My interview with Daily Trust Newspaper on the Recent Recommendation by the International Monetary Fund to Devalue the Nigerian Naira

Dr. Mustapha Muktar

Department of Economics

Bayero University, Kano
28/2/2011

The IMF had in its 2010 article IV constitution with Nigeria released last week noted that the Naira was currently overvalued and advised the CBN to devalue it. Devaluation of currency is the decision of a government to reduce the value of its own currency vis a vis other currencies. Devaluation occurs exclusively in fixed currencies, when the currency in question is pegged to another currency.

Governments devalue their own currencies to make their exports less expensive in foreign markets. For example if a company exports its products for the same price in the local (devalued) currency, it is cheaper for consumers to buy those products in their own currency. However Countries devalue their currencies only when they have no other way to correct their economic problems.

The ills of devaluation are in most cases more than its advantages. Crictically, devaluation does encourage exports and discourage imports to some extents and for a limited period of time. Devaluation is mostly manifested in a higher inflation, promotion of importation of finished goods, including substandard products, leading to the unfortunate winding up of local/indigenous industries country-wide, rise in energy costs, increased cost of fund and a reduction in welfare especially in an import  dependent country like Nigeria.

It could be recalled that Since the 1980s, the devaluation of the Nigerian currency has never augured well with the country and its people. One of IMFs conditionalties is usually the devaluation of a loan applicant country’s currency in order for them to be granted such loan.

If the Naira is devalued, Nigerians will lose their international buying power. Their ability to purchase goods or services from other countries will also diminish. The overall implication is that, government will be forced to purchase the Naira with foreign reserves, and hence undermining our country’s ability to service debts. This occurred in Russia after its 1998 currency crises. Currently the exchange rate is about N157 to US1. Based on current development in some of the Nigeria’s macroeconomic indicators where by the oil price is moving up and the rate of growth of real gross domestic product is encouraging the central Bank of Nigeria is supposed to REVALUE the Naira so as to lower inflation, and at the same time attract foreign Direct Investment, investors and trading partners. There is also the need for strengthening an effective monetary tightening to further suppress inflation pressures. The government should also improve the the enabling environment by making sure that the basic socio-economic infrastructures, especially energy, water, roads and security are guaranteed in thecountry

The Youth and Waste Scavenging in Kano State, Nigeria: Implications For Socioeconomic And Health Hazards

 (a modified version of my paper on "The Economics of Waste Scavenging in Kano)

Mustapha Muktar,Ph.D
Department of Economics,
Bayero University
PMB 3011,
Kano, Nigeria

 Scavengers are not refuse workers and they are not concerned with waste management, they enter into trade for socioeconomic reasons, and their relationship with waste is as a resource, they only collect those materials for which there is market. Scavenging is a reality in almost all cities of developing countries and in many wealthy nations as well.

In Nigeria, like other developing countries, Scavenging among youths begin with the collection of plastic bags, bottles, papers, cardboards and cans, and it mostly takes place in the informal sector. Scavengers provide informal collection, recovering additional materials at the curve, dumps and landfills.

In Kano state, the realization of very large dumps of waste tend to attract local scavengers called “Baban Bola” . These scavengers play an important role in the process of waste recycling. They sort out the useful materials like paper, aluminum, glass etc and sell them to the recycling industries. Unemployed youths engage in activities that earn income for their survival and that of their families. Youths have now begun to ravage the dustbin, courtesy of the economic downstream of the country, they've certainly begun to earn their means of livelihood from the dustbin. In the past, youths were assumed to be leaders of tomorrow and they are still considered to be future leaders, but the uncompromising stance of the economy and government's unfavorable policies towards youths have compelled them to scavenge refuse dumps with the hope of finding scraps of metals, aluminum, rubber and plastics which they could fabricate or sell out in order for them to make ends meet and also to enhance their relevance in the society. It has become a common scene in Kano state to see youth carrying sacks and sticks while they roam garbage dumps. They use sticks for scavenging for any hidden treasure beneath trashes, and any identified material despite its dirt, was quickly stored away in their sacks. Youths who have been scavenging refuse dumps for long, claimed ownership of specific refuse dumps especially those located in highbrow areas, thereby preventing others from trespassing into their territories, while at certain circumstances one sees some of them engaged in waste scavenging over legitimate ownership of a particular piece of broken plastic bowl.

