REGRESSION ANALYSIS ON NATIONAL INCOME

1.1 Introduction

National income means the value of goods and services produced by a country during a financial year. Thus, it is the net result of all economic activities of any country during a period of one year and is valued in terms of money. National income is an uncertain term and is often used interchangeably with the national dividend, national output, and national expenditure. National Income is the total amount of income accruing to a country from economic activities in a fixed period of time (i.e., One Year). It includes payments made to all resources either in the form of wages, interest, rent, and profits. The progress of a country can be determined by the growth of the national income of the country. There are mainly two types of view to define national income.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

1.2 Background of Study

National income is the sum of the money value of all the commodities and services produced in a country within a particular period of time usually one year.The question of how an economy grows could come to mind at this juncture. It the amount of goods and services produced by an economy increases. If it does not increase yearly, it is not growing, even if it is growing, the rate of growth may not be uniform among years. Therefore it may not be possible to determine the condition of the economy.

In any case, an economy needs an indicator for measuring economy growth, this indicator is the monetary summation at all the commodities and service produced in an economy within a particular period of time usually a year.

To get national income of a country like Nigeria for instance, we take the list of the goods and services produced in the country during the year, assign values to them and add up. If we can do this year after year, we shall be able to make comparison of activities of Nigeria year after year. Then we can decisively determine whether the economy of Nigeria is growing, declining or stagnant. It is growing if the National income increases year after year, declining, if the National income is decreasing and stagnant it there is no difference in the National Income for years.

In measuring National Income, an indicator called Gross Domestic Product (GDP) is used at current price. It is therefore quite important here to point out the role that prices could play in the measurement of National Income. Prices of goods and services changes from time to time, these changes can affect any attempted estimates. Considerably, therefore to get an idea of the real physical change in National Income from year to year, effect of price changes must be removed.

National Income should be measured in real terms and allow for changes in price levels. For instance whenever the economy experiences inflation, price rises while the quantities of goods and services may remain constant. Let us say that 2000, the total units of the go0ods and services realized in Nigeria amounted to 50,000 units and also 50,000 units in 2001. Let us further assume that the average per unit in 2000 was N10.00 while the price in 2001 was N15,000.

Nigeria’s income with GDP as an indicator for 2000 was 50,000 units X N10.00 = N5000,000 Nigeria’s income with GDP as an indicator for 2001 was 50,000 units X N15.00 = N750,000.

If the two figures were presented to a layman as final products of overall estimates for 2000 and 2001, he would be tempted to say that the National income for 2001 was higher than that of 2000. This is so monetarily but really the income for both year are equal. The difference in value was due to rise in p rice in 2001 while the quantities of goods and services were the same in both years.

The same thing can be applicable when a country experience deflation or depression. Therefore in measuring national income for different years using gross domestic product as an indicator effects of price changes must be given the normal due. In so doing the changes in economy can be determined appropriately.

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Regression Analysis on National Income.

1.3 Statement of Problems

As a result of poor economic condition in Nigeria relevant information is of great interest to me for investigation if viable economic solution can be revealed.

Nigeria considered as one of the third world countries is been assessed by their income yearly. It is a simple logic of our living that it country’s income is high with considerable population; the enjoyment of the citizens of that country would be high, while the enjoyment is low with low national income. It is on this point that I find it very expedient to analyze the national income of Nigeria and make necessary recommendation for the improvement of the economy for the betterment of the citizenry.

1.4 Aim and Objectives of Study

The aim of the study is to investigate the relationship existing between disposable income, savings and government final expenditure for the purpose of suggesting solutions to our economic problems. In achieving this aim, the following specific objectives were laid out as follows:

1. To assess the linear relationship between the National Income variables listed;
2. To predict the future value of dependent variable;
3. To determine the reliability of regression coefficient and estimates.

1.5 Research Questions

After the regression analysis had been carried out, it will supply solution to the following questions:

• Is any linear relationship between the variables listed?
• How reliable is our regression coefficient?
• Can we predict the future value of dependent variable?
• How reliable will be our estimate?

1.6 Significance of Study

The study will help to know the status of Nigeria economy. The knowledge of the status will help to make necessary recommendation in order to revitalize the poor economic condition of the country for the better future.

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.7 Scope of the Study

The study is centre on “National Income, Savings and Government Final Consumption Expenditure Covering the period of six years 1998 – 2003.

The raw data used are collected as primary data by federal office of statistics” publication and Federal Ministry of Finance Publication. The data are collected as primary data by federal office of statistics and used as secondary data in this project which centered on national Accounts. Some of these National Accounts Aggregates Include Gross Domestic Product (GDP) final consumption expenditure, exports and imports.

National Accounts data presents the record of economic transaction of the economic in a systematic manner and show the relationship between the various components of the economy. Economic transaction cover all the activities of an entity (Household, government, firm, financial institution) that are of economic nature (production, consumption distribution, savings and foreign exchange transactions. These economic transactions of all the entiti8tes and combined together ad presented inform of account.

Data collected for analysis in this study center on:-

1. Appropriation of disposable income as dependent variable.
2. Savings as one of the independent variable
3. Government final consumption expenditure as another independent variable.

1.8 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Research material: availability of research material is a major setback to the scope of the study.
3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet).

1.9 Definition of Terms

Gross Domestic Product (GDP): This is the sum of the money value of all locally produced goods and services. It does not include international transaction. GDP does not make allowance for depreciation of capital.

Gross National Product (GNP): This is the total money value of current market prices of all final goods and services produced by the nationals during a specific period. It includes net income from abroad in respect of the country’s nationals without any consideration for depreciation of capital.

National Domestic Product (NDP): This is the total value of all goods and services produced in a country in a period of time. It excludes the value of the net earnings and incomes from abroad. An allowance being made for depreciation of capital.

Net National Product (NNP): This is the monetary value of all goods and services produced within the country during a specific period. It includes net incomes and earning from abroad and provision being made for the replacement of depreciation of capital.

Disposable Income (DPI): This is the amount of money per year that private sector are free to spend when depreciation of capital, all taxes, all net profits made by firms but not paid out as divided are added to the disposable and transfer payment subtracted.

Net Economic Welfare (NEW): This examines those factors not considered when calculating the Gross National Product (GNP). Such factors include social cost 9pollution) and leisure time the net economic welfare tend to remove the product (GNP). A nation might have a very high GNP at a very great social cost as pollution, rising crime etc.

Per Capita Income (PCI): This is the gross domestic product divided by the population of the country. Per capita income can be calculated once the population and gross domestic product are known. So that P.C.I = GDP