SS3 FIRST TERM ECONOMICS E-NOTE

Economics lessons from the Asian Tigers, Japan, Europe and

Economics lessons from the Asian Tigers, Japan, Europe and
America 2
Human Capital Development
Petroleum and the Nigeria Economy
Economics SSS3 First Term Mid-Term Assessment
TEST
Service Industries
Agencies that regulates the financial markets
Functions and Roles of Regulatory Agencies
International Trade
International Trade (2)
Economics SSS3 First Term Final Assessment
TEST
Manufacturing and Construction

WEEK 1

Economics lessons from the Asian Tigers, Japan, Europe and

America 1

Performance Objectives

Student should be able to:

1. Explain the factors that account for the rapid development of those
countries in South East Asia
2. Explain the meaning of the Japanese miracle  
Content

Economics history of the Asian Tigers

The Four Asian Tigers are the fast-growing economies of Singapore, Hong
Kong, Taiwan and South Korea. The four Asian nations have consistently
sustained high-growth economic rate since the 1960s, charged by rapid
industrialization and exports, which facilitated these economies to be in line
with the world’s wealthiest nations.

Hong Kong and Singapore are among the most prominent worldwide
financial centres, while South Korea and Taiwan are essential hubs for the
global manufacturing of automobile and electronic components, as well as
information technology.

The world economic growth began to pick up during the early 1960s after
the World War II and the Korean War in the early 1950s. Major leaps in air
telecommunications and air travel coupled with probable world peace
indicated that world countries were opening up their borders and thus the
Four Tigers took advantage of this opening. The four countries had viable
trade economies, established ports, high literacy levels and advanced
infrastructure inherited from their colonial masters.

Owing to this development, the Asian Tigers took advantage of the

situation since they were quite poor in the 1960s; these countries had
plenty of inexpensive labour. Combined with educational restructuring,
they were smart to leverage this amalgamation into a low-priced, yet
industrious labour force. The Asian Dragons devoted to social equality in
terms of land reforms, promotion of property rights and welfare of
agricultural workers. In a little while, products and services from these
nations were in high demand.

A booming stock exchange had already begun in 1891 in Hong Kong; thus
it was reasonable when it drifted to financial services from the export
market. Hotly followed by Singapore the two tiny nations are currently
important global financial centres. During that interval South Korea and
Taiwan were propelling the 1980’s -1990’s tech boom, nowadays Taipei
and Seoul are leaders in cutting-edge technology and also home to the
biggest names in electronics. These advancements happened so quickly
hence the nickname ‘The Asian Miracle‘.

The economic growth of the Four Asian nations enabled them to sail
through the local 1997 Asian Financial Crisis and also 2008 World Economic
Crisis. At present these four nations significantly get enlisted in IMF’s global
list of top 40 advanced economies.

Factors that account for the rapid development of the Asian

Tigers

Some of the factors that account for the rapid development of these
countries in South East Asia are:

1. High savings rate: The Asian Tigers embarked on a very high savings

rate and that meant that they were able to have a very high investment
rate with investments that they funded. Savings are more important
because they a means to an end and reasonable way to fund investment.

2. Education: The high level of literacy among the Asian Tigers

underpinned the economic development of the country.

3. Labour supply: There is a plentiful supply of workers for countries in

South East Asia with a steady stream of rural-urban migrants in search of
work. This is due to the mechanization of agriculture leading to
unemployment and under-employment in rural areas and concurrent
growth in industrial work in urban areas.

4. Stable and relatively low wages: The Tigers kept their wages very
low. This means that they produce more products at low prices to
consumers around the world. To keep the wages low, meant that they had
to engage in macroeconomic policies that kept their currencies relatively
cheap and to sustain political support in delivering goods that made the
economy richer, while not receiving high wages, yet the later was seen as
part of the plan, and it is something that worked.

5. A relatively open trading system: There was a relatively open

trading system in the Far East, which considerably helped to stimulate
cost-efficiency and changes.

6. Presence of an abundance of natural resources:  There was an

abundance of various kinds of natural resources. Agricultural and mineral
resources were abundantly available for the Tigers to use which aided the
economic development of the Asian countries.

7. Strong leadership:  The Asian Tigers politicians are said to feel a

greater responsibility to the nation than to themselves. Strong leadership
from the head of state has been a major factor contributing to economic
success. 

The Japanese miracle

A term for the remarkable economic growth Japan experienced after its
devastation in World War II. The growth is credited to a combination of
American investment immediately after the war and government regulation
of the economy. The Japanese government restricted imports and
promoted exports. Meanwhile, the Bank of Japan lent vast amounts to
companies to stimulate private investment. This combined with a close
relationship between corporate executives and bureaucrats allowed the
government to pick winners successfully. The Miracle lasted until the
Japanese financial crisis, which started in 1991.

Development strategies employed by Asian Tigers, Japan, Europe

and America
1. Investment in skill: The South-East Asian region has experienced
some of the highest growth rates in the world, with investments in skills
playing a significant role in helping national economies to adjust to
changes in working practices.

2. Advance in Technology: This has also helped the south East Asian to

excel. This process has been successfully managed and significant
advances have been achieved in growth rates and employment levels.

3. A well developed financial sector: Europe has a well developed

financial sector with financial institutions among the leading ones in the
world. This makes for easy accumulation and transfer of capital for
investment.  

4. Economic integration: Integration in many areas of development

created economies of scale and increased the level of investment in these
countries.

5. Effective and stringent public policies:  This consisted of credible

macroeconomic policies that kept inflation low, interest rates low, fiscal
policies that focused on rising saving rates and investment rates, as well as
policies that enhanced the development of infrastructure. These factors
consequently promoted private investment and growth.

WEEK 2

Economics lessons from the Asian Tigers, Japan, Europe and

America 2
Performance Objectives

Student should be able to:

1. Differentiate between the development strategies of Asian Tigers,

Japan, Europe and America.
2. Identify the lessons for Nigeria 

Content

Lesson for the Nigerian economy

Many of the Asian Tiger strategies are a replica of Europe’s and America’s
strategies. Nigeria has the following lessons to learn from the Asian Tigers

1. The Nigerian educational system should be stabilized through policies

that will end incessant school closures. It should also be reformed to focus
on skill acquisition rather than mere certification.

