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This document provides an introduction to economic growth and development. It distinguishes between economic growth, focusing on increased output, and economic development, encompassing social and economic progress. The text discusses various theories of growth and development, highlighting their application, particularly to developing countries.
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CHAPTER 9 Introduction Economic growth is one of the major macroeconomic goals of any developing society. Economic growth refers to a steady process that results in a consistent improvement, over a long period of time, of an economy's ability to produce those goods and services required to enhance...
CHAPTER 9 Introduction Economic growth is one of the major macroeconomic goals of any developing society. Economic growth refers to a steady process that results in a consistent improvement, over a long period of time, of an economy's ability to produce those goods and services required to enhance the well- being of the people. It is a process that leads to increasing levels of national income (Todaro & Smith, 2006, 2011; Jhingan, 2007). Thus, in discussing growth, it is imperative to examine the trend of the population over time. This is because economic growth becomes a meaningful concept if it leads to an improvement in the well-being of a society over time and this can happen only if the rate of population growth lags behind that of Gross Domestic Product. Thus, growth is a steady process of increasing the productive capacity of an economy and its national income. This chapter clearly distinguishes between economic growth and development. It further examines the structural diversity and characteristics of developing economies, while it also reviews a few theories of growth and development. Economic Growth versus Development It is useful to distinguish carefully between the concepts of economic growth and development. Although both concepts have been used interchangeably by non-economists over time, they do not necessarily refer to the same thing. Economic growth refers to a steady increase in the productive ability of an economy over a long period of time. It should be noted that this definition does not take cognizance of desirable structural changes in the society that could lead to improved welfare. Thus, while growth refers to increase in the volume of output of an economy over a long period of time, it overlooks its equitable distribution which is required to enhance the well-being of the citizens. However, development has been described as a consistent reduction in poverty, inequality and unemployment over a long period of time (Seers, 1969). Hence, it is a more embracing concept as it not only concerns itself with issues of growth but also focuses on the equitable distribution of its proceeds. Thus, development is generally defined to include improvement in welfare, particularly for people with lowest incomes, reduction of poverty and its correlates such as illiteracy, diseases and early deaths, among others. Therefore, the concept of development connotes an entire transformation of an economy from a less desirable situation to a more desirable one, bringing in its wake a general improvement in the well-being of the entire citizenry. Various theories of growth and development have failed in developing countries. For instance, experiences of several countries over time indicate that saving and investment are not necessary conditions for fast-tracking the rate of economic growth, contrary to the argument of the Harrod- Domar Growth Model. For instance, in developing countries, there is a serious shortage of adequate basic facilities such as clean water, housing and health care. Most of the populations are desperately poor while people struggle to live on infertile pieces of land and in spite of efforts to encourage faster growth and development, the gap between the first world and third world continues to get bigger. Owing to this phenomenon, a rethink began on the definition of development and this brought a clearer distinction between economic growth and development. Economic growth was therefore conceived as a quantitative measure of economic well-being, while development, a qualitative measure. Thus, development can be seen in the following ways: More and/or better government services which result in a longer life expectancy and a higher literacy rate for the population as a whole. More job opportunities. A better and/or fairer distribution of income. Individual freedom. Stability in changes that occur. In addition to economic growth or increase in the production of goods and services the lifestyle and quality of life of the population as a whole must change before we can say development has taken place. According to the 1991 Human Development Report, development should concern people in a number of ways three of which are as follows: (i). Development of the people: This implies that money should be invested in education, health and nutrition of people so that they can make a contribution to the economic political and social infrastructure of the country. (ii). Development by the people: This is a full participation in all planning and implementation of development strategy. (iii). Development for the people: The development that takes place should meet everyone's needs and create opportunity for everyone. Theories of Economic Growth and Development In the context of the definition of development, it may be useful to explain the term "sustainable development", which is now in common use. According to the Brundt land Commission (1987), sustainable development can be defined as the ability of present generation to meet their