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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 7 NO 2, DECEMBER, 2009

TRANSPORT INFRASTRUCTURE AND ECONOMIC GROWTH IN NIGERIA

Clement A. U. Ighodaro
Department of Economics, University of Lagos, Nigeria
E- mail: clemigho2006@yahoo.com

Abstract
The paper considered transport infrastructure and economic growth in Nigeria. Findings from the study show that in the three national development plans in Nigeria, road transportation system has been given more priority followed by water and air. It was found that the local government authority controls about 67% of the total road network in Nigeria. The contribution of transport to total gross domestic product has been on the downward trend in spite of the fact that 20% of annual budget is put on roads projects at both state and the federal level. The estimated loss to the Nigerian economy as a result of poor state of the roads is about N450 billion yearly. The empirical part of the study shows that no causality was found between road development and economic growth in Nigeria. However, the long run part of the VECM estimation shows that the lag value of road development variable is very significant in the determination of economic growth in Nigeria. The short run dynamics of growth rate of the economy revealed that the error correction terms of road development variables as well as its lag values are not significant in the determination of economic growth in Nigeria. It is therefore recommended that rather than construct new roads, policy makers should adequately maintain the existing roads as this will further reduce cost of transportation of goods and services, thereby reducing poverty and boosting economic growth in Nigeria.

Keywords: Road, Granger causality, VECM and Economic growth.

 


Introduction
The history of transportation in Nigeria dates back to the pre – colonial era. Within this period, transportation facilities such as roads, railways, air transport facilities were really non-existent with emphasis then on the bush path. At present, the modes of transport in Nigeria include road, railways, airways, inland waterways, coastal waters, the deep sea, and the pipeline (Anyanwu, et al. 1997). The potential significance of road development for investment, trade, growth and poverty alleviation has long been recognized. Not only does road transport infrastructure facilitate the direct provision of services to consumers, it also provides intermediate inputs that enter into the production of other sectors and raise factor productivity.

By lowering the cost and reducing the time of moving goods and services to where they can be used more efficiently, road development adds value and spurs growth. Over time this process results in increasing the size of markets which is a precondition for realizing economies of scale. Good road projects clearly contribute to poverty reduction by improving the living conditions of people and by augmenting the opportunities available for trade and employment. The economic development of Nigeria has reflected the development of her transport systems. This is particularly true of the road transport system, which is by far the most widely used mode of transport in the country. Of all commodity movements to and from the sea-ports, at least two-thirds are now handled by road transport while up to 90% of all other internal movements of goods and persons take place by roads (Onakomaiya, undated).

Transport can contribute to the economy directly through addition to capital stock via increases in transport infrastructure. Transport provides the arteries through which the economic life of the people, information and raw materials as well as finished products can be moved from one place to the other. This therefore helps to build and maintain the society thereby leading to economic growth. It is in that context that the paper considers road development and economic growth in Nigeria.

 Road development in Nigeria
Anyanwu et al (1997) documented that the history of road transport in Nigeria dates back to

1904 when Lord Laggard attempted the construction of a mule road linking Zaria and Zungeru both in the Northern States of Nigeria. The road was later extended from Zaria to Sokoto, Katsina and Maiduguri. However, the road linking Ibadan and Oyo constructed in 1906 is recorded to be the first motorable road ever constructed in Nigeria. At independence in 1960, the Nigerian landscape was dotted with a skeletal network of trunk roads as well as secondary and feeders roads that exhibited the characteristics which reflected the purpose of their construction. They were narrow and winding, being simply meant to facilitate the evacuation of agricultural produce from the interior to the ports for exports in addition to serving as links between scattered human settlements thus permitting ease of administration.

In 1925, the central government of Nigeria set up a Road Board. By 1926, H.E. Walker proposed a skeleton trunk road system to link the major administrative centres in the country. These roads were designed as a frame upon which the network of secondary roads could be built thus enabling the general road system to be considered as a co-coordinated whole-rather as a jigsaw of small disjointed sections. The total length of roads maintained by the government rose soon from 6,160 km (5,875 miles) in to 9,453 km (5,875 miles).