2. Proper and effective management of resources should be embraced.

Looting of the nation’s resources must be discouraged and corruption
addressed with zeal.

3. A financial and banking system that favours savings and encourages

business growth should be pursed. Government and private savings should
be encouraged to improve future investment which is necessary for
development.

4. Proper management of the macroeconomic environment especially the

management of variables like public debts, deficit and exchange rate.

5. Nigeria’s export policy should focus on areas of comparative advantage

or preference e.g. agriculture. Nigeria should increase its production and
export of product like cocoa and groundnut to increase its foreign
exchange earnings rather than depend solely on crude oil earnings.
6. Development of small and medium scale enterprises (SMEs). Nigeria can
learn from Asian Tigers on SME development. SMEs in all countries around
the world are enjoying a new focus now because it is the foundation for
the development of any country.

WEEK 3

Human Capital Development

Performance Objectives

Student should be able to:

1. Define human capital.

2. Explain the factors affecting the efficiency of human capital
3. Distinguish clearly between human and physical capital
4. Define brain drain. 

Content

Definition of Human Capital

Human capital is the stock of habits, knowledge, social and personality

attributes embodied in the ability to perform labour to produce economic
value. Alternatively, it refers to the value that is added onto a company by
an employee’s skill and competencies.

Human capital is an important factor of production, and employing

individuals with the right education, experience, skills and training can
improve efficiency, productivity and profitability. Companies can invest in
their human capital by offering training and education facilities to its
worker.
Definition of Physical capital

Physical capital refers to assets which themselves have been manufactured

and are used for the production of other goods and services.

An important point to note is that physical and human capital must go

hand in hand for a business to run its operations successfully.

Differences between human capital and physical capital

1. Human capital is human assets. On the other hand, physical capital is

non-human assets i.e. they are made by man

2. Human capital can appreciate through education, training and

experience while physical capital does not appreciate their value

3. Physical capital is tangible, i.e. it can be seen and touched. Unlike

human capital is intangible that can only be experienced.

4. Human capital is acquired through formal education, job training, on the

job learning and life experiences, whereas physical capital can be acquired
through direct purchases or lease.

5. Human capital can depreciate through bad health and poor training,
whereas physical capital can depreciate due to ageing and not by bad
health.

6. Human capital is inseparable from its possessor. On the other hand,

physical can be separated from its owner easily.

Characteristics of Human Capital

1. Skills, qualifications and Education: The productivity of workers is

closely tied to their skills, education, and qualifications.
2. Work experience: The more experienced employees are, the more
they create value.

3. Social and communication skills: Human capital requires social and

communication skills. Knowledge, skills and training will be of no use if
they cannot communicate effectively or work well with other employees.

4. It requires motivation: For human capital to perform efficiently and

increase productivity, it must be motivated.

5. Human controls other factors of production:  Human capital

controls and combines all other factors of production to make them more
meaningful to the society.

6. Human capital has initiative: Human capital can act on its initiative.

Factors that affect the efficiency of human capital

1. Education: Basic education to improve literacy and numeracy has an

important implication for the basis of human capital.

2. Competitiveness: An economy dominated by state monopolies is likely

to curtail individual creativity and entrepreneurs. An environment which
encourages self-employment and the creation of business enables greater
use of potential human capital in an economy.

3. Infrastructure: The infrastructure of an economy will influence human

capital. Good transport, communication, availability of mobile phones and
the internet are very important for the development of human capital.

4. Vocational training: Direct training for skills related to jobs,

electrician, plumbing, nursing. A skilled professional requires particular
vocational training.
5. Health status: Good health status promotes better human capital
whereas poor health status does not.

6 Experience: Experience is very important for human capital to be

efficient.

Brain Drain and its effect on Nigeria Economy

Brain drain also called Human capital flight can be described as the
migration of educated and skilled labour from poorer to richer countries. In
other words, human capital flight is the loss of talented or trained persons
from a country that invested in them to another country which benefits
from their arrival without investing in them.

Effect of brain drain on the Nigeria Economy

When brain drain is prevalent in a developing country there may be some

negative repercussions that can affect the economy. These effects include
but not limited to:

1. Loss of tax revenue to the Nigerian government.

2. Loss of potential future entrepreneurs.

3. A shortage of important skilled workers. This may lead to loss of

confidence in the economy which will cause persons to desire to leave
rather than stay.

4. Loss of innovative ideas

5. Loss of the country’s investment in education.

6. The loss of critical health and education services.

Brain drain is usually described as a problem that needs to be solved.
However, some benefits can be derived from the phenomena. When
people move from developing countries to developed countries, they learn
new skills and expertise, which they can utilize to the advantage of the
home economy once they return. Another benefit is remittances; the
migrants send the money they earn back to the home country, which can
help to stimulate the home country’s economy.

How to arrest brain drain

The drawbacks of brain drain outweigh the benefits, so there are some
moves that governments can make to reduce the number of highly
educated and skilled workers that relocate to other countries. If we want to
arrest brain drain the following should be done:

1. Provision of better job opportunities:  Better job opportunities have

to be provided irrespective of tribe, belief, race or nationality.

2. Provision of attractive salaries: Government should provide

attractive salaries to highly qualified people based on their qualifications
and experience.

3. Improve on the universities:  There should be a proper improvement

on the quality of our universities and bring them at par with other
universities in Europe and America.

4. Improvement on power supply:  The country is having constant poor

power supply.

5. Protect the lives of your citizens:  The country is not safe with Boko
Haram activities and kidnapping everywhere.

6. Eradication of tribalism, nepotism and corruption:  All sentiments

must be discarded.
WEEK 4

Petroleum and the Nigeria Economy

Performance Objectives

Student should be able to:

1. State the growth of the petroleum industry in Nigeria.

2. Discuss adequately the impact (positive and negative) of petroleum
on the Nigeria economy
3. Explain the role of N.N.P.C AND OPEC in the production and
marketing of petroleum products.

Content

The advent of the oil industry can be traced back to 1908, when a German
entity, the Nigerian Bitumen Corporation, commenced exploration activities
in the Araromi area, West of Nigeria. These pioneering efforts ended
abruptly with the outbreak of the First World War in 1914.