The preoccupations of government on environmental policies are in the areas of environmental sanitation, degradation and pollution control. Hence, one can see that there is no linkage between government formulated policies on environment and the activities of waste scavengers. Government has failed to recognize and formalize scavenging, despite its importance in terms of job creation and income generation to a large number of youths. The article therefore, explores the socioeconomic implications of waste scavenging among youth, with special reference to Kano state. The picture of scavenging that emerges from reviewing literature is that of an occupation that provides a livelihood for the poor. Scavenging is an important survival strategy in which impoverished individuals coped with scarcity. Scavengers typically specialize in recovering only one or a few types of materials from waste. To Medina (1997), Scavenging takes place in all stages along the waste management system that is; source separation at household or place generating waste material; here materials are reused, sold or given away, for example, old newspapers are used for packing. During collection, scavengers sort out recyclables for sale. Scavengers also retrieve recyclables at dumps, on the streets or public places, in canals and rivers, at landfills prior to burial and purchased source of separated recyclables from residents. Scavenging is ubiquitous occurrence throughout the developing world. The World Bank has estimated that up to 2% of the population in third world countries survive by recovering materials from waste. Scavengers salvage materials to sell for recycling, as well as repairable and re-usable items that can sell or use themselves. The recovery of materials from waste by scavengers in developing countries takes place in a wide variety of settings; although the circumstances in which materials are recovered in a particular place may be unique. It is obvious that scavengers source their materials from two major ways that is either sorting or collecting freely from dumps and landfills, or by buying the already sorted materials from households.

Poverty is prevalent in most developing countries and this forces the poor to make the most of the resources available to them. Given their very low incomes, scavenging provides them with reusable and sellable materials. In doing so, the poor have developed creative ways in order to satisfy their needs, including the recovery of items not necessarily part of the waste stream: In Mali, many farmers search and dig artifacts produced by ancient Mali Empire in order to sell them to art collectors (Brentt, 1994; French, 1995). In Calcutta, scavengers work along the rail road tracks in order to recover the pieces of coal that fall from the train (Lapierre, 1985). In Cairo, scavengers search ox dung for undigested kernels of corn to eat ( Linden , 1993). In Vietnam scavengers dig on agricultural fields and jungles, searching for scrap metal left over from the war (Donohue, 1994).
 

The following features can be generalized for scavengers;
Scavengers are poor relatives to the rest of the society, their incomes are low, scavenging is an informal activity and labor intensive in nature. It can render economic and social benefits (such as; work for the unemployed youths, raw materials for industry etc), on the other hand scavenging generates cost to society such as high health risk associated with the type of labor. Scavenging supplies raw materials largely to either artisans or industries. In dumpsites located near agricultural areas, scavengers recover organic materials to be used as fertilizers as well as food for goats and pigs ( Medina , 1997)Socioeconomic impactsScavenging contributes to reduction of the amount of solid waste to be disposed and also helps to save the natural resources that leads to sustainable development. It creates jobs and extra income for people especially the poor. Scavenging encourages family members to sort out materials from wastes in exchange for money. It supplies raw materials for a lot of recycling enterprises and this creates more jobs for people especially the youths who dominate the profession. Scavenging renders economic and environmental benefits, such as providing income to unemployed individuals, supplying inexpensive raw materials to industries, reducing the demand for collection, transportation and disposal of waste. Further, material recycling has a lower environmental impact that is accelerated by scavengers. Diaz (2000) argued that Scavenging is a process that is well practiced in developing countries, in fact scavenging is a source of employment, that attempts made to abolish the practice in some cities have been met with strong resistance. Scavengers roam the streets looking for items that can be reused; other scavengers conduct their activities at disposal sites. Generally scavengers have an agreement with a middle man, and the middleman is an individual who has contract with end users, who can process, prepare and sell the quantities of materials desired by users and he provides the scavengers with compensation and in some cases a collection vehicle (e.g. a cart). The families and social background of scavengers are such that scavenging is the only option available to them to earn a living. In most developing countries, scavenging played important role on the economic survival of a number of industries (e.g. steel, pulp and paper).