Data from the various publications of the Federal Office of Statistics in Nigeria show that as at

1951, out of the total of 44,414 km of road in Nigeria, 1,782 km were surfaced, though the roads were lacking in standard designs and were single lane with sharp bends and poor drainage system. Total road length increased from 44,414 km in 1951 to 114,768 km in 1980. While tarred road increased in length from 1782 km in 1951 to 28632 km in 1980, earth/gravel road increased from 4232 km in 1951 to 86136 km in 1980.  The Central Bank of Nigeria (2003) documented that the estimated current total road network in Nigeria is about 200,000 km.

Classification and investment in road development in Nigeria
The Nigeria road system is classified into four broad categories. These are; the federal trunk ‘A’ roads, under federal government ownership and they are developed and maintained by the federal government. The federal trunk ‘F’ roads were formerly under state ownership but were taken over by the federal government with a view to upgrading them to federal highway standards. The trunk ‘B’ roads are under the ownership and management of the component states. The trunk ‘C’ roads are under the local government ownership and management. Each tier of government has the responsibility for planning, construction and maintenance of the network of roads under its jurisdiction.
As documented by the Central Bank of Nigeria (2003), the current network of roads is shared among the three tiers of government as shown below:

Table 1: Structure of road ownership in Nigeria

 

Federal

State roads

Local govt. roads

Total

Percentage

Paved main roads

26,500

10,400

 

36,900

19%

Unpaved main roads

5,600

20,100

 

25,700

13%

Urban roads

 

 

21,900

21,900

11%

Main rural roads

 

 

72,800

72,800

38%

Village access roads

 

 

35,900

35,900

19%

Total

32,100

30,500

130,600

193,200

100%

Percent

17%

16%

67%

100%

 

Source: Central Bank of Nigeria (2003)

From table 1, it is obvious that the local government roads ownership accounts for about 67%. This therefore shows that local government controls about 130,600 km roads, state government 30,500 km and federal government, 32,100 km.

As regards investment, the various governments in Nigeria have given priority attention to road development over the years. From table 2 below, during the first National Development Plan, 1962-68, a total of N150.6 million was allocated to road development. The votes for the road sub-sector ranged from 7% in the then Western Region to 25% in the Northern Region and a

national average of 11% for all projected investments. In keeping with the objective of rational allocation of scarce resources, the federal allocation of N70.8 million was meant to provide for a minimum, essential road development programme which had been enveloped on the basis of a system of priority rating (Onakomaiya, undated).


Table 2: First national development plan 1962-68: highway development
 

           

Total allocation for all sector (N million)

Allocation to road development (N million)

Road as (%) of total allocation

Actual expenditure on roads (N million)

Actual as (%) of expected expenditure on roads

East

152.0

17.7

11.64

11.0

62%

North

197.6

49.4

25.00

24.6

50%

West

180.6

12.7

7.03

15.4

12.1%

Federal

825.0

70.8

8.58

NA

NA

Total

1,355.2

150.6

11.11

––

––

Source: First National Development Plan (1962 – 1968)


In this first national development plan, emphasis was placed on the development of the:

    • widening, straightening and surfacing of Trunk ‘A’ roads
    • construction of new Niger bridge from Onitsha to Asaba and
    • Construction of a second Mainland bridge in Lagos. 

After the civil war, under the Second National Development Plan, the general policy on transport was to promote coordination and rationalization of investment decisions in transport sector (Federal Government of Nigeria, FGN, 1970). The road development programme was to focus on the creation of a national road network of primary and secondary arteries which would outcross the existing Trunk ‘A’ and ‘B’ network. The primary roads would be those connecting the prominent cities of the country with each other and with the ocean terminals (Lagos, Warri, Port-Harcourt and Calabar) and main border crossing. The secondary road network would connect important centers within the primary and secondary roads network. The states would concentrate principally on minor roads within the primary and secondary roads.


Table 3: Allocation to road development during the Second National Development Plan, 1970-74
 

Region

Total project investments  (N million)

Total allocation to transport (N million)

Allocation to road sub sector (N million)

Road allocation as (%) transport allocation

Road  allocation as (%) of total investment

Federal

1,110.188

334.266

187.716

56.16

19.96

All states 

940.550.6

150.932

144.872

95.98

13.05

Total

2,050.738

485.189

332.588

68.59

16.23

Source: Second National Development Plan (1970 – 1974)


From table 3 above, under the second national development plan, the total projected investment was N2,050,738 million while total allocation to transport was N485.189 million. The focus of road development under this plan was the rehabilitation of the roads that were adversely affected by the civil war.