needs without compromising the ability of future generation to meet their own needs. Sustainable development rests on three pillars namely: Economic growth, social well-being and the environment. Although the ability to meet these needs is largely dependent upon the accumulation of human and physical capital, among others, what matters is the extent to which the productivity of the accumulated capital, including its positive effect on human health and aesthetic pleasure as well as income, compensate for the depletion of natural capital. Meanwhile, efforts should be made, as much as possible, to preserve natural capital when development projects are being considered. In uplifting a low level economy to a high-level progressive economy, efforts of various sorts have to be made such as: a. Increasing capital formation. b. Improving human capital. c. Raising entrepreneurial ability. d. Enhancing natural resources. e. Upgrading technology. f. Having a market-orientation economy. g. Strong planning and implementation culture. h. Clearly defined role for the state. The Classical Theory of Growth a The classical theory of growth assigns to rate of investment the responsibility for fostering growth, itself a function of share of profits in national income. A positive relationship in both variables is believed to exist hence higher rates of profit are deemed to result in higher rates of growth via its positive effect on the rate of investment. Classical economists like Adam Smith (1776), David Ricardo (1817), J.S Mill (1848) were the exponents of this theory of growth. In what could be described as a self-limiting theory, they argued that the increase in division of labour and hence specialization made possible by increase in the growth rate of capital would result in increase in both profit and wages. However, an increase in both profit and wages would in turn trigger population expansion which is the cause of growth of capital and labour over time, which would result in diminishing returns consequent upon the fixity of land. The onset of diminishing returns would lead to a decline in profit while also bringing about a return of wages to subsistence level, leading in turn to a decline in investment and hence growth. This will bring about a return of the economy to a stationary state. The classical growth models such as the Ricardian growth model emphasized the limits of growth imposed by the ultimate scarcity of land. However, one of the major defects of this theory lies in its failure to provide for the possibility of the role of technical progress in growth. One of the historical theories of economic growth, the Marxian theory of growth is a mixture of reasoning proceeding from economics and sociological perspective. He proceeds by viewing growth as a process of continuous transformation of society's social cuftural and political life. Such transformation can be traced to the society's mode of production as well as property rights of the society's economic power and prestige seeking class. Marxian growth theory asserts that growth is dependent on the rate of accumulation of labour surplus values by the capitalist class, labour surplus values being the rate of profit in excess of labour's true remuneration which has however been expropriated from the worker by factor owner (capitalist). Thus, the Marxian theory of growth attributes growth to labour surplus value which is the difference between the subsistence wages paid to workers and the true value of labour output. It is this difference that constitutes the source of investible fund necessary to foster economic growth. Therefore, the larger this the more rapid growth is expected to be. The Schumpeterian Theory; Alois Schumpeter, first presented his theory of economic growth in the "Theory of Economic Development" published in German in 1911. He assumes a perfectly competitive economy which is in stationary equilibrium. In such a stationary state there is no profit, no interest rates, no savings, no investments and no involuntary unemployment. This equilibrium is characterized by the term "circular flow" which continues to repeat itself in the same manner year after year. In the 'circular flow', the same products are produced year after year in the same manner. 'For every supply there is some corresponding demand, and for every demand the corresponding supply'. Harrod - Domar Growth Model According to this model, everyone must save a certain fraction of National income, if only to replace worn out or impaired capital goods. However, in order to grow, new investments representing net additions to the capital stock are necessary. It states that the rate of growth of GNP [AY/YO is determined jointly by the National savings ratio 's' and the National capital output ratio 'k'- more specifically, it says that the growth rate of National income will be directly or more positively related to the saving ratio [i.e.