Oil prospecting efforts resumed in 1937, when Shell D'Arcy (the forerunner
of Shell Petroleum Development Company of Nigeria) was awarded the
sole concessionary rights covering the whole territory of Nigeria. Their
activities were also interrupted by the Second World War, but resumed in
1947. Concerted efforts after several years and an investment of over N30
million, led to the first commercial discovery in 1956 at Oloibiri in the Niger
Delta.

               
This discovery opened up the Oil industry in 1961, bringing in Mobil, Agip,
Safrap (now Elf), Tenneco and Amoseas (Texaco and Chevron respectively)
to join the exploration efforts both in the onshore and areas of Nigeria.
This development was enhanced by the extension of the concessionary
rights previously a monopoly of Shell, to the newcomers. The objective of
the government in doing this was to the pace of exploration and production
of Petroleum. Even now more companies, both foreign and indigenous
have won concessionary rights and are producing. Actual oil production
and export from the Oloibiri field in present-day Bayelsa State commenced
in 1958 with an initial production rate of 5,100 barrels of crude oil per day.
Subsequently, the quantity doubled the following year and progressively as
more players came onto the oil scene, the production rose to 2.0 million
barrels per day in 1972 and a peaking at 2.4 million barrels per day in
1979. Nigeria thereafter attained the status of a major oil producer,
ranking 7th in the world in 1972, and has since grown to become the sixth-
largest oil-producing country in the world.

Contributions of petroleum to the Nigerian economy

Positive Contributions of petroleum to the Nigerian Economy:

1. Source of government revenue: Petroleum has contributed greatly

to the major source of revenue available to the government.

2. Infrastructural development: Money generated from the petroleum

industry has helped developed infrastructures in the country.

3. Generation of employment: The petroleum industry has aided the

creation of job opportunity for citizens of the country.

4. Improvement of balance of payment: The exportation of petroleum

to foreign countries has contributed greatly to the improvement of balance
of payment

5. Major source of energy: Petroleum remains the major source of

energy in the country. e.g. petrol, diesel and kerosene.
Negative Contributions of petroleum to the Nigerian economy

1. Environmental pollution: Oilexploration has led to serious

environmental pollution of the land, air and water, especially in the Niger
Delta region of the country.

2. Development of mono-economy: As a result of the discovery of oil,

Nigeria is now a mono economic country, i.e. it now relies solely on crude
oil as her major source of revenue.

3. Neglect of agricultural and other sectors: Agriculture, which used

to be a major source of revenue to the nation, has been neglected. Other
sectors no longer have relevance in the economy of Nigeria.

4. Rural-urban migration: It has also led to the movement of able-

bodied men and woman from rural to urban centre in search of nonexistent
jobs.

5. Political instability: The discovery of crude oil has led to political

instability in the country.

6. Economic instability: Crude oil price can collapse any time which can
spell doom for the nation.

The Nigerian National Petroleum Corporation (N.N.P.C)

The Nigerian National Petroleum Corporation (NNPC) is the state oil

corporation which was established on April 1, 1977. In addition to its
exploration activities, the Corporation was given powers and operational
interests in refining, petrochemicals and products transportation as well as
marketing. Between 1978 and 1989, NNPC constructed refineries in Warri,
Kaduna and Port Harcourt and took over the 35,000-barrel Shell Refinery
established in Port Harcourt in 1965.
In 1988, the NNPC was commercialized into 12 strategic business units,
covering the entire spectrum of oil industry operations: exploration and
production, gas development, refining, distribution, petrochemicals,
engineering, and commercial investments.

The roles of Nigerian National Petroleum Corporation (N.N.P.C) in

the Exploration, Production, Refining, Marketing and Distribution
of petroleum products.

1. Exploration of oil: NNPC is charged with the responsibility of oil

exploration in the country. They have the authority to search for the
presence of oil in any part of the country.

2. Petroleum refining: The NNPC is charged with the responsibility of

supervising the refining of petroleum to get its products like petrol, diesel
and kerosene.

3. Regulatory functions: The NNPC was set up to regulate the activities

of the oil company in Nigeria, e.g. issuance of licenses for oil exploration,
oil prospecting and operation of filling stations.

4. Petroleum production: The NNPC is responsible for the sinking and

controlling of its oil well to produce crude oil.

5. Marketing petroleum products: The organ is the cooperation

responsible for the distribution and marketing of petroleum products.

6. Oil policy implementation: The NNPC is also an organ through which

the government implements its oil policies.

Organization of petroleum exporting countries (OPEC)

The Organization of the Petroleum Exporting Countries (OPEC) is a group
consisting of 14 of the world’s major oil-exporting nations. OPEC was
founded in 1960 to coordinate the petroleum policies of its members and to
provide member states with technical and economic aid. OPEC is
a cartel that aims to manage the supply of oil to set the price of oil on the
world market, to avoid fluctuations that might affect the economies of both
producing and purchasing countries. Countries that belong to OPEC include
Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela (the five founders), plus
the United Arab Emirates, Libya, Algeria, Nigeria, Gabon, Ecuador,
Indonesia, Libya, Qatar. The organization’s secretariat is in Vienna, Austria.

The roles of Organization of petroleum exporting countries

(OPEC) in the Exploration, Production, Refining, Marketing and
Distribution of petroleum products.

1. To coordinate & unify the petroleum policies of member countries and to

determine the best means for safeguarding their individual and collective
interests;

2. To seek ways and means of ensuring the stabilization of prices in

international oil markets to eliminate harmful and unnecessary fluctuations;
and

3. To provide an efficient economic and regular supply of petroleum to

consuming nations and a fair return on capital to those investing in the
petroleum industry

4. It fixes and allocates production quota to member nations.

5. Encouragement of member nations to participate in the oil exploration.

WEEK 5

Manufacturing and Construction

Performance Objectives

Student should be able to:

1. Define manufacturing and Construction.

2. List the types of manufacturing activities.
3. List the contributions of the manufacturing industry to economic
development
4. List the contributions of the construction industry to economic development.