Under the third national development plan, total public investment was N32,855.016 million. The allocation to road transport was N5,430.436 million while allocation to roads as percentage of transport sector was 73.12%. Roads as a percentage of all public investments were 16.25%. A total of N7.303.068 million was allocated to the transport sector out of the total of N32,855.016 million for total investment. Out of the amount allocated to the transport sector, allocation to road was N5,340.436 million representing a total of 73.12% allocated for road development. Table four below reflects this:


Table Four: Allocation to road development in the Third National Development Plan, 1975 – 1980

 

Total public investment (N million)

Allocation to transport  sector (N million)

Allocation to road transport   (N million)

Total allocation to  road as (%) of ransport sector

Road as (%) of all public investments

Federal

26,169.115

6,274,342

4,355.960

69.43

16.65

All states 

6,689.901

1,028,726

948,476

95.63

14.21

Total

32,855,016

7,303,068

5,430.436

73.12

16.25

Source: Third National Development Plan (1975 – 1980)


In the fourth national development plan (1981-1985), the sum of N7,457.912 million was allocated to road development out of a total of N10,706.616 million allocated to transport sector development. The other transport modes; rail, air and water shared 30%.

 Inspite of government efforts at encouraging road development the contribution of road transportation to gross domestic product has not been encouraging. According to the Central Bank of Nigeria (2004), as at 1981, the total contribution of road transportation to gross domestic product was N6718.5 million representing 3.27%. This fell to N4852.3 million in 1991, representing 1.83% contribution to gross domestic product. It however increased to N6667.7 million in 2001 representing a contribution of 1.94%. This further increased to 2.03% representing a contribution of N8407.9 million to total gross domestic product.

Problems of road development in Nigeria

A survey on the state of the road was carried out by the Central Bank of Nigeria between 11th to

13th December 2002 along the six geopolitical zones in the country (South-South, South-East, South West, North-East, North-West and North Central). The survey indicated that most of the roads especially in the Southern and Eastern parts of the country were in a very poor condition and required complete rehabilitation. The report documented that some of the roads were constructed over 30 years ago and had not been rehabilitated for once. The survey of the Central Bank on road status in Nigeria further showed that from February 1997 to December 2001, a total of 96 road contracts, mainly rehabilitation, reconstruction and expansion were awarded by the Federal Ministry of Works at a total contract sum of N186.999 billion. Of the total, 20 contracts worth N20.24 billion were for the South-South zone, 19 contracts worth N55.346 billion in the South-West, 18 contracts valued at N45.122 billion in the North Central, 14 contracts worth N26.774 billion in the North-East, 13 contracts valued N21.603 billion in the South-East and 12 with the contract sum of N17.915 billion in the North. At the end of 2002,

only 23 of the projects have been completed; 9 in the South-West and in the South-South, 2 each in the North Central and North-West as well as one each in the South-East and North-East. The survey indicated that the state of the roads in Nigeria has remained poor for a number of reasons which include: faulty design, lack of drainage system and very thin coatings that are easily washed away. Others are excessive use of the roads network given the underdeveloped nature of railways and water ways which could serve as alternative means of transport, absence of an articulated road Programme and inadequate funding for road maintenance.

Estimated losses to the Nigerian economy arising from the poor state of roads is about N450 billion yearly (Vanguard, 2008).
The data and description
The data set for this paper consists of annual time series spanning 1960 through 2003. They were obtained from the Central Bank of Nigeria Statistical Bulletin, 2004, Vol. 15.


GDPR represents growth rate of real gross domestic product (Proxy for economic growth)
RADL represents Road Infrastructure Development
EXPT represents total Exports
CASPK represents Capital stock,
where L before a variable is the log of the variable:
 


Unit root tests
All the variables are tested at levels for stationarity using the Augmented Dickey-Fuller (ADF) test (Dickey and Fuller, 1979). Consider the equation below:


               adaf                                     (1)
Where:


adfadf is our variable of interestadfadf; dfadf is the difference operator, t is time measured chronologically and adfad is the white noise residual of zero mean and constant mean and constant variance; adfda is a set of parameters to be estimated.  The null and the alternative hypotheses in the unit root tests are:
      fadf  (adada is non – stationary)
       adfad  (adfad is stationary)

The test reveals that all the variables are integrated in order one except the growth rate of GDP which is I(0) and capital stock which is I(2)  as shown in table 5 below.

