapsed. To this end, first, to make cities good places for economic development, and, secondly, to provide basic services for urban dwellers, especially the urban poor. This study analyzed the effect of public and private investment on infrastructures and its impact on economic development in Nigeria during the period 1970 to 2014. The Engel-Granger(1987) cointegration and Error correction mechanism (ECM) were employed to analyze the unit root procedures, ascertain the long run relationship and establish the values of long run parameters. Empirical results show that infrastructure components exert positive contribution on economic growth in Nigeria. Domestic investment on infrastructure and total labour force correlated with economic growth negatively. Nigeria’s experience in terms of infrastructure development show that government needs to design an economic policy that would raise the quality of infrastructures and at the same time makes provisions for human capital development for sustained growth.
CHAPTER ONE
INTRODUCTION
- Background of the study
The importance of infrastructure in any economy is clearly evident in the way the well being of the economy is affected by its deficit or deplorable state. Scholars have established that there is a relationship between infrastructure development and economic development as supported in several literatures; they all concluded that improvement in a wide range of various categories of infrastructure lead to faster growth. Calderon and Serven (2003) found positive and significant output contributions of transport, telecommunications and power in some Latin American countries. Roller and Waverman (2001), in their work found evidence of a significant positive relationship between telecommunication infrastructure and economic development. Canning and Pedroni (2008) showed in their study that infrastructure contributes positively to economic development on the long run despite substantial diversities across countries. Donaldson (2010) found that railroad development in Nigeria between 1870 and 1930 increased real income, reduced trade cost and bolstered trade. Mohommad (2010) noted that physical infrastructure developments lead to faster growth in manufacturing industries. Also, Walsh, Park and Yu (2011), concluded that financial and fiscal conditions, and savings, tend to improve during periods where infrastructure investment is on the increase.
For low income countries, where transportation, communication andpower generation are inadequate, investment in infrastructure or provision of infrastructure has alluring benefits to boost productivity and growth but with huge cost. This tends to affect the financial resources needed to undertake infrastructure investments which are difficult to mobilize because income and productivity are depressed by inadequate infrastructure. With inadequate infrastructure limiting finance and inadequate finance limiting infrastructure, countries can find themselves in a low−level equilibrium trap from which it is difficult to break out (Eichengreen, 1995). In the same vein, infrastructure development facilitates economic development; economic development increases demand for more infrastructure, and more infrastructure leads to more economic development. Thus, development of adequate and quality infrastructure is a necessary condition to maintain growth momentum in any economy.
Infrastructure financing is a subset of project finance and refers to a limited recourse or non-recourse finance that consists of financing very specific assets or projects, with repayment coming only from the cash flow generated by the project asset, without claims on the investors that own the company (World Bank, 1994; Ogun, 2010; UN-HABITAT, 2011). According to Andrew (2001) and Blanc-Brude (2010), project finance has been employed in almost all capital intensive industries particularly in transportation (aircraft, rail and shipping), independent power projects (electricity), mineral and other natural resource exploration, water projects etc. It has been observed that infrastructure financing is also mostly used in countries whose domestic capital markets are small relative to their project development requirements or are relatively immature, especially in developing countries like Nigeria.