- the more an economy is able to save -and invest, out of given GNP, the greater will be the growth of that GNP], and 'inversely' or 'negatively' related to the economy's capital output ratio [i.e., the higher the 'k', the lower will be the rate of GNP growth]. The theory explains the significance of National savings and investment. According to this theory, the main obstacle to development is the comparatively low level of new capital formation in most poor countries. However, like it has been said earlier, the experiences of several countries over time indicate that saving and investment are not sufficient conditions for accelerating economic growth. The Structural Diversity of Developing Economies Any description of the structural diversity of developing nations required a review of eight critical components: d. The size of the country (geographical area, population and income) 2. Its historical and colonial background 3. Its endowments of physical and human resources 4. Its ethnic and religious composition 5. The relative importance of its public and private sectors 6. The nature of its industrial structure 7. Its degree of independence on external economic and political forces 8. The distribution of power and the institutional and political structure within the nation A brief discussion on each of these features is as follows: Size and Income Level A country's population, landmass as well as per capita income go a long way in determining its economic potential. They also represent major factors distinguishing one country from another. For instance, a large area of arable land presents opportunities for food crop production. While a large population also presents opportunities for potentially large markets, it may also create challenges in terms of administrative control, national cohesion and regional imbalances. Historical Background Most African and Asian countries were at one time or the other colonized by either Britain, Belgium, France Germany, Netherlands, Portugal or Spain, among other Western European Countries. The economic structures of these nations, as well as their educational and social institutions have typically been modeled on those of their colonial masters and after independence were more concerned with consolidating and enriching their own national economic and political structures than with simply promoting rapid economic development. The British colonial powers had an intense and long-term impact on the economies and political as well as institutional structures of their African and Asian colonies. This was achieved through the introduction of influential foreign ideas such personal taxation in cash rather than in kind, and property laws, which combined to reduce the freedom of local communities and expose their people to many new forms of potential exploitations. Physical and Human Resources Land size, availability of mineral resources and other raw materials as well as the number and quality of human resources, to a large extent, influence a country's potential for economic growth, all things being equal. At one end of the spectrum is a case of favourable physical resource endowment like what obtains in the Persian Gulf Oil states. At the other extreme are countries that are marginally endowed in terms of natural resources such as fertile land, minerals and raw materials. These countries include Chad, Haiti, Bangladesh and Yemen, among others. However, evidence from some natural resource-endowed countries has shown that high mineral wealth alone does not guarantee development. It is important to also note that in addition to the number of people and skill levels, cultural viewpoints, attitude towards work, access to information, willingness to innovate and desire for self-improvements are also relevant determinants of growth. Ethnic and Religious Composition One of the direct benefits of the end of the 45-year old "war" between the United States and the former Soviet Union has been a substantial decline in foreign military and political presence in developing world. An indirect cost of this withdrawal, however, has been the acceleration of ethnic, tribal and religious conflict. Ethnic and religious conflicts are common in most of LDCs and these internal conflicts have accelerated the incidence of political and economic discrimination. Ethnicity and religion often play a major role in the success or failure of development efforts. Clearly, the greater the ethnic and religious diversity of a country, the more likely it is that there will be internal strife and political instability. One can obviously observe that some of the highly successful recent development experiences South Korea, Taiwan, Singapore and Hong Kong have occurred in culturally homogenous societies. Relative Importance of the Public and Private Sectors Most developing countries have mixed economic systems, featuring both public and private ownership and use of resources. The division between the two and their relative importance are mostly a function of historical and political circumstances. Thus, in general, Latin America and South-East Asian nations have larger private sectors than South Asian and Africa nations. The extent of foreign ownership in the private sector is also an important determinant of the varying levels of progress achieved by Less Developed Countries. While a large foreign-owned private sector usually creates economic and political opportunities, it is always accompanied by problems not commonly observed in countries where foreign investments are less prevalent. The widespread economic failures and financial difficulties militating against many public enterprises can be found in countries such as Ghana, Senegal, Nigeria and Kenya, among others. Finally, the degree of corruption differs widely across developing countries and may influence both the size of the public sector and the design of privatization programs. Industrial Structure Although rapidly urbanizing, the majority of developing countries are agrarian in nature. A greater proportion of the populations of many Less Developed Countries in Africa and Asia are engaged in agriculture at both the subsistence and commercial levels. The extent of commercialization achieved in agriculture in these countries have gone a long way in influencing their industrial structures. However, in spite of common problems facing these countries, development strategies put in place vary from one country to another, depending on the current nature, structure and degree of interdependence among its primary, secondary and tertiary sectors. The primary