Content

Manufacturing is concerned with the activities of those who engaged in

processing and turning raw materials produced in the primary industry
into finished products. The raw materials or natural resources are
transformed into finished products after going through different
processes to add value and utility. Examples of manufacturing
industries are shoemaking, food processing, plastic processing and
textile processing.

Construction industry is concerned with all the activities of those who

engage in assembling of goods into a useable form. They convert
manufactured products into various uses. Examples of construction
industries are: Road construction, Building construction, Airport
construction, Bridge construction, Furniture construction.

Types of manufacturing
1. Textile manufacturing: This is based on the conversion of fibre into
yarn, yarn into fabric. These are then dyed or printed, fabricated into
clothes.

2. Food processing industry: Food processing is an example of light

industry, although food processing can take place on a large scale. It
involves the processing of raw materials into foodstuffs, food
preservation and food packaging.

3. Chemical manufacturing: This involves the transforming of biological

and chemical materials into something new or separating into parts.

4. Metal manufacturing: This type of manufacturing industries includes

both primary and fabricated metal products. The process includes
various stages such as metal cut, bending, assembling and so on.

5. Furniture and wood products: This is big manufacturing that works

with wood and lumber to produce new products usually get raw
materials from tree branches, logs and trunks.

Contribution/ Roles of the manufacturing and construction in economic

development

1. Increase in Gross Domestic Product (GDP): The manufacturing and

construction industry through its operations like payment of taxes
increases the earnings accruing to the nation.

2. International trade improves trade balance: Most of the products of

manufacturing industries like machinery are usually from western
nations. This forms the basis for international trade and it improves
trade balance between countries.
3. Employment opportunities: The manufacturing and construction
industries help in the generation of employment for citizens.

4. Infrastructural development: the establishment of an industry in a

place stimulates the development of infrastructure like road,
telephone, electricity and pipe-borne water.

5. Stimulation of other sectors: Industrial sector stimulate the growth of

other sectors like agriculture, mining and lumbering.

6. Diversification of the economy: The industrial sector helps different

countries to prevent over-dependence on only one product like present
Nigeria’s dependence on crude oil.

7. Funding of education and research: The industrial sector provides

capital for the funding of education and research work in all nations.

First Term Mid-Term Assessment

1. What country is one of the Asian Tigers?

Singapore

Thailand

North Korea

China

2. One of the factors that accounted for the rapid development of the Asian tigers
include the following excerpt
High savings rate

Abundance of labour

Presence of abundance of natural resources

None of the above

3. Japan is the ______ largest economy in the world

1st

2nd

3rd

4th

4. Which economy was not among the four Asian tigers of the 1980s?

South Korea

Singapore

Japan

Taiwan

5. Singapore does not have an open and corruption-free environment

True

False

6. Singapore was founded as a _______ trading colony in 1819

British

Dutch

Indian

France

7. Lessons for the Nigerian economy from the Asian Tigers include the following except

Strengthening the development of agriculture

Formulation and implementation of deliberate government policies

Discouraging industrial development

Development human capital

8. One of the challenges facing SMEs in Nigeria is

Good infrastructure

Assess to loan

Inadequate power supply

Human capital development

9. One of the factors that accounted for the rapid development of the asian tigers
include the following excerpt

High savings rate

Abundance of labour

Presence of abundance of natural resources

None of the above

10. South Korea and Taiwan are good technological hub

True

False

11. All non-human assets created by humans and used in the production and
manufacturing process.

Human capital

Labour force

Physical capital

Brain drain

12. Which of the following is not an importance of human capital

Operation of machines

It hinders productivity

It ensure profitability

Provision of personnel

13. The departure of individuals with technical skills or knowledge from organizations, or
geographical region to another is _______

Brain drain
Human capital

Physical capital

Labour flight

14. To arrest brain drain, governments can do any of the following excerpt

Improve on the universities

Promotion on merit

Improve power supply

Encourage tribalism and nepotism

15. _______ refers to the value that is added onto a company by an employee which
can be measured by the employee’s skill and competencies

Human capital

Labour Force

Physical capital

Human capital flight.

16. The petroleum industry in Nigeria is an example of a

Capital-intensive industry

Service industry

Labour-intensive industry

Tertiary production industry

17. The Organization of Petroleum Exporting Countries (OPEC) is a

Cartel

Duopoly

Monopoly

Monopsony

18. Which of the following is not an objective of the Organization of Petroleum Exporting
Countries (OPEC)?

Stabilization of oil prices

Coordinating prices

Harmonizing oil prices

Stagnation of developed economies

19. The Nigerian National Petroleum Corporation (NNPC) was established in what year

1988

1977

1967

1969

20. Which of the following is a positive contribution of petroleum to Nigerian economy?

Environmental pollution
High rate of inflation

Economic instability

Generation of employment

21. ______ refer to the turning of raw materials onto new products by mechanical or
chemical processes in the factory

Construction industry

Manufacturing industry

Labour intensive

Capital intensive

22. . An industry that is concerned with all the activities of those who engage in
assembling of goods manufactured into useable form

Construction industry

Manufacturing industry

Labour intensive

Capital intensive

23. Which of the following is not a contribution of the industrial sector to the Nigerian
economy?

Diversification of the economy

Man power development

Increase in gross domestic product

Reduction in government revenue

24. The manufacturing industry belong to primary industry

True

False

25. . Which of the following is not a problem of manufacturing industries?

Insufficient capital

Shortage of raw material

Incentives to industries

Poor management

WEEK 6

Service Industries

Performance Objectives

Student should be able to:

1. Describe economic services.

2. State types of economics services.
3. List the roles of the service industry to economic development

Content
The service industries involve the provision of services to business
as well as to the final consumers. The service industry renders
services to the people. A service involves doing something for
consumers, which could be personal or indirect services. The
people pay directly or indirectly.

Type of service industries

1. Banking: This includes people who assist others to have money

for their daily needs. They also provide capital for those
embarking on industrial activities and saving facilities.

2. Insurance: Insurance is concerned with the activities of people

who undertake to protect individuals or businesses against risk in
their day to day operation. These people are insurance brokers,
underwriters and agents.

3. Advertising: This involves the business of providing information

about the existence of a product to the potential buyers.