Scavengers have contributed significantly towards the provision and separation of recyclables for the recycling industries; moreover, they are doing their activities in an informal setting. On the average scavengers that buy recyclables from households generate an income that is equivalent to 50% of the cost of purchase (e.g. for each recyclable they bought at N1.00, they would get 50k as profit), besides these scavengers have been responsible for the separation of waste materials and in some cases upgrading it through washing for the recycling industries.
Youth scavengers in Kano state are not organized in any formal way, yet their contribution to economic growth is significant. The scavengers are of two types; the primary and secondary scavengers. The secondary scavenger gave the primary scavenger a token amount of money to buy recyclables from the neighboring areas and in return, the materials are weighed and priced accordingly. A kilogram of rubber shoes or plastic on the average costs N22 – N30, and the companies that recycle these materials include Balley plastic, and Standard plastic. On the average, a secondary scavenger employs 6 primary scavengers or more, by doing this, a lot of youths are employed by the profession. One of the problems facing scavengers is the fact that they do not receive any assistance from the government, and worst of all, the government levy heavy taxes on the secondary scavengers who are mostly salvage dealers. As long as poverty and garbage exist in combination, waste scavenging and recycling are likely to prevail and the reality of these system can be seen as basis for development. Birkbeck (1979) analyzed the labor relations of scavengers using the Marxist perspective. He described the situation in terms of self employed informal sector workers, who like factory laborers, engaged in piece work of which the surplus benefited the middlemen. The relationship between scavengers, the middlemen (salvage dealers) and factories can however, be characterized as patron – client relationship based on mutual trust and cemented by rather stable product delivery and money lending patterns. These relations reduce the vulnerability of the scavengers by guaranteeing a certain security of living, albeit at a low standard, as the middleman uses this dependence to fix prices of the recovered materials at very low levels. Because of this basic survival strategy, the scavenging system was describe by Singular (1992) as hunting and gathering societies, who survive under conditions of common source exploitation. They gather ‘ores’ and hunt for ‘valuables’ in the same way as hunters and gatherers use forests and planes. The exploitation of scavengers by middlemen occurs through market relations and not by means of employment relations as in a capitalist industrial setting. The informal production relations of scavengers are intertwined with the formal sector since they paid various types of taxes to government. Health hazardsScavenging has some detrimental effects on the health of the scavengers, who suffer from eye irritation; respiratory diseases, with coughing, sneezing, etc.; skin diseases, especially scabies; minor injuries from stepping on broken bottles or sharp objects in the refuse; headaches from working in the sun; and backaches from bending down most of the time. Other infections associated with waste scavenging includes, skin and blood infections resulting from direct contact with waste and from infected wounds; eye and respiratory infections resulting from exposure to infected dust; zoonoses resulting from bites by wild or stray animals feeding on wastes; and enteric infections transmitted by flies on wastes, chronic diseases like respiratory diseases and cancers resulting from exposure to dust and hazardous compounds, accidental injuries that include skeletal disorders resulting from the handling of heavy containers, infected wounds from contact with sharp items; poisoning and chemical burns resulting from contact with small amounts of hazardous chemical waste mixed with general waste; burns and other injuries from occupational accidents at waste disposal sites or from methane-gas explosions at landfill sites.Waste scavenging in Kano state.Waste scavenging in Kano state represents an adaptive response to chronic poverty; however the benchmark appeared to be the structural adjustment programme (SAP), which imposed barn on the importation of some industrial inputs with the objective of making the economy diversified and self reliant. Waste scavenging in Kano state has contributed to the development of the informal sector by providing a labor-intensive, low technology and low paid activities. Scavenging has also rendered economic and environmental benefits such as work for unemployed individuals, supply of cheap raw materials to industries, reduction in the demand and cost of waste collection, transportation and disposal equipment facilities. Waste scavenging also evolves partly due to the prevalence of dump sites and some industries that utilize recyclables as part of their input requirements.
Scavenging in Kano state is not equally divided between male and female youths; male youths have dominated the profession. Only few among the youth scavengers had some knowledge of formal education and they are in many cases primary school drop outs between classes 2 – 5. It is mainly practiced by those with no formal education.
The various reasons that attracted the people to scavenging are due to income and employment it provides to them, as a result of poverty, while some are due to their low social status which includes lack of shelter, education orientation and parental care. Others are engaged in scavenging due to personal interest, by chance and some due to lack of career guidance. Majority of the youth scavengers lived with their families and contributed to household income. It was observed that young children usually accompanied their mothers from an early age.
The major type of materials recovered by scavengers are plastics, metals, glass bottles and others. The materials categorized under others were identified to be old car batteries, used grain bags, papers, rags, wood, and so on. The source where the scavengers got these materials is mainly two; namely open dumps that are considered to be no man’s land and households. In case of materials from the households a token amount is given in exchange for  recyclable materials, sometimes new plastic plate, matches box, are given to the household members in exchange. Most scavengers worked between the hours of 8am to 6pm (10 hours a day).

