ECONOMIC DETERMINANT OF SELF EMPLOYMENT IN A DEVELOPING NATION: THE NIGERIA EXPERIENCE
This study investigated the economic determinant of that affect the number of self employed in a developing country, a case study of Nigeria. The findings provide answers to various research questions like, What are the economic factors that affect self owned business (private business) in Nigeria? What are the effects of these economic variables on self owned business (private business) in Nigeria? How can these variables be controlled to improve self owned business performance in Nigeria? To investigate through this survey, data were collected from secondary source, world bank statistics on indicators such as unemployment, credit availability, inflation rate, interest rate and exchange rate. These were considered has the variables with the most effect, which was later proved in the study. Ordinary Least Square (OLS) formed the basis for the estimation. The study found that exchange rate and interest rate have negative relationship with Number of self owned enterprises. While inflation rate, credit availability and unemployment has a positive effects on number of self owned enterprises. The effects of these indicators are propulsive, if they are well monitored and stabilized in the right way with good economy policies. KEYWORD: Self owned business, SMEs, Unemployment, and Economic performance Determinant INTRODUCTION The impact of self owned enterprises or business on the development of any economy in the world cannot be overestimated in any way. Overtime, private business has contributed so much to the economy, ranging from wealth creation (private business has prove to be a means of improvement in economic growth) job creation (entrepreneurship has reduce the prevailing unemployment) increasing competitiveness in the economy (private enterprise has caused competitiveness in the economy, thereby reducing wastage in the economy and improving efficiency)(Benzing, 2008) The historical background of entrepreneurship/ private business in Nigeria can be traced back to 1946 when essential paper No 24 of 1945 on "A Ten year plan of development and welfare of Nigeria was presented (Abiodun, 2011) Over 70% of industrial employment and over 50% of the gross domestic product is accounted by private business (Odeyemi, 2003) In developed countries like Japan, United State of America and United Kingdom, it accounts for over half of the aggregate share of employment, sale and contribution to GDP. In 1986, Nigerian government as reduce their role in the economy as the driving force by the process of commercialization and privatisation, these cause a shift from large scale industries to small medium scale enterprises; thus had the prospect of stabilizing economy development (Anyawu, 2003) During the postindependence period, Nigeria adopted the entrepreneurship government and established a development bank (NIDB: Nigeria Industrial Development Bank) this organization provided credit for private business and entrepreneurs (Babajide, 2000) Economic determinants are those indicators that affect the totality of the economy. The sturdiness of any economy depends on the several economic yardsticks, in turn these variables affects the day to day performances of business and fluctuation in these yardsticks might cause a boom or burst in the economy. The expansion or contraction in the economy depends on the direction of movement of the variables and most importantly the magnitude of change experienced by these variables. Some of these yardsticks or better said 'indicators' are interest rate, exchange rate, inflation rate, government tax return, unemployment rate and so on (Ayozie, 2011) According to Shane (2014) argues that small business prevails well in a suitable economy and when the economy is not stable small business does not do well or even regress. Sustainable economic growth is a huge concern for every sovereign nation most especially the Less Developed Countries (LDCs) which are characterized by low capital formation due to low levels of domestic savings and investment (Awogbenle and Iwuamadi, 2011) There is a high level consensus among many economist, central bankers, policy makers and practitioners that one of the fundamental objective of macroeconomic policies in both the developed and developing economics is to sustain high economic growth together with low and maintain all determinant of economic growth so that private business will survive and grow. Olapade and Olapade 2010) 1 Cyprus International University, Cyprus, omotolakadir@gmail.com 2 Metropolitan School of Business and Management, Nigeria, nuisrat_uthman@yahoo.com Electronic Journal of Vocational Colleges November/Kasim 2018 41 The progress of every business depends on the situation of the economy, which are the states of these economic variables(interest rate, exchange rate, inflation rate, unemployment rate, interest rate and so on) The, instability of these variables then there is a propensity that a business might not progress (Emefiele, 2012) Ultimately, a change in direction of any of the variables/ determinant of the economy (interest rate, exchange rate, inflation rate, unemployment rate and so on) will cause an expansion or contraction in the economy, this dictates the performance of business. Usually, these changes are either positive or negative and depend on the magnitude of the change (Emefiele, 2012) This proves that the variation that private business and all other type of business experience is down to these aforementioned economic variables. This is a pointer that these variables that affects private business (self owned) should be determined and the magnitude of effect of these indicators (economic) should be known and how they can be changed and controlled, In other to ensure more productivity and efficiency and reduction wastage of resources. This study attempts to provide answer to the following question: i. What are the economic factors that affect self owned business (private business) in Nigeria? ii. What are the effects of these economic variables on self owned business (private business) in Nigeria? iii. How can these variables be controlled to improve self owned business performance in Nigeria? The general aim of this study is to determine the economic factors that affect self owned business (private business) in Nigeria with the following objectives i. To ascertain the effects of these economic variables on self owned business (private business) in Nigeria. ii. To document how these economic variables be controlled to improve self owned business performance in Nigeria. LITERATURE REVIEW Conceptual Review Economic Determinant An economic indicator is a statistic about an economic performance. Economic indicators allow analysis of economic performance and predictions of future state of the economy. Business cycle is an application of economic variables. Economic indicators include various indices, earnings reports, and economic summaries: for example, unemployment, and inflation rate etc. Also Economic environment consists of those economic parameters that directly or indirectly influence the performance of businesses (both private and public owned business) in Nigeria, it include inflation rate, exchange rate and interest rate etc(Euler, 1987) Asiedu (2004) opines that economic sturdiness is the attainment of price stability, low inflation, fixed exchange rate, interest rate and maintaining full employment on the economy. Mathew (2005) suggests that economic environment exerts considerable influence on the operations of small scale enterprises. He, however, suggested that firms must have holistic knowledge or understanding of the interactions of these variables in order to make pertinent decisions. Exchange rate (EXR) In finance, an exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country's currency in relation to another currency. Exchange rate is the rate at which the naira is converted to another currency It is measured as domestic price x nominal exchange rate x 1 divided by foreign price(Euler, 1987) Interest rate Interest rate is the amount charged, always a percentage of principal amount, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR) This is the proportion of a loan that is charged as interest to the borrower. It is expressed as an annual percentage of the loan outstanding. Interest rate is the amount charged, expressed as a percentage of principal, by a lender (Henley, 2007) Inflation rate Inflation is a continuous increase in price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer amount of goods and services, that is the money have lower purchasing power (Euler, 1987) Electronic Journal of Vocational Colleges November/Kasim 2018 42 Credit Availability It is the unused portion of an open line of credit which is currently available to individual, such as a credit card or a revolving loan. Available credit is the difference between the amount of the credit limit (the credit maximum amount) and the amount that has already been borrowed by the public or those in question(Adeoye, 2012) Unemployment Unemployment is the situation of actively looking for job but not being employed. The unemployment rate is a measure of the prevailing unemployment and it is can calculated mathematically as a percentage by dividing the number of unemployed individuals by all individuals currently in the labour force. During periods of recession/burst, an economy usually experiences a very high unemployment rate(Akindele, Oginni, and Omoyele, 2012) Theoretical Review Keynesian economic theory Keynesian Economic Theory was propounded by John M. Keynes. In the theory, it was explained that small scale enterprises has a vital role in the economic growth and development. The theory expla