sector consists of agriculture, forestry and fishing; the secondary mostly of manufacturing and the tertiary of commerce, finance, transport and services. External Dependence: Economic, Political and Cultural The extent to which a developing country is reliant on foreign economic, social and political forces is largely correlated with its size, resource endowment and political history. Most developing countries can be said to be highly dependent on developed countries in terms of foreign investment, trade, and technology for production which influence the nature of their growth process. Beyond this is the international diffusion of institutions such as the systems of education and governance, values, consumption patterns and attitudes toward life, work and self. The international diffusion of institutions brings both benefits and costs to most developing countries with those consciously aspiring for self-reliance leveraging on the benefits with a view to achieving faster economic growth and improved welfare. Political Structure, Power and Interest Groups The soundness of economic policies and strategies designed to achieve them are necessary but not sufficient conditions for national progress. This is because of the lack of congruency between the national objectives vis-a- vis the personal objectives of the ruling class as well as the elites, especially the comprador groups with rent-seeking and self-serving goals. The elites know when and how to highjack well-designed programmes along their value chains towards the fulfillment of their self-interests rather those of their respective countries. The dynamics of interests and power among different segments of the populations of most developing countries is in itself the result of their economic, social and political histories. In most developing countries, the very few highly connected and powerful elites either rule directly or choose those that would rule their countries by using wealth largely acquired through sleazy sources. This is at variance with what obtains in the developed countries where the power of the elites is usually neutralized by the more powerful democratic forces. Characteristics of Developing The most common way to define the developing world is by per capita income. Several international agencies including the Organization for Economic Cooperation and Development (OECD) and the United Nations offer classifications of countries by their economic status but the best- known system is that of the International Bank for Reconstruction and Development (IBRD), commonly known as the World Bank. In the World Bank's classification system, 207 economies with a population of at least 30,000 are ranked by their levels of Gross National Income (GNI) per capita, These economies are then classified as Low-Income (LCI), Lower- Middle Income (LMC), Upper-Middle Income (UMC), High-Income (HI) and other High-Income Countries. The developing countries are those with lower, lower-middle or upper-middle incomes. Sometimes, the upper- middle income economies with relatively advanced manufacturing sectors are called Newly Industrializing Countries (NICs) while the World Bank refers to those with excessive debts as severely indebted countries. Most developing countries aspire to achieve a set of common and well- defined goals. These include a reduction in poverty, equitable distribution of income, reduction in unemployment; the provision of medium levels of education, health, housing, and food to every citizen; the expansion of economic and social opportunities and the forging of a cohesive nation- state. Furthermore, most developing countries also share common problems in varying degrees such as widespread and chronic absolute poverty, high rates of unemployment and underemployment, wide and growing disparities in the distribution of income, low and stagnating levels of agricultural productivity, sizable and growing imbalance between urban and rural levels of living and economic opportunities, educational and health systems, severe balance of payments and international debt problems, and substantial as well as increasing dependence on foreign technologies, institutions and value systems. These common characteristics are discussed as follows: Low Levels of Living In developing nations, general levels of living tend to be very low for a greater proportion of people not only when compared with those living in developed nations but also in relation to the small elite groups within their own countries. These low levels of living are manifest in the form of low income (poverty) poor housing, poor health, inadequate education, high infant mortality, low life expectancy and low work expectancy which culminate in hopelessness. Low Levels of Productivity In addition to poor living conditions and deprivations in human development, developing countries are characterized by relatively low levels of labour productivity. In most developing countries, productivity (output per week) is extremely low in relation to those in developed countries. This can be explained by a number of economic concepts. For example, the principles of diminishing marginal productivity states that if increasing amounts of a variable factor (such as labour) are applied to fixed amounts of other factors (such as land and capital) the extra or marginal product of a variable factor declines beyond a certain number. The low levels of productivity can be said to be exacerbated by the absence or inadequacy of complementary factor inputs such as physical capital or experienced management. Therefore, to raise productivity, according to this notion, domestic savings and foreign finance must be generated to create new investment in physical capital goods and build up the stock of human