Salvage dealers are located at specific depots in Kofar Wambai, Sharada, Jakara, Dakata and Tudun Murtala areas all in Kano metropolis. Metals/Iron and Old car battery have a higher value and hence a higher earning potential. Soft drink bottles, though very heavy, have the lowest price. Plastics and used plastic gallons have moderate prices. The average quantity of waste materials collected by a scavenger in a day was estimated to be 15kg. The average daily income of a scavenger was estimated to be N400; it was observed by Muktar (2005) that male scavengers earn more than their female counterparts, and that in some cases scavengers recovered materials and used them for their personal use, these materials include fire wood and clothes.

A lot of factors have contributed in determining the income of youths in scavenging, and they include; hours of work, age of scavengers and the location of dumps. In higher income areas like the government reserve areas (GRA), scavengers found more useful materials in dumps, this is due to the fact that households located in higher income areas do not care to collect useful materials from their waste before discharge, by and large their consumption pattern and nature of the products consumed is another contributing factor. This suggests that scavenging is an unorganized activity that requires little or no skill. Attempt to find the total number of scavengers in Kano state was made by Abubakar (2005) who estimated that about two thousand or more youths are employed scavengers. The average monthly income of youth scavengers is estimated to be N12000. This monthly income is however above the minimum wage paid by the state civil service. Using the figure 2000 for the total youth scavengers in Kano state then, scavengers generate an annual income of 24million Naira.

One problem facing scavengers in the state is the issue of multiple taxes levied against them by both the local governments and the state Ministry of Environment. It was discovered that government officials harass scavengers and claim that they are responsible for littering areas. Taxes are levied directly on the salvage dealers. A salvage dealer was quoted to have said “imagine that they (Ministry of environment) are accusing us of littering the place with junks, where as we are the ones who are assisting them in reducing the massive mountains of refuse in the state (Abubakar, 2005). Due to the low bargaining power and the unorganized nature of scavenging, part or the entire tax burden is passed to the scavengers.

The health of scavengers is however vulnerable to diseases, as garbage dumps contain sharp objects like disposable syringes that were used on patients at home and discarded. This could easily harm any one that is not careful and result in contracting HIV/AIDS or hepatitis diseases depending on whom it was used for. Razor blades, broken bottles and pieces of metals found in garbage dumps may cause injuries that could also lead to tetanus diseases, which may even result in death. Other diseases which could also be contracted by scavengers include typhoid fever and cholera which may be transmitted to others, while animal and human faeces may cause intestinal worms to those infested. Most youth that engage in waste scavenging are drug addicts and one can see that they are visibly intoxicated, hence they need some counseling. Most of these youths should have been in school rather than collecting refuse in that hour when their colleagues are in school learning.

One major problem facing scavengers is the informality of their profession and lack of bargaining power. It is recommended that scavengers should form cooperatives so that they can pool their efforts and resources together and bargain collectively, Government and non governmental organizations should therefore; enlighten them through seminars, and campaigns. The campaigns should include education and information. Local politicians, policy makers and educational institutions should be the facilitators of these programmes.

Kano state government should train the youth scavengers on how to go about their business in a way that maximizes profit. Attached to this point is the need for the state government to encourage scavenging and make the profession less vulnerable and more efficient, this can take the form of provision of necessary working equipments like hand globes, boots, wheel barrows and capital. The scavengers should receive basic health training (first aid) to learn how to take care of themselves in case of any minor injury. They should also be trained to wear a type of uniform, such as overalls, jungle boots, gloves, helmets, and nose masks, which would further enhance their dignity and health status.

Conclusion

Waste scavenging among youth arises mainly due to the existence of waste dumps and recycling enterprises on one hand, and the income earned as well as poverty on the other hand. Scavenging as an informal activity has employed a number of youths. The average monthly income earned by a scavenger in Kano , is found to be above the minimum wage paid by Kano state government. The number of children below the age of 15 working as scavengers can be seen as child labor, though poverty is what necessitates them to be engaged. Scavengers have faced problems of informality and vulnerability to diseases, hence they need government assistance.

Recommendations

One major problem facing scavengers is the informality of their profession and lack of bargaining power. It is recommended that scavengers should form cooperatives so that they can pool their efforts and resources together and bargain collectively, Government and non governmental organizations should therefore; enlighten them through seminars, and campaigns. The campaigns should include education and information. Local politicians, policy makers and educational institutions should be the facilitators of these programmes.

Kano state government should train the youth scavengers on how to go about their business in a way that maximizes profit. Attached to this point is the need for the state government to encourage scavenging and make the profession less vulnerable and more efficient, this can take the form of provision of necessary working equipments like hand globes, boots, wheel barrows and capital. The scavengers should receive basic health training (first aid) to learn how to take care of themselves in case of any minor injury. They should also be trained to wear a type of uniform, such as overalls, jungle boots, gloves, helmets, and nose masks, which would further enhance their dignity and health status.