4. Transportation: This is concerned with the movement of goods

and services to where they are needed. Those who engage in
these services are drivers, pilots and sailors.

5. Warehousing: The people involved are warehouse managers,

clerks etc. They are concerned with ensuring that goods produced
are stored until they are for consumption.

6. Tourism: This is concerned with all the activities of those who engage

in creating tourist attractions in different tourist centres.
7. Trading: This is concerned with the activities of all people who engage
in the act of buying and selling of goods and services.

8. Communication: This includes all the activities which promote rapid

transmission of messages between senders and receivers or from one
place to another.

Role/ Contributions of the service industries to economic

development

1. Aids to Trade: Service industries through banking, warehousing and

transportation do assist in enhancing trading in the economy of the nation.

2. Generation of revenue: Service industry generates revenue both for

the government through tax and the people who are engaged in the
industry.

3. Generation of employment: The service industry through all activities

in trading, banking, transportation, communication helps to generate
employment for the people.

5. Stimulate other sectors: The service industry does stimulate the

growth of other sectors like the manufacturing and construction industries.

6. Diversification of the economy: The service industry also helps in

the diversification of the economy through its branches like tourism.

7. Manpower development: Many people are trained in different areas

e.g. Doctors, Lawyers, Musicians, Teachers, Police and Army.

WEEK 7
Agencies that regulate the financial markets

Performance Objectives

Student should be able to:

1. Identify regulatory agencies.

2. State the aspect of the market regulated by each agency.

Content

Meaning and types of regulatory agencies

Regulatory agencies of financial institutions are agencies set up by the

government to regulate the activities of financial markets such as money
market, capital market and stock exchange.

Financial regulation is a form of regulation or supervision, which subjects

financial institutions to certain requirements, restrictions and guidelines,
aiming to maintain the integrity of the financial system. This may be
handled by either a government or non- government organization.

Aims of regulation

1. To maintain confidence in the financial system

2. Contributing to the protection and enhancement of stability of the

financial system.

3. Securing the appropriate degree of protection for consumers.

4. Reducing the extent to which a regulated business can be used for a

purpose connected with financial crime.
5. Financial regulators ensure that listed companies and market
participants comply with various regulations under the trading acts.

6. They supervise the stock exchanges through exchange acts ensure that
trading on the exchange is conducted properly.

The major agencies established to regulate these financial markets are the
central banks of Nigeria (CBN), the Nigerian Deposit Insurance Corporation
(NDIC) and the Security and Exchange Commission (SEC).

Regulation of Money market, Agencies of the money market and

their roles

The money market refers to a market for short term loan. The market
constitutes individuals and institutions that either have money to lend or
wish to borrow on a short term basis. Federal and state governments have
a myriad of agencies in place that regulate and oversee financial market
and companies. These agencies each have a specific range of duties and
responsibilities that enable them to act independently of each other while
they work to accomplish similar objectives. The objectives of monitoring or
regulation is to ensure compliance by listed companies with their disclosure
requirement to ensure that investors have access to essential and
adequate information for making an informed assessment of listed
companies and their securities.

Agencies that regulate the money market in Nigeria are:

1. The central bank of Nigeria:  Central bank is the highest financial

institution in a country which carries out the monetary policy of the
government. It is the sole authority in the banking industry which acts as
banker to the government and the commercial banks. Central banks
controls and regulates the supply of money.

2. Nigerian Deposit Insurance Company: The role of the NDIC is to

administer the deposit insurance system (DIS) in Nigeria and protect
depositors. The cooperation provides incentives for sound risk
management in the Nigerian banking system, promotes as well as
contributes to the stability of the financial system. The NDIC complements
the regulatory and supervisory role of the central bank of Nigeria (CBN),
although it reports to the federal ministry of finance.

3. Financial Industry Regulatory Authority (FINRA):  FINRA

represents and regulates all stock and bond brokerage firms and their
employees.

Regulation of Capital market, Agencies of capital market,

objectives and tools

Capital market is a market for medium-term and long term loans. It

comprises all the institutions which are concerned with either the supply of
or demand for long term capital. Some of the agencies that regulate the
capital market are:

1. The central bank of Nigeria:  Central bank is the highest financial

institution in a country which carries out the monetary policy of the
government. It is the sole authority in the banking industry which acts as
banker to the government and the commercial banks. Central banks
controls and regulates the supply of money.

2. Nigerian Deposit Insurance Company: The role of the NDIC is to

administer the deposit insurance system (DIS) in Nigeria and protect
depositors. The cooperation provides incentives for sound risk
management in the Nigerian banking system, promotes as well as
contributes to the stability of the financial system. The NDIC complements
the regulatory and supervisory role of the central bank of Nigeria (CBN),
although it reports to the federal ministry of finance.

2. The Securities and Exchange Commission:  The security and

exchange commission (SEC) is the regulatory apex organization of the
Nigerian capital market. Security and exchange commission was
established in 1979. The primary aim of the commission is to protect
investors and maintain the integrity of the securities markets including
primary and secondary market.

Instruments used in capital market

i. Debt instrument

ii. Equities (also called common stock)

iii. Preference Shares.

iv. Derivatives.

WEEK 8

Functions and Roles of Regulatory Agencies

Performance Objectives

Student should be able to:

1. Explain the functions of CBN, NDIC, SEC, etc.

2. Demonstrate knowledge of their evolution.

Content

Functions of Central bank of Nigeria (CBN)

Central bank is the highest financial institution in a country which carries

out the monetary policy of the government. It is the sole authority in the
banking industry which acts as banker to the government and the
commercial banks. Central banks controls and regulates the supply of
money. The function of the central bank includes the following:

1. Banker to the government: Central bank is an agent and banker to

the government. It controls the public account, receives revenue on behalf
of the government and makes payment from this account.

2. Foreign Exchange transaction: The central bank holds the foreign

reserve of a country, and this helps in enforcing foreign exchange control,
which is set up to purchase and sell foreign currencies.

3. Management of national debt: The central bank is responsible for

the management of national debt of the country.

4. Responsible for monetary policy:  The central bank is responsible for

the monetary policies of the country.

5. Formulation of rules and regulations guiding the banking

industry: The central bank controls, regulate and supervises other
components of the banking system. 

