Financialisation, Capital Accumulation and Economic Development

364 Pages·2016·3.15 MB·English

by  Ejike Udeogu

Financialisation, Capital Accumulation and Economic Development:
A theoretical and empirical investigation of the Nigerian economy.

E. UDEOGU
Ph.D.
2015
Financialisation, Capital Accumulation and Economic Development:
A theoretical and empirical investigation of the Nigerian economy.

EJIKE UDEOGU

A thesis submitted in partial fulfilment of the requirement of the
University of East London for the degree of Doctor of Philosophy

July 2015

II
Abstract
The primary focus of this study is to highlight those unobtrusive, yet fundamental, factors
undermining economic development in Nigeria. To begin with, it posits that the
decelerating pace of capital accumulation in Nigeria, which naturally occasions rising
unemployment and poverty levels, and widening inequality gap, is the result of the ‘low
possibility’ of capitalist enterprises in the country of earning an adequate rate of profit
from their productive processes. In turn, the ‘low possibility’ is argued to be the result of
the uneven development inherent in the modern capitalist structure, the high cost of
capital and of production peculiar to Nigeria, and the ineffective demand for goods made
in Nigeria: these elements are viewed as been precipitated by the contradictions of the
contemporary political-economic arrangement that organises the Social Structures of
Accumulation. For Nigeria to ‘develop’, it is contended that the unobtrusive elements
inherent in the contradiction of the political-economic economic that undermine the
capitalists’ ability to earn a commensurate rate of profit in the country needs to be fully
addressed first. Furthermore, this study suggests that it is crucial the country embraces
knowledge-based industrialisation if it is to achieve some form of ‘competitive
advantage’ in the global market, which could enable its productive processes extract a
commensurate level of profit from the market. To facilitate the knowledge-based
industrialisation, the state should, not only create a conducive environment for industrial
development but also play the lead role in transforming the peripheral and oil dependent
economy to a knowledge-based economy by coordinating business organisations and
investing in high-risk innovations.
Keywords: Nigeria, capital accumulation, the rate of profit, financialisation, economic
development and neoliberalism.
III
Declaration
I declare that while registered as a research degree student at this University, I have not
been a registered or enrolled student for another award of this University or of any other
academic or professional institution, and that no material contained in this thesis has been
used in any other submission for an academic award. This thesis is the result of my own
investigation, except where otherwise stated. Other sources used are acknowledged by
explicit references. A bibliography is appended.

IV
Acknowledgements
I would like to express my deepest gratitude to my director of studies, Professor Vassilis
Fouskas (University of East London), for his invaluable support and direction throughout
the entire duration of the preparation of this thesis. He was always available when I
needed his advice, and I am grateful for his patience, wisdom, and immense knowledge.
I also would like to express my sincere thanks to Dr Shampa Roy-Mukherjee (University
of East London) and Dr Raoul Bianchi (University of East London), for their unreserved
encouragement, feedback and support.
My appreciation also goes to a number of staff members at University of East London’s
School of Business and Law that have offered constructive comments on certain areas of
this thesis. Furthermore, I acknowledge the comments and suggestions of participants at
the Sheffield Political Economy Research Institute (SPERI) annual conference held in
2014 and at the research workshop organised by the Group for Monetary and Financial
Studies (GEMF) in 2015, where parts of this thesis were presented.

I reserve my final acknowledgement for my parents and my whole family, whose love
and support throughout the years has been a source of strength. In particular, I thank my
parents, Chief and Mrs J. E. Udeogu, both for their sacrifices and constant level of
encouragement. Special thanks are also due to my siblings, UD, Ada and Ifeanyi, for their
understanding and encouragement. In addition, tremendous thanks are due to my lovely
wife, Aggy, for her patience, understanding and encouragement for the past few years.

V
Dedication
I dedicate this work to God and to my wonderful parents.

