The Impact of Global Financial Crisis on Economic Growth on a Developing Economy. (An Instrumental Variable Regression Approach)

Ande  Hemen¹, Harley Tega Williams², Abiodun Olaniyi³

¹Postgraduate Student, Department of Economics, University of Nigeria: hemen_ande@yahoo.com, +2348036941574

²Lagos Metropolitan Business School: harleytega@yahoo.com, +2348034816214

³Woodstock Electronics Limited  biodoon@gmail.com +2348027153724

Accepted 08 January 2014

Abstract

The recent Global financial crisis went a long way to revalidate the business cycle theory and therefore reminded us of its possible re-occurrence. However to answer the question of whether this crisis affected the Nigerian economy, is the objective of this study. The specific objectives of this study were therefore to investigate the effect of the global financial crisis on economic growth, consumption and investment. With the aid of data from the World Bank indicators and the National Bureau of Statistics the study covered the period 1981 to 2011. To attain therefore mentioned objectives, the study used the Zivot Andrews test to check the strongest point of the structural break and then instrumental variable regression and OLS with dummy effects to test the significance of the crisis. The result suggests that 2009 was the structural break point according to the Zivot Andrews test. And further opine that the Global financial crisis affected Economic growth, consumption and investment negatively, but is significant only on investment and not significant on consumption and Gross Domestic Product.

Keywords: Global Financial Crisis, consumption, investment, Economic Growth, Zivot Andrews, IV, OLS.