Functions of the Nigerian Deposit Insurance Company

Section 2 of the Nigeria Deposit Insurance Corporation Act 2006 stipulates

the functions for the corporation as follows:

1. Ensuring all deposit liabilities of licensed banks:  Such other

financial institutions (hereinafter referred to as “insured institutions”)
operating in Nigeria within the meaning of sections 16 and 20 of this Act to
engender confidence in the Nigerian banking system.

2. Assisting: To insured institutions in the interest of depositors, in case of

imminent or actual financial difficulties of banks particularly where
suspension of payments is threatened, and avoiding damage to public
confidence in the banking system.

3. Guaranteeing payments to depositors:  In case of imminent or

actual suspension of payments by insured institutions up to the maximum
as provided for in section 20 of this Act.

4. Assisting monetary authorities: In the formulation and

implementation of policies to ensure sound banking practice and fair
competition among insured institutions in the country

5. Pursuing any other measures:  Necessary to achieve the functions of

the corporation provided such measures and actions are not repugnant to
the objects of the corporation.

Functions of the Securities and Exchange Commission

The major functions of the Securities and Exchange Commission are as

follows:

1. To control the stock exchange or any other security market business.

2. To register any type of joint-stock scheme including mutual fund and

monitor and control them.

3. To develop, monitor and control security markets all authorized and self-
controlled bodies/organizations.

4. To develop investment-related knowledge and to arrange for training

facilities for persons involved with the security market.

5. To inspect security dealers, issuer and stock exchange and ask to

provide information, investigation and conduct audit.
6. To analyze, discuss and conduct research any activity related with
security.

7. To disclose and preserve any information and data related with security
market. These are the functions of the SEC to develop the share market
and protect the interest of the shareholders.

WEEK 9

International Trade

Performance Objectives

Student should be able to:

1. Explain how domestic trade differs from international trade.

2. Discuss comparative cost theory.
3. Explain the limitations of comparative cost theory.

Content

International trade also known as foreign trade or external trade is the

exchange of goods and services between countries. Trading globally allows
consumers and countries to be exposed to goods and services not available
in their own countries, or which would be more expensive domestically.
The importance of international trade was recognized early on by political
economists like Adam Smith and David Ricardo.

According to David Ricardo, the country should specialize in the production

of goods and services for which it has a cost advantage over another
country. This he pointed out will bring about the production of goods at a
cheaper cost.

Types of International trade

There are two major types of international trade. These are:

1. Bilateral international trade: This is a trade agreement in which two

countries exchange goods and services.

2. Multilateral international trade: This is a type of international trade

in which a country trades with many other countries. E.g. Nigeria trades
with the USA, Britain and Japan.

Internal Trade

Internal trade, also known as domestic tare of home trade involves the
exchange of foods and services among the people within a particular
country. The items of internal trade include those goods and services which
are produced and sold internally or locally.

Differences between international trade and internal trade

1. Immobility of Factors of Production: Labour and capital do not

move freely from one country to another as they do within the same
country. On the contrary, between regions within the same political
boundaries, people distribute themselves more or less according to
opportunities.

2.  Different Currencies:  Each country has a different currency.

India for instance, has the rupee, the U.S.A. the dollar, Germany
the mark, Italy the lira, Spain the peso, Japan the yen, and so on.
Hence, buying and selling between nations give rise to
complications absent in internal trade.
 

3.  Restrictions on Trade:  Trade between different countries is

not free. Very often there are restrictions imposed by custom
duties, exchange restrictions, fixed quotas or other tariff barriers.
For example, our own country has imposed heavy duties on
import of motor cars, wines and liquors and other luxury goods.
 

4.  Ignorance:  Knowledge of other countries cannot be as exact

and full as of one’s own country. Differences in culture, language
and religion stand in the way of free communication between
different countries. On the other hand, within the borders of a
country, labour and capital freely move about. These factors, too,
make internal trade different from international trade.

Reasons or basis for international trade

1.  Reduced dependence on your local market: Your home

market may be struggling due to economic pressures, but if you go global,
you will have immediate access to a practically unlimited range of
customers in areas where there is more money available to spend, and
because different cultures have different wants and needs, you can
diversify your product range to take advantage of these differences.

2. Increased chances of success: Unless you’ve got your pricing

wrong, the higher the volume of products you sell, the more profit you
make, and overseas trade is an obvious way to increase sales.  In support
of this, UK Trade and Investment (UKTI) claim that companies who go
global are 12% more likely to survive and excel than those who choose not
to export.

3. Increased efficiency: Benefit from the economies of scale that the

export of your goods can bring – go global and profitably use up any
excess capacity in your business, smoothing the load and avoiding the
seasonal peaks and troughs that are the bane of the production manager’s
life.

4. Increased productivity: Statistics from UK Trade and Investment

(UKTI) state that companies involved in overseas trade can improve their
productivity by 34% – imagine that, over a third more with no increase in
plant.

5. Economic advantage: Take advantage of currency fluctuations –

export when the value of the pound sterling is low against other
currencies, and reap the very real benefits.  Words of warning though;
watch out for import tariffs in the country you are exporting to, and keep
an eye on the value of sterling.  You don’t want to be caught out by any
sudden upsurge in the value of the pound, or you could lose all the profit
you have worked so hard to gain.

6. Innovation: Because you are exporting to a wider range of

customers, you will also gain a wider range of feedback about your
products, and this can lead to real benefits.  UKTI statistics show that
businesses believe that exporting leads to innovation – increases in break-
through product development to solve problems and meet the needs of the
wider customer base.  53% of businesses they spoke to said that a new
product or service has evolved because of their overseas trade.

7. Growth: The holy grail for any business, and something that has been
lacking for a long time in our manufacturing industries – more overseas
trade = increased growth opportunities, to benefit both your business and
our economy as a whole

The principle of comparative cost advantage

Comparative advantage occurs when one country can produce a good or

service at a lower opportunity cost than another. This means a country can
produce a good relatively cheaper than other countries
The theory of comparative advantage states that if countries specialize in
producing goods where they have a lower opportunity cost – then there
will be an increase in economic welfare.

