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No. 341

OCTOBER 2005

Vol LXXXVI

ISSN0019-5170

Contents


 

Inflation in Nigeria: 1970-2001

Olajide Sunday Oladipo*


The objective of this paper is to determine whether inflation in Nigeria is mainly imported (via high import prices and exchange rate movements) or predominantly a function of domestic factors such as money supply. The paper attempts to contribute to the debate on the cause of inflation in many ways. First, the sample size is relatively large when compare with sample size of previous studies on inflation in Nigeria. Second, and more important, most studies on inflation in Nigeria paid little attention to the time series properties of the data, we avoid these shortcoming in this study. Third, we employ the Johansen Maximum Likelihood approach, which is a multivariate estimation technique that uncovers long run stationarity among sets of non-stationary data.

Although both domestic money supply and exchange rate movements have significant influences on the behaviour of inflation rate in the long run, the short run dynamics based on Error Correction Model further confirm the influence of these factors on domestic price level.

The policy consideration given our results implies that any attempt to combat inflation in Nigeria, the policy makers need to focus on reduction on money supply, stabilization of the Naira exchange rate vis-a-vis our trading partners' currencies.
 

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Technical Efficiency in Freshwater
Aquaculture in Uttar Pradesh

Anjani Kumar *, K. Elumalai **
and
Badruddin *

 

Fishing as an occupation is reckoned to be a supplementary enterprise practiced by the fishermen community on subsistence level. In recent years, the share of inland fish production increased more than marine fisheries in total fish production. But, low productivity of fresh water aquaculture is a cause of concern. In this study, an attempt was made to examine the technical efficiency and its determinants of freshwater aquaculture in Banda district of Uttar Pradesh. Data were collected through primary survey conduced during 2002-03. Data Envelopment Analysis (DEA) was used to estimate technical efficiency. The study results showed that the average size of pond of small, medium and large fish farmers were 0.32, 0.70 and 2.98 ha, respectively. Though, small fishponds were more productive with the yield level of 1198kg/ha, but the unit cost of production was higher than medium and large farms. The pure technical efficiency score for large farms was 0.88, indicating they are more efficient in utilizing the resources than small and medium farms. All the farms were found scale inefficient. Of the various factors that determine the level of technical efficiency training, aquaculture experience, family size and distance from output and input markets were found to be significant.

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Estimation of 'Conditional' Optimal Commodity
Tax Rates for Urban India
for 1973-74 and 1987-88  

A. K. Seth*
and
Ankur Bhatnagar **

 

This paper estimates optimal commodity tax rates for two years 1973-74 and 1987-88 for urban India. NSS data is used pertaining to 16 selected states for urban India. Optimality is defined in the 'Ramsey' spirit of maximizing social welfare subject to a revenue requirement. These tax rates are 'conditional' on the observed levels of prices, demand and expenditures. This study uses the Restricted Non-Linear Preference System (RNLPS). The tax rates are demonstrated for different revenue requirements and different degrees of inequality in the income distribution in the economy.
 

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Factors Characterizing Capitalized Banks :
The Indian Experience 

M. Banumathi *
and
G. Ramathilagam **

 

The BIS capital standards that emerged from the Basle Accord (1988) underscored the need for shoring up bank capital in all countries, developed as well as developing. With the capital to risk adjusted assets ratio norm at 8 per cent, attempted to be achieved in stages, commercial banks came under greater scrutiny from the researchers, regulators and the depositors. This paper explores the financial characteristics of adequately capitalized banks as against under capitalized banks, using a set of 14 financial ratios and the multiple discriminant analysis. The results reveal that banks with greater activity in contingent liabilities market, lower liquidity ratios, lower operating costs and higher returns on equity are likely to be letter capitalized than others.