Table 5: Results for ADF unit root test

Variables

Intercept only

Trend and intercept

Results

LGDPR

-4.587917***
(-3.5930)

-4.516036***
(-4.1896)

I(0)

LRADL

-4.143909***
(-3.5973)

-4.093990**
(-3.5217)

I(1)

LEXPT

-6.568698***
(-3.5973)

-6.648490)***
(-4.1958)

I(1)

LCASPK

-6.606995***
(-3.6019)

-6.579425***
(-4.2023)

I(2)

 


Cointegration test
The study uses the Johansen and Juselius (1990) multivariate cointegration test by formulating the VAR model below:


         fadf                             (2)


where afdf  isadfa; a column vector and adfa with dfdf is a lag operator. fadf is the white noise residual of zero mean and constant variance. The order of lag of the model dfadfadf is determined in advanced by Akaike Information Criterion (AIC). The test statistics strongly reject the null hypothesis of no cointegration in favour of at least one cointegrating vector at 5% significance level in the equation. This is shown in table 6 below.


Table 6: Results for Johansen cointegration test

Included observations: 42

Series: LGDPR LRADL LEXPT LCASPK

Lags interval: 1 to 1

 

Likelihood

5 Percent

1 percent

Hypothesized

Eigenvalue

ratio

critical value

critical calue

No. of CE(s)

 0.591360

 61.74372

 47.21

 54.46

      None **

 0.263602

 24.15702

 29.68

 35.65

   At most 1

 0.235475

 11.30568

 15.41

 20.04

   At most 2

 0.000683

 0.028682

  3.76

  6.65

   At most 3

 *(**) denotes rejection of the hypothesis at 5%(1%) significance level

 L.R. test indicates 1 cointegrating equation(s) at 5% significance level

 


Pairwise Granger causality test
Table 7 reveals that there is no causality between the growth rate of real gross domestic product and road development. However, there is unidirectional causality between capital stock and economic growth with causality running from economic growth to capital stock. This implies that there is indirect causality between road infrastructure and economic growth. Also, there is bi –directional causality between exports and road development. The result further shows that road development and export Granger causes capital stock.

Table7: Pairwise Granger causality tests

Pairwise Granger causality tests

Sample: 1960 2003

Lags: 1

  Null hypothesis:

Obs

F-statistic

Probability

  LRADL does not Granger Cause LGDPR

43

 0.15071

 0.69991

  LGDPR does not Granger Cause LRADL

 0.22544

 0.63751

  LEXPT does not Granger Cause LGDPR

43

 0.00067

 0.97954

  LGDPR does not Granger Cause LEXPT

 1.47864

 0.23111

  LCASPK does not Granger Cause LGDPR

43

 0.11244

 0.73914

  LGDPR does not Granger Cause LCASPK

 2.70944

 0.10759

  LEXPT does not Granger Cause LRADL

43

 4.39452

 0.04243

  LRADL does not Granger Cause LEXPT

 3.97295

 0.05309

  LCASPK does not Granger Cause LRADL

43

 0.03172

 0.85954

  LRADL does not Granger Cause LCASPK

 13.0237

 0.00085

  LCASPK does not Granger Cause LEXPT

43

 0.07240

 0.78926

  LEXPT does not Granger Cause LCASPK

 12.2843

 0.00114

 

Vector error-correction model (VECM)
In order to capture both the long run and the short-run dynamics of the estimation, the VECM is estimated with respect to the dependent variable, economic growth rate, using VAR estimation technique. In the short run dynamics, the coefficient of error correction term depicts the speed of convergence to equilibrium once the equation is shocked. The dynamic error correction formulation is presented as follows:


                     adfadf      (3)


Where ECM is the error correction term (lagged residual of static regression) and ‘∆’ stands for first difference, L are lag length and X is a vector of the independent variables, LRADL, LEXPT and LCASPK. All the variables are as earlier defined.