Waste Scavenging.

Introduction

NATURE AND CHARATERISTICS OF SCIENTIFIC APPROACH TO THE STUDY OF ECONOMICS

MUSTAPHA MUKTAR, Ph.D

DEPARTMENT OF ECONOMICS

BAYERO UNIVERSITY KANO-NIGERIA

ABSTRACT

To Research is to search again, to take a more careful look, to find out more. Economics and other related social survey researches are scientific in nature bused on observation description, explanation and prediction of a given phenomenon with a view to testing it based on facts. Economic problems can be positive, normative or analytical, it can also be approached from inductive or deductive perspective. Other alternative methodology includes apriorism, falsificationism and conventionalism.

INTRODUCTION

Research methodology may be defined as a description of explanation and justification of various methods of conducting researchers. The method may either be general techniques such as experiments and surveys or logical procedures such as formulating research problems. The methodology that is employed in the study of economics and other related social sciences such as other related social sciences such as psychology and sociology is scientific in nature, it is scientific because they are sciences, but not physical sciences (which need laboratories for controlled experiments).

Sciences can be defined as a body of a systematized knowledge that involves observation, collection, densification and analysis of data with a view of matching evidence with theory. Science can also be seen as a strategy of explanation. Social scientists are explaining why events occur and why people behave as they do. In advancing explanations and description of events, scientists do three kinds of things they exercise imagination and creative insights, they perform logical analysis, and they make judgments that are based on  observation of events that they wish to explain Selltiz (1976).

Characteristics of scientific researches

The ultimate objective of science is to describe explain and predict, however all fields of science have in common the basic rules of evidence and logic. However the following are some of the characteristics of a scientific research.

Description- This attempt to answer the question of who, what, where, when or how much, it reports what happen, description is an indispensable part of science an usually precedes explanation and prediction.

Explanation: It attempts to answer why types of questions for example why is it that there exist high rate of crimes in urban areas than in rural areas? Providing answer to such kind of question needs scientific inquiry and methodology.

Prediction: This involves answering questions of what will occur in the future, so that forecast can be made in the above example a researcher may be interested in predicting the effect of high rate of crime on the welfare of the citizens as well as on the security of an area? Economist may also predict in circulation on the general prices of goods and services.

Observation: Observation makes description explanation, and forecasting possible. A phenomenon that is not observable is not amendable to scientific inquiry. An event have to be observed before the application of other scientific characteristics hence observation is the initial stage to any scientific research. Adam Smith observed than other countries of western Europe an that lead him to conduct a scientific research which was published as a book in 1776 titled “An inquiry into the nature and causes of wealth of natures.

Objectivity – This means that the claims of science can in principle be tested by any competent procedure, this means different competent people can test the scientific claims on neutral grounds. It should be noted that only claims open to repeatable  public tests qualify as scientific.

Logical: Scientific researches are guided by the accepted rules of reasoning, such as the rules of definition, inductive and deductive reasoning, probability theory and other scientific rules.   

Systematic: This means that scientific researches must be coherent and logically organized, such that they are open to modifications and falsification by new evidence. For example in the last 50 years block and white television set is a luxury but an inferior good hence its demand curve is different from the one when it was considered as a luxury.

Methodology in Economies

Economies have been defined as a study of human behaviours in relation to allocation of resources so that a balance can be achieved between scarce resources and unlimited wants, it is a social science and therefore apply scientific methodology in the analysis. Economic problems can either be positive, normative or analytical. The identification of a problem is to be one of them is dependent of the goal of the researcher as well as the type of problem he is working with.

Positive Economic – Some economic problems are positive in nature and they involve “what was” positive statements are testable statements and they are otherwise known as empherical  problems, they depends on the concept of emphericism (based on our senses of hearing, seeing, feeling and testing) they are the most reliable source of knowledge. Example the lower the price, the higher the quantity demanded statement can be tested by observing the behaviour of consumers under different prices of a given commodity. Another example of a positive statement is the lower the supplied to the market, all things being equal.

Normative statement on the other hand are statements which includes “what ought to be” they are not testable statements but depends on value judgment example between inflation and unemployment which one is a more serious social problems? Question of such nature depends on value judgment as different individuals may have a different perception on the problems are sometimes consistent with analytical problems.