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Trends and Determinants of Capital Formation
in Andhra Pradesh Agriculture
 

N. Chandrasekhara Rao *

 

This paper looks at the trends in capital formation in Andhra Pradesh agriculture and its composition vis-a-vis All-India. The determinants of private capital formation and efficiency of capital formation are also worked out. The salient feature of the study is that terms of trade for agriculture are worked out and used to find out its impact on private capital formation in agriculture. There was decline in the private and gross capital formation in agriculture in the state besides decline in public capital formation in agriculture. The contribution of private capital formation did not exceed 50 percent in the post-reform period also. The gross fixed capital formation in agriculture per hectare of net sown area in the state was less than that at the All-India level. It was found that there was complementary relationship between public and private capital formation in agriculture in the state. However, there was no statistically significant relation between terms of trade for agriculture and private capital formation.

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Default Risk Analysis of Public Ltd.
Companies in India during 1997-2002  

Manoj Kumar Barik *

This paper is an attempt to analyze credit-worthiness (credit risk in recent terminology) of borrowers through the use of some selected financial ratios. Discriminant analysis technique is used to differentiate defaulted from non-defaulted groups. Balance Sheet and Profit & Loss account data of a sample of 28 companies has been analyzed for the period of 1997-2002. The results of the study show 92% of correct classification.

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Guanxi Decision-Making on Transactional
Behavior: A 'Potential Value of Social
Transaction' Perspective 

Li Chang * and PeircLyi Lii **


 

In this paper we use "potential value of social transaction" " perspective to explore the impact of differentiated Guanxi on transactional decisions made by Chinese, suggesting that the outcome of Guanxi decision-making can be expressed through by relational mark down (RMD) and compensatory mark up (CMU). The offer of RMD and CMU depends on the Guanxi base, i.e. the strength of connection. We then discuss some Chinese behavioral characteristics and hopefully could help Western enterprises develop better relationships with Chinese counterparts.
 

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The Main Determinants
of Inflation in Nigeria

Akinlo, Anthony Enisan *
 

Studies on the relative importance of the various factors (both internal and external) in determining the rate of inflation in Nigeria is still not yet clear cut and controversial. Some of them conclude that excess domestic demand generated by expansionary fiscal and monetary policies have been the principal factor underlying the rising inflation rate. Few others argue that cost-push inflation resulting from excessive devaluations and wage increases has been the primary factor fuelling inflation in Nigeria. There is need to resolve this controversy. Thus, the main objective of this paper is to provide clearer evidence on the effect of monetary, fiscal and interest rate policies on inflationary pressures in Nigeria.

To achieve this objective, we developed a small model of the interactions between the main variables in the price formation in Nigeria. Special attention is paid to the role of interest rate in the unorganised. market, oil price fluctuations and prices of imported inputs. The model is estimated by using annual data covering the period 1970-2001.

Our results indicate that both domestic and foreign factors are instrumental to price increases in the Nigerian economy. The results suggest that comprehensive macroeconomic policies must be articulated to combat inflation in Nigeria. Reduction in money supply is necessary to moderate the interest rate in the organised sector. Exchange rate value needs to be properly aligned to insulate the domestic economy from externally generated inflation. However, where the country runs balance
of payments deficit in the face of high inflation (as is often the case in most developing countries), the government needs to encourage local sourcing of industrial raw materials so that currency depreciation would not compound external balance.
 

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NOTES AND MEMORANDA

Modeling Offshoring

Satwinder Singh
and
Torbjorn Fredriksson*
 

Offshoring is an internationally growing phenomenon that has attracted worldwide attention of scholars and public sector administrators in both host and home nations. The popular reason put forward for the phenomenal growth of offshoring is the availability of relatively cheap labour in host countries. In this paper, we provide a mathematical model of labour-saving hypothesis of services as reflected in the offshoring business. We also suggest two additional factors to explain the growth of off shoring : footloose characteristic of most services, and firms' zest to follow rivals move for move. Some empirical evidence in support of the suggested factors is provided.

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University of Allahabad