From the estimation, controlling for total exports and capital stock, the long run estimate shows that all the independent variables are significant in the determination of economic growth. Only export has a contrary sign. The negative sign may result from the use of total exports for the estimation rather than either oil or non – oil exports. It shows that a 1% increase in road length will increase GDP by more than 5%; the same percentage increase in capital stock increases it by only about 1%.

The short run dynamics of growth rate of gross domestic product reveals that only the error correction term and its associated t-statistic of second lag value of road development and the first lag value of exports are significant in the determination of economic growth in Nigeria. However, the error correction term of the second lag of capital stock was weakly significant in the determination of economic growth.  The result further reveals that all the variables are jointly significant in the determination of economic growth in Nigeria considering the F-statistic and the R2 values. Table 8 shows the vector error correction results. 


 

Table 8: Results for VECM

 Sample(adjusted): 1963 2003

 Included observations: 41 after adjusting endpoints

 t-statistics in parentheses

Cointegrating Eq:

CointEq1

 

 

 

LGDPR(-1)

 1.000000

 

 

 

 

 

 

 

 

LRADL(-1)

 4.853189

 

 

 

 

 (5.16017)

 

 

 

 

 

 

 

 

LEXPT(-1)

-0.595651

 

 

 

 

(-4.64015)

 

 

 

 

 

 

 

 

LCASPK(-1)

 1.133637

 

 

 

 

 (2.33896)

 

 

 

 

 

 

 

 

C

-25.76910

 

 

 

Error Correction:

D(LGDPR)

D(LRADL)

D(LEXPT)

D(LCASPK)

CointEq1

-0.739590

-0.011927

 0.211253

 0.008758

 

(-2.90893)

(-0.75348)

 (2.72869)

 (0.75032)

 

 

 

 

 

D(LGDPR(-1))

 0.081642

 0.003875

-0.080690

 0.005652

 

 (0.40868)

 (0.31159)

(-1.32648)

 (0.61631)

 

 

 

 

 

D(LGDPR(-2))

-0.061033

 0.006714

-0.044290

-0.006581

 

(-0.40599)

 (0.71731)

(-0.96753)

(-0.95354)

 

 

 

 

 

D(LRADL(-1))

 1.385950

 0.275201

-3.806247

 0.033882

 

 (0.44476)

 (1.41848)

(-4.01129)

 (0.23684)

 

 

 

 

 

D(LRADL(-2))

-7.904988

-0.029533

 3.670285

 0.022155

 

(-2.50919)

(-0.15057)

 (3.82598)

 (0.15318)

 

 

 

 

 

D(LEXPT(-1))

-0.942998

-0.005121

-0.357958

 0.033910

 

(-2.36223)

(-0.20603)

(-2.94478)

 (1.85031)

 

 

 

 

 

D(LEXPT(-2))

-0.517861

 0.002660

-0.180736

 0.059411

 

(-1.27189)

 (0.10493)

(-1.45778)

 (3.17846)

 

 

 

 

 

D(LCASPK(-1))

-3.561919

 0.049472

-0.923892

 0.129757

 

(-1.19675)

 (0.26698)

(-1.01942)

 (0.94965)

 

 

 

 

 

D(LCASPK(-2))

 5.906234

-0.047547

-0.497462

 0.552913

 

 (1.99167)

(-0.25753)

(-0.55090)

 (4.06138)

 

 

 

 

 

C

 0.201925

 0.008693

 0.166243

-0.002717

 

 (1.35503)

 (0.93701)

 (3.66364)

(-0.39721)

 R-squared

 0.609234

 0.088450

 0.644644

 0.597256

 Adj. R-squared

 0.495785

-0.176194

 0.541476

 0.480330

 F-statistic

 5.370141

194

    0.334221

 6.248490

 5.107992


 

Impulse response

The impulse response function shows that a one standard deviation shock on growth rate of gross domestic product induces a positive economic growth in the first year; this fell in the second year and became negative in the third year. A shock to growth rate of gross domestic period has a long lasting effect to its self after the fourth year. Unfortunately, a one standard deviation

shock on road development has a negative impact on growth rate of gross domestic product through out the period. The result further shows that a one standard deviation shock on total exports and capital shock only induces slightly positive impact on growth rate of gross domestic product between the second and the third period.  The result is shown in figure one below.


