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CHAPTER ONE

 INTRODUCTION

1.1 Background to the study

The regulatory quality captures perception of the ability of the government to formulate and implement policies, regulate permit and promote private sector development.Effective regulation achieves the social welfare goals set down by the government for the regulatory authority. In developing countries, the social welfare objectives of regulation are likely to be not simply concerned with the pursuit of economic efficiency but with wider goals to promote sustainable development and poverty reduction. Efficient regulation achieves the social welfare goals at minimum economic costs. The economic costs of regulation can take two broad forms:

1) The costs of directly administering the regulatory system, which are internalized within government and reflected in the budget appropriations of the regulatory bodies; and

(2) The compliance costs of regulations, which are external to the regulatory agency and fall on consumers and producers in terms of the economic costs of conforming with the regulations and of avoiding and evading them (Guasch and Hahn, 1999). Regulatory quality can also be assessed in terms of the criteria for good governance. Parker (1999: 224) argues that a well-functioning regulatory system is one that balances accountability, transparency and consistency. Accountability requires the regulatory agencies to be accountable for the consequences of their actions, to operate within their legal powers, and to observe the rules of due process when arriving at their decisions (e.g. to ensure that proper consultation occurs). Transparency relates to regulatory decisions being reached in a way that is revealed to the interested parties. The third process which provides regulatory legitimacy is consistency. Inconsistent regulatory decisions undermine public confidence in a regulatory system. Inconsistency leads to uncertainty for investors, which raises the cost of capital and may seriously damage the willingness to invest. Since political intervention tends to undermine regulatory consistency, and politicians may be prone to alter the regulatory rules of the game for short term political advantage, consistency is a primary argument for some kind of “independent” regulator. This discussion suggests that the capacity of the state to provide strong regulatory institutions will be an important determinant of how well markets perform. An economy with a developed institutional capacity is more likely to be able to design and implement effective regulation, which should contribute to improved economic growth. Weaknesses in institutional capacity to deliver ‘good’ regulation may be predicted to affect adversely economic development (World Bank, 2002). There are basically three major sectors in Nigeria that needs effective regulation; the agricultural sectors, the banking sectors, and the oil sectors.

The level of regulatory quality plays a major role in the agricultural sector. The regulatory quality within the agricultural sector needs to develop as part of the broader government strategy to enhance regulatory quality (OECD, 2012). The ministry of agriculture will benefit from developing capabilities to enhance ex ante assessment of law and government regulations which it initiates.

1.2 Statement of problem

Regulation and state ownership both produce inefficiencies although of different types. For various reasons, state control of private industry usually fails to protect the public. First, the government must decide on the appropriate price the regulated firm can charge; if the bureaucrats are the generous, they are not doing their job – preventing monopoly pricing. On the other hand, if they keep rates too low, the regulated entity may be unable to attract capital and will eventually be forced out of the industry, stranding the customers that the regulation was designed to protect. Consequently, regulators; typically government functionaries, must estimate the costs of service including capital costs and an “appropriate” rate of return to ensure that their ward can survive. To estimate the right prices that are competitive prices – is impossible and what is correct at one point in time will almost instantaneously be wrong as conditions change.

For most regulated utilities, a government commission attempts to value the company’s investment and then calculate a “fair return” on its capital. To do this, state functionaries must quantify two financial variables a very difficult if not impossible task. The bureaucrats must estimate the value of the capital base – just what to include is a long running dispute in utility literature – and they must provide for a “fair” return on the capital. If the rate is too high, the firm can increase its profits by over-0investing more in their facilities than an unregulated firm would find optimally. Since there is no known rate of return that is correct and since too a figure will ultimately lead to bankruptcy, government officials will almost inevitably sanction a rate of return on invested capital above the cost of capital, thus leading to excessive investment.

1.3 Research questions

1. Does regulatory quality have any significant effect on the level of poverty in Nigeria?

2. What is the effect of regulatory quality on the economic growth of Nigeria?

3. What is the effect of regulatory quality on unemployment?

4. What are the effects of regulation on credit allocation?

1.4 Aims and objectives of study

This set of objective was to guide us in the conduct of this research on the regulatory quality and economic development, it also help to limit us to the scope of the objective. The objectives of the research work are to determine:

1.  The effect of regulatory quality on the level of poverty in Nigeria.

2.  The effect of regulation on the economic growth of Nigeria.

1. The effect of regulation on unemployment in Nigeria

2. The effect of regulation on credit allocation.

1.5 Scope of the study

The research works covers Nigeria for the period 2000-2015.

1.6 RESEARCH HYPOTHESIS

H0: regulation and umemployment rate has no significant effect on the level of poverty in Nigeria

H1: regulation and unemployment rate has a significant effect on the level of poverty in Nigeria

H0: regulation and poverty rate has no significant effect on unemployment rate in Nigeria

H1: regulation and poverty rate has significant effect on unemployment rate in Nigeria

H0: regulation does not affect credit allocation

H1: regulation affects credit allocation

H0: regulation has no significant effect on the economic growth in Nigeria

H1: regulation has significant effect on the economic growth in Nigeria

1.7 Justification of the study

The research work is an important one as it will reveal the impact of regulation on the economy of Nigeria, the study will also reveal the effect of regulation the level of poverty in Nigeria; and finally the research work will look at the role of regulatory qualities on monetary and finance stability, the agricultural sector and the power sector of Nigeria.

1.8 Organization of the study

The research work after completion will have the chapter one which is made up of the background of the study, the statement of problem, the research question and objectives; it will also contain the scope of study, the hypothesis of the research work and the justification of study.

The chapter two of the research work will contain the literature review; it will discuss the conceptual frame work, the empirical review and the theoretical frame.

The chapter three of the research work will contain the research methodology with some theoretical frame work.

The chapter four of the research work will contain the data presentation and analysis while the chapter five will contain the summary, conclusion and the recommendation for the research work.