Theory of Comparative Advantage

Comparative advantage was first described by David Ricardo in his 1817
book “On the Principles of Political Economy and Taxation” He used an
example involving England and Portugal. Ricardo noted Portugal could
produce both wine and cloth with less labour than England.

However, England was relatively better at producing cloth. Therefore, it

made sense for England to export cloth and import wine from Portugal.

Example of Comparative Advantage

i. Assume two countries, UK and India

ii. They both produce textiles and books.

iii. Their relative production levels are shown in the table below.

Output without trade

 

  Textiles Books

UK 1 4

India 2 3

Total 3 7
 

i. For the UK to produce 1 unit of textiles it has an opportunity cost of 4

books.

ii. However for India to produce 1 unit of textiles it has an opportunity cost
of 1.5 books

iii. Therefore India has a comparative advantage in producing textiles

because it has a lower opportunity cost.

iv. The UK has a comparative advantage in producing books. This is

because it has a lower opportunity cost of 0.25 (1/4) compared to India’s
0.66 (2/3)

Specialization and trade

If each country now specializes in one good then,
assuming constant returns to scale, output will double.

Output after trade

  Textiles Books

UK 0 8

India 4 0

TOTAL 4 8

i. Therefore the total output of both goods has increased – illustrating the
potential gains from exploiting comparative advantage.
ii. By trading the surplus books and textiles, India and the UK can enjoy
higher quantities of the goods.

There are many examples of comparative advantage in the real world e.g.
Saudi Arabia and oil, New Zealand and butter, USA and Soya beans, Japan
and cars e.t.c.

Criticisms of Comparative advantage

1. Cost of trade: To export goods to India imposes transport costs.

2. External costs of trade: Exporting goods leads to increased

pollution from ‘air-freight’ and can contribute to environmental costs not
included in models which only include private costs and benefits.

3. Diminishing returns/diseconomies of scale: Specialization

means a country will increase the output of one particular good. However,
for some industries increasing output may lead to diminishing returns. For
example, if Portugal has a comparative advantage in wine, it may run out
of suitable land for growing grapes.

4. Static comparative advantage: A developing economy, in sub-

Saharan-Africa, may have a comparative advantage in producing primary
products (metals, agriculture), but these products have a low-income
elasticity of demand, and it can hold back an economy from diversifying
into more profitable industries, such as manufacturing.

 
5. Dutch disease: Dutch disease is a phenomenon where countries
specialize in producing primary products (oil/natural gas) but doing this can
harm the long-term performance of the economy. In the 1970s, the
Netherlands specialized in producing natural gas, but this led to the neglect
of manufacturing and when the gas industry declined, the economy was
left behind its near neighbours.

6. Trade – not a Pareto improvement: Trade can lead to an

increase in net economic welfare. However, it doesn’t mean that everyone
will become better off. Some workers in uncompetitive industries may lose
out and struggle to gain employment in new industries.

7. Complexity of global trade: Models of comparative advantage usually

focus on two countries and two goods, but in the real world, there are
multiple goods and countries. Increasingly there is growing demand for a
variety of goods and choice – rather than competing on simple price.

WEEK 10

International Trade (2)

Performance Objectives
Student should be able to:

1. Explain the term of trade and discuss the instruments of foreign

protection.
2. Explain the meaning of the various forms of economic integration.
3. Outline the trend and structure of Nigeria external trade.

Content

Globalization is the spread of products, technology, information, and jobs

across national borders and cultures. In economic terms, it describes an
interdependence of nations around the globe fostered through free trade.

On one hand, globalization has created new jobs and economic growth

through the cross-border flow of goods, capital, and labour. On the other
hand, this growth and job creation is not distributed evenly across
industries or countries.

Globalization has grown due to advances

in transportation and communication technology. With the increased global
interactions comes the growth of international trade, ideas, and culture.
Globalization is primarily an economic process of interaction and integration
that's associated with social and cultural aspects. However, conflicts
and diplomacy are also large parts of the history of globalization and
modern globalization.

The features of Globalization

1. World Markets: One of the key features of present-day globalization is

access to the world markets. This has been made possible by globalization.
Global consumers demand world-class variation and quality of products. It
can provide a high-rocket speed development rate.

2. Global products standardization: If you want to reach the markets

all over the world, you will need to be able to satisfy the standards of the
global market. The customers will be your judges. If the quality of your
goods and services is low, you will be kicked out of the market.

3. Sharing of ideas: Globalization provides an interesting concept of

sharing ideas; this is one of its basic features. This is also how different
variations of rock, pop, and rap cultures appear in the world. The fact that
these ideas are worth sharing makes globalization a good accelerator for
spreading them.

4. Raising standards: Globalization does not only increase the standards

and quality of products, but the quality of life itself. More and more people
have increased their living standards due to global trends. The citizens of
one country can see how other people live in the world and adapt the good
ideas, that way they can also demand an increase in the standard of living
in their countries.

5. Freedom standards: One of the major fears of any anti-globalist is the

fear of a united country or government under the rule of few; however,
globalization also results in the spreading of freedom standards. This
includes the freedom of speech and human rights. Nonetheless, it is still
quite difficult to spread these standards all over the world because some
countries oppose them; but as well all know, freedom cannot be stopped.

The advantages of globalization

Globalization brings several potential benefits to international producers
and national economies, including:

1. Providing an incentive for countries to specialize and benefit from the

application of the principle of comparative advantage.

2. Access to larger markets means that firms may experience higher

demand for their products, as well as benefit from economies of scale,
which leads to a reduction in average production costs.
3. Globalization enables worldwide access to sources of cheap raw
materials, and this enables firms to be cost-competitive in their markets
and overseas markets. Seeking out the cheapest materials from around the
world is called global sourcing. Because of cost reductions and increased
revenue, globalization can generate increased profits for shareholders.

4. Avoidance of regulation by locating production in countries with less

strict regulatory regimes, such as those in many Less Developed Countries
(LCDs).

5. Globalization has led to increased flows of inward investment between

countries, which have created benefits for recipient countries. These
benefits include the sharing of knowledge and technology between
countries.

6. In the long term, increased trade is likely to lead to the creation of more
employment in all countries that are involved.