capital (such as managerial skills) which can be achieved through investment in education and training, and ensuring institutional changes. The pervasive poor health conditions of the people is also a cause as well as a consequence of low productivity and low income in developing countries. High Rates of Population Growth and Dependency Burden Birth and death rates are remarkably different between developed and developing nations. Birth rates are generally very high in developing countries on the order of 30 to 40 per 1,000 whereas in the developed countries, the birth rates are less than half of the figure. Death rates (the yearly number of death 1,000 people) in developing countries are also high relative to developed nations but due to the improving health conditions and the control of major infectious diseases, the differences are largely smaller than the corresponding difference in birth rates. As a result, the average rate of population growth is about 1.6% per year in developing countries, compared to population growth of 0.7% per year in the high income countries. One major implication of high population growth of developing countries is that they may have to contend with high dependency burdens than developed nations. Substantial Dependence on Agricultural Production and Primary Product Over 65% Exports A greater proportion of people in developing countries live in rural areas. are rural based compared to less than 27% in economically developed countries. Similarly, the contribution of agriculture to the GNP of developing nations is about 14% vis-a-vis only 3% in developed nations. Dependence on Primary Exports Most economies of less developed countries are oriented towards the production of primary products as opposed to secondary and tertiary activities. These primary commodities form their main exports to other nations (both developed and less developed). Except in countries naturally endowed with huge petroleum and other valuable mineral resources and a few leading Asian countries exporting manufactured goods, most developing countries' exports consist of basic foodstuffs, non-food cash crops, and raw materials. In sub-Saharan African countries for example, primary products account for over 80% of total export earnings. Dominance, Dependence and Vulnerability in International Relations The North-South dichotomy in terms of the skewed distribution of economic and political power in favour of the developed countries is another major cause of the persistently low levels of living, rising unemployment and growing income inequality in developing nations. These unfavourably skewed strengths are manifest not only in dominant power of rich nations to control the pattern of international trade but also in their ability to prescribe the terms whereby technology, foreign aid and private capital are transferred to developing countries. Low Level of Infrastructural Facilities Most developing countries lack the basic infrastructural facilities such as good roads, functional health centres, good communication and sustainable transportation systems, among others, necessary to move their economies from the abyss of underdevelopment into developed nations. Furthermore, the few infrastructural facilities possessed by most developing countries are not only badly built but also poorly maintained. Low Level of Inward Investment Developing countries are generally characterized by low levels of inward investments. The few investments channeled into these economies are accompanied by some ulterior motives. For some developed economies like the United States of America and emerging economies like China have invested in many developing countries, especially in Africa, in order to help them export raw materials required by the industrial sectors of their nations. Economic Growth without Development Economic growth is a necessary but not sufficient condition for development. In other words, it is possible to have economic growth without development. A country can achieve a consistent increase in Gross Domestic Product (GDP) over a long period of time but this may not be accompanied by actual improvements in living standards. The distinction between the two concepts is further clarified as follows: 1. Economic growth may only benefit a small percentage of the population. For example, if a country produces more oil, it may witness an increase in real GDP. However, it is possible that the oil production is controlled by only one firm. Therefore, the majority of the workers in the country may not really benefit from the increased production. 2. Corruption: A country may achieve increase in real GDP but the benefits of growth may be syphoned into the bank accounts of the very few corrupt elites. 3. Environmental Problems: Increased production of oil, for instance, tends to lead to an increase in real GDP, all things being equal. But the increase in production tends to generate more toxic substances, which if not effectively regulated, can also lead to environmental degradation and health problems. This is an example of how growth might lead to a decline in living standards of the people. 4. Congestion: Economic growth can cause an increase in congestion due to increase in economic activities and the required resources for achieving them. For instance, an increase in economic activities may require more vehicular movements due to the transfer of raw materials to factories and distribution of the final products to distributors and consumers, which may cause traffic jams. This implies that people may have to spend longer time in traffic jams. Hence, the Real GDP may increase but the people's freedom may be impaired thereby leading to a lower standards of living. 