Figure 1: Result of impulse response function
adfdf


Variance decomposition
At the end of the ten year period, only road development and capital stock variables are found to be strongly endogenous as shown in table nine below.


 

Table 9: Variance decomposition  

 Period

LGDPR

LRADL

LEXPT

LCASPK

 1

 100.0000

 99.90880

 51.16492

 95.81679

 2

 92.97203

 98.91136

 29.42774

 87.05169

 3

 65.02332

 98.82059

 23.10583

 84.87199

 4

 50.12781

 98.48915

 21.83382

 82.50043

 5

 46.40156

 98.06482

 20.81236

 78.56438

 6

 45.13362

 97.81322

 20.57405

 77.51358

 7

 44.85629

 97.55949

 20.20598

 76.24753

 8

 42.28197

 97.27177

 19.75417

 75.67754

 9

 39.85392

 96.96842

 19.38854

 75.14582

 10

 37.98819

 96.66659

 19.07711

 74.62292


Conclusion and policy implication
The study shows that in the three national development plans in Nigeria, road transportation system has been given more priority followed by water and air transportation system. It was found that the local government authority controls about 67% of the total road network in Nigeria. The contribution of transport to total gross domestic product has been on the down ward trend and estimated losses to the Nigerian economy as a result of poor state of the roads is about 450 billion yearly. On the

empirical part of the study, no causality was found between road development and economic growth in Nigeria. There is indirect causality via capital stock. The long run part of the VECM estimation shows that the lag value of road development variable is very significant in the determination of economic growth in Nigeria. The short run dynamics of growth rate of the economy revealed that the error correction term

of road development variables as well as its lag values is not significant in the determination of economic growth in Nigeria. It is therefore recommended that rather than construct new roads, policy makers should adequately maintain the existing roads as this will further reduce cost of transportation of goods and services therefore reducing poverty and boost economic growth in Nigeria.

References
    
Anyanwu, J.C; Oaikhena, H., Oyefusi, A. and Dimowo, F.A. (1997). The Structure of the Nigerian Economy (1960-1977)  Onitsha, Nigeria: Joanne Educational Publishers Ltd

Central Bank of Nigeria (2003). Highway Maintenance in Nigeria: Lessons from the other Countries Research Department, Central Bank of Nigeria Occasional Paper No.27

Central Bank of Nigeria (CBN, (2004). Statistical Bulletin Vol. 15 December.

Federal Government of Nigeria, FGN (1970), Second national development plan (Lagos, Federal Ministry of Information pp197-207).

Dickey, D.A. and Fuller, W.A.  (1979). “Distribution of the estimators for autoregressive time series with a unit root” Journal of American Statistical Association Vol. 74 pp 427 -431     

Filani, M.O. (1978). Highways and farm access development in Ondo State component of the 4th national development plan, 1980-1985, Report of the proceedings of the Workshop on development Strategies for the 1980s, Akure.

Federal Office of Statistics, (Various). Annual abstract of statistics Lagos, Nigeria.

Federal Office of Statistics (1960-1973). Digest of statistics, Lagos, Nigeria.

Johansen, S. and Juselius, K. (1990). “Maximum likelihood estimation and inference on cointegration with application to the demand for money” Oxford Bulletin of Economics and Statistics Vol. 521, p 169 - 210   

Nigeria: First National Development Plan, 1962 – 68

Nigeria: Second National Development Plan, 1970 – 74

Nigeria: Third National Development Plan, 1975 – 1980

Nigeria: Fourth National Development Plan, 1981 - 1985  

Onakomaiya, S.O. (Undated), “Highway development in Nigeria: a review of policies and programmes 1900-1980” NISER Monograph Series No.5, Nigerian Institute of Social and Economic Research.


The author, who derived this work from a Ph.D. thesis submitted to the Department of Economics and Statistics, University of Benin, Benin City, Nigeria, is grateful to M.A. Iyoha for earlier comments; C.E.E. Okojie and M.A. Anyiwe his supervisors; and to Paul Collier, Robert Bates, and Anke Hoeffler for guidance at the Political Economy arm of the AERC bi-annual workshop of May / June 2006 for comments on an earlier draft, and to the AERC, Nairobi, for sponsorship.