VI
TABLE OF CONTENTS
ABSTRACT III
DECLARATION IV
ACKNOWLEDGEMENTS V
DEDICATION VI
TABLE OF CONTENTS VII
LIST OF FIGURES X
LIST OF TABLES XI
PART ONE 1
INTRODUCTION AND THEORETICAL REVIEW 1
CHAPTER ONE: INTRODUCTION TO THE RESEARCH 2
1.0 INTRODUCTION 2
1.1 RESEARCH BACKGROUND 4
1.2 RESEARCH OBJECTIVE, DESIGN AND METHODOLOGY 11
1.3 CONTRIBUTION OF THE RESEARCH TO THE FIELD OF NIGERIA STUDIES 20
1.4 SCOPE AND LIMITATIONS OF THIS RESEARCH 24
1.5 ORGANISATION OF THE THESIS 28
CHAPTER TWO: REVIEW OF THEORETICAL LITERATURE 32
2.0 INTRODUCTION 32
2.1 ORTHODOX THEORIES OF ECONOMIC GROWTH 41
2.1.1 The Harrod-Domar (the neo-Keynesian) growth theories 41
2.1.2 The exogenous and the endogenous growth theories 44
2.1.3 The finance-innovation endogenous growth theory 48
2.2 THE SOCIAL STRUCTURES OF ACCUMULATION (SSA) AND THE TWO MAIN CONTENDING
IDEOLOGIES 48
2.2.1 Embedded capitalism or the Keynesian ‘demand management’ approach and the
balanced growth theory 51
2.2.2 The Free-Market (Neoliberal/Supply-Side) approach 61
2.3 MAJOR CRITICISMS OF THE NEOLIBERAL SOCIAL STRUCTURE OF ACCUMULATION AND
THE ESTABLISHED GROWTH THEORIES 75
2.4 HETERODOX THEORIES OF CAPITAL ACCUMULATION AND ECONOMIC GROWTH 80
2.4.1 The centralisation paradigm and its economic consequences 81
2.4.2 Theories of concentration of capital, crisis of accumulation, dependency and world-
system analysis 84
2.5 CONTEMPORARY HETERODOX PERSPECTIVES ON THE FINANCE-LED GROWTH DEBATE 103
2.5.1 Origin and overview 103
VII
2.5.2. Review of some contemporary views on the finance-led growth debate 117
2.6 THE ROLE OF THE ‘RATE OF PROFIT’ IN THE CAPITAL ACCUMULATION PROCESS 129
2.7 CONCLUSION 139
PART TWO 143
THEORETICAL AND EMPIRICAL INVESTIGATION OF THE NIGERIAN
ECONOMY 143
CHAPTER THREE: AN OVERVIEW OF NIGERIA’S POLITICAL-ECONOMIC
ARRANGEMENT FROM 1945 TO 2013 144
3.0 INTRODUCTION 144
3.1 FROM EMBEDDED-CAPITALISM TO A NEOLIBERAL SYSTEM 144
3.2 OVERVIEW OF SOME MAJOR MONETARY REFORMS IN NIGERIA FROM 1959 TO 2013 162
3.3 CONCLUSION 164
CHAPTER FOUR: FINANCIALISATION, CAPITAL ACCUMULATION AND
ECONOMIC DEVELOPMENT IN NIGERIA 166
4.0 INTRODUCTION 166
4.1. NEOLIBERALISM AND CAPITAL ACCUMULATION 169
4.1.1 Low profitability as the bane of capital accumulation in Nigeria 177
4.1.2 Main factors undermining profitability in Nigeria 182
4.1.3 Summary of the outcome of the 2013 Expectation Survey 223
4.2 FINANCIALISATION AND ECONOMIC DEVELOPMENT 225
4.2.1 Phases of structural reforms in Nigeria 230
4.2.1.1 The first phase – the deregulation/liberalisation era 231
4.2.1.2 The second phase – the re-regulation era 232
4.2.1.3 The third phase – return of liberalisation and the creation of universal banking
system 234
4.2.1.4 The fourth phase – banking consolidation 235
4.2.1.5 The fifth phase – the 2007/2008 global financial/economic crisis 236
4.2.2 Subordinate financialisation in Nigeria 239
4.3 CONCLUSION 245
CHAPTER FIVE: SUMMARY AND CONCLUSIONS 246
5.1 SUMMARY OF MAJOR FINDINGS 246
5.2 CONCLUSIONS 249
5.3 FURTHER RESEARCH ISSUES 257
PART THREE 260
EMPIRICAL ANALYSIS 260
CHAPTER SIX: REVIEW OF EMPIRICAL LITERATURE ON THE FINANCE-
GROWTH DEBATE 261
VIII
6.0 INTRODUCTION 261
6.1 THE FINANCIAL SYSTEM AND THE ACCUMULATION-GROWTH PROCESS 262
6.2 PRE-1990S: THE FIRST GENERATION STUDIES ON THE FINANCE-GROWTH DEBATE 264
6.3 POST-1990S: THE SECOND GENERATION STUDIES ON THE FINANCE-GROWTH DEBATE 278
6.4 POST-2000S: THE THIRD GENERATION EMPIRICAL STUDIES ON THE FINANCE-GROWTH
DEBATE 298
6.5 CONCLUSION 304
CHAPTER SEVEN: ECONOMETRIC ANALYSIS AND DISCUSSIONS 305
7.0 INTRODUCTION 305
7.1 DATA DESCRIPTION AND SOURCES 305
7.2 EXPLORATORY DATA ANALYSIS 307
7.3 MODEL SPECIFICATION 313
7.4 PRESENTATION AND DISCUSSION OF EMPIRICAL RESULTS 316
7.5 CONCLUSION 330
REFERENCES 333
APPENDICES 351