Analytical problems are such problems that are guided by definitions; hence their judgment depends on the type of definition given example a researcher may categorize social problems as of two grades A and B and may rank A as most serious and dangerous while category B as less serious and dangerous. Now equipped with the above definition if for example unemployment falls in A while inflation in B (as defined by the researcher) than it is easy to judge which is more dangerous and exploitative. Economists also use the concept of dummy variables in quantitative analysis to categorize qualitative variables for judgement. For example a consumption function can be estimated in two periods of war and peace a dummy variable can be used and if it is a war period it takes a value of 0 and for peace period it is I hence the functions can be estimated below: -

C       =       b_o + b_iY  + b₂      = 0 during

War and  = 1 during peace

C = b_o + b_iY  + b₂  peace time

C = b_o + b_iY                  war time

Scientific Reasoning Employed by Economics

The study of economics and other related social science are also based on inductive or deductive reasoning. Deductive reasoning as the name implied is a process where by researches start their reasoning from a generated statements so that conclusion can be made, example a researcher can observe “the law of demand that is “ceteris paribus. The lower the price the higher will be the quantity demanded of a commodity” he then collects data and analyze it to see whether it is true or false from there he can also move ahead to see whether the law applies to all types/classes of commodities.

Inductive reasoning is the name implied start from observation of a given phenomenon and arriving at a generalized stament or theory. An individual may be interested in the persistence of object poverty among households headed by women, after collecting necessary data and testing it accordingly the findings can be generalized to form a theory, otherwise it is rejected and more observations will continue. Other aspect of scientific reasoning that are employed by economics includes reorganizing a problem, defining a problem, development of hypothesis around the problem that has been experienced, the development of techniques as well as instruments of measurement and lastly drawing conclusions. It should be noted that where a hypothesis is tested and accepted then it becomes a theory otherwise. It is not and need to be re-formulated.

Latsis (1976) identified three alternative methodologies of economics as Apriorism, falsificationism and conventionalism. Aprriorism claims that the assumption of rationality is an absolute pre-requisite for describing and explaining human actions, and in particular economic actions. According to this approach the fundamental prepositions of economic science are “time” or “hold” independently of the vagaries of experience. The fundamental apriori category is that of purposeful action. Every attempt to prove them (the prori categories) must presuppose their validity. It is impossible to explain them to a being who does not possess them on his own account. Latsis (1976).

Falsification is quite the opposite of apriorism. Its purpose is to expose maximally theories is logical possibility of empheircal counter-example. The criterion of goodness of a theory is a function of its falsification together with its success in withstanding attempts to falsify it. If, other things being equal, theory A is more falsifiable than theory B and have survived non trivial efforts to falsify it, then theory A better than theory B. Latsis (1976). The justification of this approach is due to the fact that knowledge is dynamic hence what is regarded as truth at one point in time may often be rejected at another point in time by new evidence or interpretation.

Conventionalism this was introduced to economics by Vilfredo Pareto in his (1909) book, he wrote: “The same facts may be explained by an infinity of theories equally true because they all reproduce facts to be explained…” More recently conventionalist methodologies of economics were put forward in 1940s and 50s by Machlup and Friedman. An example is that there exist various theories to welfare maximization ranging from the increase in GNP criterion, the Pareto second best criterion, the Jeremy Bethany’s criterion up to the compensation criterion each aimed at maximizing the total social welfare of a given society and each with its unique assumptions and approach.

Conclusion: The study of economics and other related social sciences such as psychology employed a scientific method of reasoning, which is systematic and based on facts. Scientific method is however subject to test before confirmation. The ability of a statement to resist forces of falsification makes it a theory, otherwise it is rejected.

References

American Psychological Association (1973) “Ethical Issues in the conduct of research with human participants  Washington DC.

Garba G. (2000) “The leadings of Economics” NES, Ibadan.

Howard K & Sharp J. A. (1983) The management of a student research project. Aldershout, Hauls Gower.

Idisi P. and Oshionebo B. (1998) Practical Guide to theses and project work. Kings and Queens system ltd.

Iwayemi A. (2002) “Survey of recent developments in micro economics NES publication, Ibadan.

Latsis S. (1976) (ED) Methods and appraisal in Economics. Cambridge University Press.

Muktar M. and Dandago K.I (2003) “Ethics in Accounting Research: The Nigerian Perspective” BUK.

Seiltiz C. and et. al (1976) Research methods in social relations 3^rd ed. Holt-Saunders.

Turubian L. K. (1973) A manual for writers of terms papers, these and dissertations fourth ed. University of Chicago press.