5. Production not consumed: Suppose a state-owned enterprise increases output of cigarette which translates to an increase in real GDP. However, if the output is neither beneficial nor consumed by anyone, then it causes no actual increase in living standards. 6. Military Spending: A country may increase real GDP by spending more on military goods even in the absence of any threat of war. However, if this is at the expense of health care and education it can lead to lower living standards. Conclusion Economic growth and development have been and will continue to be a preoccupation of mankind, especially in developing countries. The difference between economic growth and development lies in the fact that, while economic growth is concerned with the quantitative side of economic activity, development has a larger scope, including qualitative changes that bring about consistent reduction in poverty, inequality and unemployment, thereby resulting in improved welfare of the people. CHAPTER 10 Introduction The rationale for International Financial Institutions (IFIs), founded by groups of countries, was to support public and private investments of developing and transitioning countries in order to garvanise economic and social development. The IFIs were specifically created to: 1. reduce global poverty and improve living conditions and standards of the people; 2. support sustainable economic, social and institutional development; and 3. promote regional cooperation and integration. Generally, International Financial Institutions are grouped as multilateral financial institutions and regional financial institutions. MULTILATERAL FINANCIAL INSTITUTIONS Multilateral financial institutions provide financial assistance (e.g. loans, aids and grants) to developing countries for economic and social development, especially with regards to investment and policy-based The most obvious impact/benefit of these institutions remains the additional investment it provides for infrastructural developments in developing economies (Wang, 2016). The multilateral institutions include the World Bank Group and the International Monetary Fund (IMF). The World Bank Group The World Bank group provides loans and grants to developing countries for large infrastructure projects. The goals are to end extreme poverty and accelerate economic prosperity in those countries. The World Bank Group comprises the International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), and three other institutions (International Finance Cooperation -IFC, Multilateral Investment Guarantee Agency - MIGA, and International Centre for Centre for settlement of Investment Disputes - ICSID). 1. International Bank for Reconstruction and Development (IBRD) The IBRD, also called the World Bank, was established in July 1945, at the Bretton Woods Conference, New Hampshire, in the United States of America (USA), to assist in the reconstruction of the world economy after the World War II. The World Bank supports long-term economic development and poverty alleviation through the provision of technical and financial support to middle-income and credit worthy low-income countries. The objectives of IBRD are to: i. provide long-run capital to member countries for economic reconstruction and development; ii. stimulate support and promote flows of capital into worthwhile projects and programmes in member countries; improve the general economic policies of recipient countries; iv. improve the quality of project planning and the implementation of development projects so as to bring about a smooth transference from a war-time to peace economy. The IBRD is the largest development bank in the world and it works closely with all institutions of the World Bank group. This bank is prominent for its roles in the public and private sectors in developing economies to alleviate poverty while coordinating responses to regional and global challenges. The capital of the Bank is sourced from the subscriptions from the members and by selling bonds on the world market. The bank generates its resources via subscriptions by its members, borrows from central banks of the world, raises funds from international capital markets, and various official sources as stipulated by the bank's policy document (IBRD, 2019) 2. International Development Association (IDA) The International Development Association (IDA) was established in 1960 to complement the lending arm of the World Bank to support extremely poor countries to access funds which may not be available via the operations of the IBRD. The IDA is an institution that offers interest-free loans and grants to the world's poorest countries. Specifically, the objectives of IDA are to: i. provide financial assistance to less developed countries on easy terms with lower service charge than the one charged by the World Bank; ii. promote economic development, increase productivity and consequently improve the living standard in developing countries. IDA helps to promote and boost economic growth, reduce inequalities, and improve the living conditions in member economies. It has one of the largest sources of assistance for the poorest economies, especially in Africa. It is a source of donor funds for technical and basic social services in the member countries. IDA loans are concessional. That is, the credits from this institution are at no/low cost (low interest charges) and credit repayments are for 30-38 years with 5-10 years grace period. In addition to loans given by this institution, it also provides a form of debt relief through the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) (IDA, 2019). 