The disadvantages of globalization

There are also several potential disadvantages of globalization, including
the following:

1. The over-standardization of products through global branding is a

common criticism of globalization. For example, the majority of the world’s
computers use Microsoft’s Windows operating system. Standardizing of
computer operating systems and platforms creates considerable benefits,
but critics argue that this leads to a lack of product diversity, as well as
presenting barriers to entry to small, local, producers.

2. Large multinational companies can also suffer from diseconomies of

scale, such as difficulties associated with coordinating the activities of
subsidiaries based in several countries.

3.  Critics of globalization also highlight the potential loss of jobs in

domestic markets caused by increased, and in some cases, unfair, free
trade. This view certainly accounts for some of the rise in nationalist
movements in many developed economies, along with the push for
increased protectionism.

4. Globalization can also increase the pace of deindustrialization, which is

the slow erosion of an economy’s manufacturing base.

5. Jobs may be lost because of the structural changes arising from

globalization. Structural changes may lead to structural unemployment and
may also widen the gap between rich and poor within a country.

8. Globalization generates winners and losers, and for this reason, it is

likely to increase inequality, as richer nations benefit more than poorer
ones. The awareness of rising inequality, along with job losses, has been
argued to have contributed to the rise in anti-globalization movements.

9. Increased trade associated with globalization has increased pollution and

helped contribute to CO2 emissions and global warming. Trade growth has
also accelerated the depletion of non-renewable resources, such as oil.

The opportunities globalization presents to the Nigerian economic

The main opportunities arising from globalization for the Nigerian economy
are:

1. Growth: Assuming Nigeria maintains its competitiveness,

globalization is likely to increase Nigeria growth in the long term
because aggregate demand (AD) is likely to increase through
increased exports (X), and aggregate supply (AS) is likely to
increase because of higher levels of investment, both domestic
and foreign direct investment (FDI). However, growth in the short
term may become more unstable as the global economy becomes
increasingly interconnected. The recent credit crunch is evidence
that unstable growth is a possible consequence of globalization.
Some economists have also argued that globalization has
increased the process of deindustrialization in the developed
countries, including Nigeria.
2. Employment: Long term, jobs may be destroyed in the
manufacturing sector and created in the service sector, hence
creating structural employment, which could widen the income
gap within countries. The net effect of the impact on employment
depends upon the speed of labour market adjustment, which itself
depends upon mobility and flexibility. Improvements in labour
productivity may be needed to close the productivity gap.

3. Prices: Increased competition is likely to reduce the price

level, for traded manufactures.  Because Nigeria firms can source
from around the world costs may be held down, and this may be
passed on in terms of reduced domestic and export prices.

4. Trade: The volume of both imports and exports is likely to

increase, with trade representing an increasing proportion of GDP.
The effect on the balance of payment is uncertain and depends
upon relative growth rates, inflation, competitiveness, and the
exchange rate.

END OF THE TERM ASSESSMENT

1. _______ is concerned with the activities of people who undertake to protect individual
or businesses against risk in their day-today operation

Insurance

Banking

Tourism

Advertising
2. The provision of services to business as well as to the final consumers is the function
of _______________

Construction industries

Service industries

Manufacturing industries

None of the above

3. An occupation concerned with ensuring that goods produced are stored until they are
needed for consumption is ______

Communication

Trading

Transportation

Warehousing

4. Which of the following is not a contribution of the service industry?

Economic growth

Generation of employment

National disintegration

Manpower development
5. ______ can simply be defined as all those activities involved in the distribution and
exchange of goods and services

Commerce

Service

Trade

None of the above

6. An agency set up by the government to regulate the activities of the financial markets
is called______

Regulatory agencies

Market regulatory

Financial regulation

None of the above

7. Which of the following is not an aim of regulation?

Financial stability

Consumer protection

Reduction of financial crime

Losing market confidence

8. The highest financial institution in a country which carries out the monetary policy of
the government

SEC

NDIC

CBN

None of the above

9. The regulatory apex organization of the Nigeria capital market is ______

CBN

SEC

NDIC

None of the above

10. NDIC means

Nigerian deposit insurance corporations

National deposit insurance corporations

Nigerian deport insurance commission

None of the above

11. Which of the following is not an aim of regulation?

Financial stability

Losing market confidence

Consumer protection

Reduction of financial crime

12. An agency set up by the government to regulate the activities of the financial
markets is called______

Regulatory agencies

Market regulatory

Financial regulation

None of the above

13. The highest financial institution in a country which carries out the monetary policy of
the government

SEC
NDIC

None of the above

CBN

14. NDIC means

Nigerian deposit insurance corporations

National deposit insurance corporations

Nigerian deport insurance commission

None of the above

15. The regulatory apex organization of the Nigeria capital market is ______

CBN

SEC

NDIC

None of the above

16. According to Ricardo, a country will have a comparative advantage in:

Industries in which there are neither imports nor exports

Import-competing industries

Industries that sell to domestic and foreign buyers

Industries that sell to only foreign buyers

17. Which of the following is a determinant of trade?

Tastes

Per capita income

Technological changed

All of the above

18. A close economy is one in which:

Imports exactly equal exports, so that trade is balanced

Domestic firms invest in industries overseas

The home economy is isolated from foreign trade

Saving exactly equals investment at full employment

19. According to Ricardo’s principle, specialization and trade increase a nation’s total
output since:
Resources are directed to their highest productivity

The output of the nation’s trading partner declines

The nation can produce outside of its production possibilities curved

The problem of unemployment is eliminated

20. A main advantage in specialization results from:

The specializing country behaving as monopoly

Smaller production runs resulting in lower unit costs

Economies of large scale production

High wages paid to foreign workers

21. Amalgamation and rapid unification between countries can be identified as

Globalization

Liberalization

Socialization

Privatization

22. Globalization has improved in the living structure of

All the people

Workers in developed countries

People in developed countries

None of the above

23. Globalization is a multi-dimensional process, reshaping the context of security,

health control and other governmental policies just as much as their economic policies.

True

False

24. The following are some of the opportunities of globalization excerpt

Trade

Growth

Employment

Disunity

25. ________ is the disparity in resources and wealth between two entities.
Economic inequality

Economic disparity

Trade inequality

Globalization