COMPUTABLE GENERAL EQUILIBRIUM MODELS: SOME POLICY DEDUCTIONS

Mustapha Muktar, Ph.D

Department of Economics

Bayero University, Kano-Nigeria

Introduction

Equilibrium can be seen as a situation whereby the forces determining a state are in balance so that there is no tendency for the variables of a system to change. Equilibrium can either be static or dynamic. General equilibrium analysis was developed by French economist Kon Walras, and he developed a general equilibrium model based on interdependencies that exist in an Economy, since then a lot of general equilibrium models were developed and they include the Leontiet input-output model, Walras – Cassel model, Arrow- Debreu model, Zeutham model, John Von - Neumann model, Paratian general equilibrium model and etc. General equilibrium analysis is a disaggregative structure of macroeconomic theory, since all economic units are interdependent and an equilibrium point is revolved simultaneously by all.

Computable general equilibrium (CGE) modeling is an attempt to use general equilibrium theory a san operational tool for emphatically oriented analyses of resources allocation issues in market economies (Bergam 2003). Following this the introduction paper is arrived at highling the concept of computable general equilibrium model and to appreciate the practical application of the models to economic analysis.            

Computable general equilibrium modeling general equilibrium refers to an analytic approach were an economy is regarded as a complete system of interdependent components (different market, industries, households and etc.) and all discussions are taken according to fully optimizing behaviour. Economic shocks affecting away one of these components may produce repercussions through out the whole system. Assessing the effects of the shocks can be means of simulation i.e. by measuring the repercussions that are triggered by shocking the system in various ways. The models are called “Computable” in the sense that they should produce numerical results that are applicable to particular situation in particular countries (Rumter 1999).

C.G.E models are constructed in order to capture the multi sectoral nature of the chain reaction in the economy resulting from a change from the economy within the general equilibrium frame work, the repercussions in the economy are taking place through changed relative prices, to which agents adjust their production and consumption. A common feature of C.G.E models is that quantities and relative prices are endogenously determined within the model (Unemo 1993).

Computation of C.G.E. models.

There are two main ways of computing C.G.E. models, namely the non linear programming approach was not used widely, and it is based on the idea that the solution to a C.G.E. model can be deduced form the solution to an optimizing problem. Although this method has been applied successfully in solving C.G.E. models, the experience of most researchers in C.G.E. suggests that the derivative approach is more convenient and flexible, and therefore and more suitable for practical policy analysis and forecasting Rumter (1999).

The derivative approach to solving C.G.E. models otherwise known as Johansen/Euler method was first used by Johansen in 1960 it involves restricting the model so that it is linear in its derivative and solving for perturbations of endogenous variables due to exogenous changes matrix inversion. However the development of piecewise linear approximations by Dixon etal (1984) has come to be applied to models with non linear derivatives.

To introduce the main idea of this method we have to consider a model in which equilibrium is described by a vector, V, of length n satisfying a system of equations of the form f (V) = 0.--------------------------------------------------------------- (1).

Where f is a vector function of length m we further assume that f (is twice continuously) differentiable and that the number of variables, n, exceeds the number equations, m, by (n-m), The components of vector V typically represent demand for and supply commodities or factors, policy variables, technological coefficients and other economic variables. The function f imposes relations such as demands equals supplies and prices equals costs, while preferences and technologies are represented by differentiable a utility and production functions in system (1) finally let’s assume that we know an initial solution to the model V¹, which implies that we have known vector V¹ satisfying F (V¹)= 0---------------------------------------------- (2).

Now re-writing equation (1) as F (V₁,V₂) = 0 ---------------------------------------- (3) The Euler method has been satisfied where V₁ is a vector of length m containing all endogenous variables and V₂ is the vector of length n – m of exogenous variables. By differentiation equation (3) totally the deviations dV₁ and dV₂ from the known solution V₁ must, to an approximation, satisfy.

                        F₁(V₁)dV₁ + F₂ (V₁)dV₂ = 0 -------------------------------------------------(4)

Where F₁ and F₂ are matrices of partial derivations of F evaluated at V₁, Now solving for the impact of movements in the exogenous variables, dV₂, on the endogenous variables dV₁, on the endogenous variables dV₁, in the vicinity of V₁, i.e. calculating a one-step Euler or Johansen approximation, gives

           

dV1 = B (V1)dV2------------------------------------------------------------(5)

where B(V¹) = - F₁ ^-1 (V¹) F₂ (V₁) -----------------------------------------------(6)

provided that we can evaluate B (V¹) which directly hinges on the inveritability or equivalency non- singularity of F₁ (V¹)3. The MX (n -m) matrix B(V¹) show the partial derivatives, evaluated at V¹, of the endogenous variables V₁ with respect to the exogenous variable V₂. In other words B(.) is the Jacobian matrix of the implicit solution function G⁴. Therefore for a given change in exogenous variables equation 5 provides only a first order approximation to the effects on the endogenous variables of the solution function G is highly non linear i.e. if the higher order terms in the associated Tailors series approximation are not negligible, then serious approximation errors may arise requiring further refinements to be done, one way out of this problem is to compute multi-step Johansen/Euler solutions.