3. International Finance Cooperation (IFC) The International Finance Cooperation (IFC) was established in July 1956 to finance investment, capital mobilization, and advisory services to businesses and governments in developing countries. It helps high risk business sectors and high-risk countries for the promotion of productive private investment to achieve sustainable growth. In fulfilling its purpose, the IFC undertakes to: i. assist in financing the establishment, improvement and expansion of productive private enterprises in member countries; ii. bring together investment opportunities, domestic and foreign private capital, and experienced management, and iii. help to create conducive conditions for the flow of domestic and foreign capital into productive investment in member countries. IFC is a leading third-party resource mobiliser which is also involved in crowd funding for projects (IFC, 2019). 4. Multilateral Investment Guarantee Agency (MIGA) The Multilateral Investment Guarantee Agency (MIGA) was established in April 1988 to offer political risk insurance (guarantees) and credit enhancement to both the investors and the lenders to encourage in developing countries (MIGA, 2019). It promotes foreign direct investment in developing nations. The specific objectives of MIGA are to: i. promote flow of direct foreign investment into developing countries; ii. give insurance cover to investors against political hazards; offer assurance against non-commercial hazards (risk involved in currency transfer, war and civil conflicts, and violation of contract; iv. insure new investments, expansion of present investments, privatisation and financial restructuring; V. offer promotional and advisory services to developing nations MIGA protects members' investments against non-commercial risks, such as currency transfer dangers, expropriation, and civil disturbance and breach of contract by governments, among others (Okororie, 2008). The agency also helps investors with access to funding sources with improved financial terms and conditions. 5. International Centre for Settlement of Investment Disputes (ICSID) The International Centre for Settlement of Investment Disputes (ICSID) was established in 1966 by the Convention on the Settlement of Investment Disputes to settle disputes between foreign investors and developing countries taking the investment funds. The centre was established to achieve the World Bank objective of promoting international investment. This institution is an independent, depoliticised and effective dispute settlement institution, available to investors and states, to help promote international investment via the provision of states, to helhe dispute dispute by facilities for conciliation, arbitration, and fact-findings for international investment disputes. The institution also helps in promoting and creating awareness about international business and law in foreign investments. It also avails the public programmes on international investments disputes, makes publications on international investment disputes globally, and regularly publishes information about the institution's activities and investment cases in progress (ICSID, 2019). International Monetary Fund (IMF) The International Monetary Fund (IMF) was established in 1945 alongside the World Bank as the main body of the International Monetary System, at the Bretton Woods conference, New Hampshire, USA. The Fund commenced operations in 1947. Its major role is to promote international monetary cooperation and provide policy advice and capacity development support to help countries attain and sustain strong economies. The largest economies in the world mostly have permanent seats within the IMF. For instance, The United States, Britain, Japan, Germany and France all have the permanent seat arrangements (IMF, 2019). The objectives of IMF, among others, are to: i. foster international monetary cooperation amongst the various ii. member countries; promote exchange rate stability and act as a sort of world clearing house where all financial arrangements are reconciled; provide fund for members to lessen the degree of short term disequilibrium in the Balance of Payment(BOP); iv. accelerate the growth of international trade by maintaining equilibrium in balance of payment; V. help member countries to achieve balanced economic growth by promoting and maintaining high level of employment as the primary objective of economic policy. According to the institution, there are three main tools that are available for achieving its objectives: surveillance, technical assistance and training, and lending. Thus, IMF monitors the economic developments from the global level to individual nations, studies the effect of monetary and fiscal policies of individual countries on other economies, and examines the economic trends from global perspective to national perspective. The IMF has a Board, a Managing Director, and an international Workforce. The Board of Governor is made up of all Governors of Central Banks of all member states. The Board is based in Washington. The has much influence on member nations to such an that, in most decisions on lending, the consent of the fund has to be obtained by the creditor country on whether to lend or not. The implication is that no country obtains any form of financial assistance in international capital market, unless such country is able to produce a clean bill of economic health, issued by the IMF (Mimiko, 1997). Such development, usually regarded as the principle of cross conditionality, has made the IMF to insist that countries seeking financial assistance must comply with its conditionalities for them to be given its backing. The IMF depends on contributions from member nations on a quota basis. It can also borrow directly from its members and major industrial countries. Impact of World Bank and IMF on the Nigerian Economy The World Bank and IMF