IX
LIST OF FIGURES
FIGURE 1 - AVERAGE GDP PER CAPITA (CONSTANT 2005 US$) FROM 1960 TO 2009 ................ 24
FIGURE 2 - AVERAGE PERCENTAGE CHANGE IN THE LEVEL OF CAPITAL STOCK IN NIGERIA
(1961-2010) ........................................................................................................................ 33
FIGURE 3 - REGISTERED UNEMPLOYMENT FOR PERSONS AGED 15+ ........................................... 33
FIGURE 4 - FIGURE 4 - EMPLOYEE COMPENSATION (AS A RATIO OF GDP) ................................. 34
FIGURE 5 - INCOME DISTRIBUTION .............................................................................................. 34
FIGURE 6 - THE RELATION BETWEEN INTEREST, SAVINGS AND INVESTMENT............................. 71
FIGURE 7 - CURRENT ACCOUNT BALANCE (IN BILLIONS OF US$)............................................. 145
FIGURE 8 - TOTAL RESERVES MINUS GOLD (FROM 1980-85, IN BILLIONS OF US$) .................. 146
FIGURE 9 - INTEREST ARREARS (IN MILLIONS OF US$) ............................................................. 147
FIGURE 10 - EXTERNAL DEBT STOCKS (% OF GNI)................................................................... 147
FIGURE 11- HISTORICAL EXCHANGE RATE OF THE NAIRA PER UNIT OF THE US$ (1980-1996) 155
FIGURE 12 - RATIO OF AGRICULTURAL OUTPUT, OTHER MANUFACTURING OUTPUT AND
NATIONAL SAVINGS TO GDP ............................................................................................ 156
FIGURE 13 - GROSS DOMESTIC OUTPUT BY INDUSTRIES (2013) ............................................... 172
FIGURE 14 - LABOUR PRODUCTIVITY PER PERSON EMPLOYED, IN 2013 US$ ........................... 190
FIGURE 15 - INVESTMENT RATIO, LAGGED AVERAGE ROCE AND NET ROCE ......................... 194
FIGURE 16 - GOVERNANCE INDICATORS (BASED ON PERCENTILE RANKS) ............................... 197
FIGURE 17 - GOVERNANCE INDICATORS AND THE RATE OF INTEREST ..................................... 198
FIGURE 18 - CAPITAL IMPORTATION BY TYPE OF INVESTMENT IN NIGERIA (US$ - MILLIONS) 202
FIGURE 19 - HEALTHCARE FINANCING ..................................................................................... 218
FIGURE 20 - GRAPHICAL REPRESENTATION OF THE CORE FACTORS UNDERMINING THE PACE OF
CAPITAL ACCUMULATION IN NIGERIA .............................................................................. 225
FIGURE 21 - SECTORAL DISTRIBUTION OF COMMERCIAL BANKS' LOANS AND ADVANCES (AS %
OF TOTAL LOANS TO THE PRIVATE SECTOR) ..................................................................... 229
FIGURE 22 - RATIO OF STOCK MARKET CAPITALISATION TO GDP (IN PERCENTAGE) .............. 237
FIGURE 23 - CAPITAL INFLOW TO FINANCE (% OF TOTAL CAPITAL INFLOW) VS. GROSS
INVESTMENT (% OF GDP) ................................................................................................ 240
FIGURE 24 - CHANGES IN VALUE OF PURCHASED US TREASURY BILLS AND PORTFOLIO
INVESTMENT IN NIGERIA .................................................................................................. 243
FIGURE 25 - MANUFACTURING CAPACITY UTILISATION ........................................................... 251
FIGURE 26 - NORMAL Q-Q PLOT ............................................................................................... 313
FIGURE 27 - HISTOGRAM DIAGRAM .......................................................................................... 313
FIGURE 28 - CUSUM TEST ........................................................................................................ 324
FIGURE 29 - CUSUM OF SQUARES TEST ................................................................................... 324
X