have been very helpful to Nigeria in many ways. For instance, the World Bank has assisted in the establishment, growth and proper functioning of some development banks by providing loans as well as technical assistance. The IMF has also enhanced reasonable international financial conduct by member nations. However, it has been observed that developing countries like Nigeria were not represented at the Bretton Woods Conference that led to the formation of the twin institutions. This probably informed why the focus of the institutions is on the developed nations. Developing countries are unable to meet the stringent conditions attached to loans from IMF. Most of the times, loans are granted to countries whose governments are friends of the US. Consequently, IMF loans are usually given to developing countries on the same conditions, irrespective of the history, the peculiarities and the needs of these countries. According to Mimiko (1997), it is doubtful, if this gbogbonise (cure all) mentality can be productive. REGIONAL FINANCIAL The regional financial were founded to promote economic growth and cooperation. This group comprises institutions such as the Africa Development Bank (AfDB), African Development Fund (ADF), and Nigerian Trust Fund (NTF), among others 1. African Development Bank (AfDB) African Development Bank was established by an agreement signed in Sudan on 1" October, 1964 and became fully operational on 1ª July, 1966. Its major function is to impact the economic and social progress of both individual regional members and collective regional member countries (AfDB, 2019). According to the Article 2 of the agreement establishing the Bank, as stated in Agene (1995), the Bank has responsibilities to: i. use the at its disposal for the financing of investment projects and programmes relating to the economic and social development of member countries; ii. undertake, or participate in, the selection, study and preparation of projects, enterprises and activities contributing to such development; iii. mobilise and increase, in Africa and outside Africa, resources for the financing of such investment projects and programmes; iv. promote investment in Africa of public and private capital in projects or programmes designed to contribute to the economic development or social progress of its members; V. provide such technical assistance as may be needed in Africa for the study, preparation, financing, and execution of development projects of programmes; and vi. undertake such other activities and provide such other services as may advance its purpose. The bank's authorised capital has the subscription of African (regional) and non-African (non-regional) members. The resources of the bank for financing are mostly from two (2) major sources. These sources are referred to as: i. Ordinary resources- ordinary shares of the bank's authorised capital; funds received in the repayment of AfDB loans; funds raised through ADB borrowings in the international capital markets; and other income (from other investments) received by the bank. ii. Special resources- sources such as the Arab oil fund; special emergency assistance fund (for drought and famine in Africa); and special relief fund. 2. African Fund (ADF) The ADF, as the concessionary window of the AfDB group, was in 1972, although became fully operational in Its mandate is to contribute to poverty reduction and economic and social development in low-income African countries. Its benefits are mostly for countries with increasing economic capacities and economies fast growing to become an emerging market. Its aim is to reduce poverty and encourage economic and social development in the under developed African countries, while providing technical assistance for capacity building activities. The funds of this institution are replenished every three years by its contributing countries. Its main resources consist of contributions from internal bank resources and donor/contributing countries (ADF, 2019). 3. Nigerian Trust Fund (NTF) The NTF was established in 1976 by a mutual agreement between the AfDB and the Nigerian government. The objective is to assist the development efforts of the Bank' low-income regional member countries whose economic and social conditions and prospects require concessional financing. However, these two parties (the Nigerian government and AfDB) agreed to a 10-year extension of the NTF. The resources of this. institution come in two ways. The first is a co-financing operation with the AfDB and the ADF while the second, is a stand-alone funding operation by NTF. The NTF finances projects in both the public and private sectors of the beneficiary economies. Hence, the NTF finances are allocated for projects and not countries unlike the ADF (NTF, 2019). Conclusion International Financial Institutions (IFIs) were established to create opportunities for people and economies to reduce poverty and improve the living conditions of the people through partnerships and collaborations. These institutions are into multilateral financial institutions and regional financial institutions. The multilateral financial institutions comprise the International Monetary Fund and the World Bank group consisting of World Bank (International Bank for Reconstruction and Development-IBRD), International Development Association (IDA), International Finance Cooperation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID). The regional financial institutions comprise Africa Development Bank (AfDB), African Development Fund (ADF), and Nigerian Trust Fund (NTF), among others. Nigeria, as a country, had benefitted immensely from the activities of the International Financial Institutions, in terms of infrastructural development and capacity building.