Another computational approach regards the equilibrium condition of CGE models as simultaneous set of non-linear equations and solves such equations for the equilibrium values of the endogenous variables using a fixed point algorithms or an alternatives method of numerical iteration. It is equally possible to classify CGE models on how such models are numerically specified. The best known method involves the deterministic calibration of the model. The procedure entails choosing benchmark equilibrium time period, constructing, a general equilibrium data set of the period, selecting the functional configuration of the model, the generating model parameters from benchmark data set or from independent econometric works. Mansur and Whalley (1984) examine this typology of CGE model and remarked that CGE model Calibration is often faced with problem of unavailability of social accounting practices and of econometric estimates of key model parameters in developing countries. The challenge that is posed by this problem will always be to construct a social accounting matrix to provide methodological framework for CGE models fashioned after deterministic calibration method.

Social Accounting Matrix

A social accounting matrix (SAM) is defined as a numerical representation of economic cycle with emphasis on distributive aspects. As in the complete system of national accounts and in the input-output framework, transactions in a particular year appear in a matrix format showing receipt on the rows and outlays in the columns. Indeed a SAM shows how sectoral value added accrues to production factors and their institution not owners, how these incomes, corrected for net current transaction are spent, and how expenditures on commodities lead to sectoral production and value added with the linkages from this cycle also shown (Keuning and Ruijter, 1988).

SAM is a square matrix whose rows and columns sums must balance as required by budget constraint condition. The conventions of double entry book-keeping guarantee that these will be no linkages or injections into the system and there is no room for any statistical discrepancy”, suggesting that every flow must go to some actor. Hence a SAM is a synthesis of two well known ideas in economics, namely the input output table and the national income accounting. SAM requires a balance of in the accounts of every factor in the economy, such that the income from say, sales in the agricultural sector must equal to its total expenditure on intermediate inputs, labour, Imports and capital services.

Applications of CGE model to economic analysis since the invention of CGE model in 1960 it has been used as a powerful technique for quantitative analysis in economic terms, these includes analyzing the effects on, for instance industries, region the labour market, income and welfare induced by changes in e.g. government policies including taxes trade restrictions, and/or technology. More recently also dynamic CGE models have been put forth, enabling researchers to address also multi period (dynamic) problems by means of numerical general equilibrium analysis. (Rumler 1999). Other areas where CGE models are applied include income distribution, sectoral manpower planning and resources/environmental economics.   

Application of CGE to Environmental Economics

In order to apply CGE model to environmental resources, Bojo etal (1992) presented a modified version of a schematic social accounting matrix the matrix is shown below

Table 1: A Hypothetical Sam with Environmental Account

	Institutions	Factors	Production	Savings investment	Rest of the world	Environment
Institution		NNP				Rent
Factors			NNP
Production	C			GI	X-M
Savings investment	S		D
Rest of the World				X – M
Environment	-ED		Env U	Est

Source: Bojo et al (1992)

In table 3.1, Net National Product (NNP) is the net value added production, net of the depreciation of real capital. The total income consists of NNP plus rent on environmental resources. This income is equal to purchase of consumption goods (C) plus savings (S) minus the damage to households from a degraded environment, (ED). In the product account, it is assumed that there is an imputed value (Env U) on the companies use of environmental resourcwes, including the harvest of forest resources Savings (S) plus the depreciation (D) equal;s gross investment (GI) in real capital plus the foreign net investment (X - M) plus the value of the change in the stock of environmental resources (Est). it is important to note that in this accounting framework, the sum in the first column, that is, (C + S - ED) gives the net “green” national product where environmental damage and changes in environmental stocks have been netted out, this represents the aggregated measure of human well being which is often differentiated from the System of National Accounts SNA by referring to the sum as the Net Welfare Measure (NWM). The sum is equal to the Net National Product (NNP) plus environmental rent.

Alabi in 1998 tried to apply the technique of CGE model to deforestation. Problem in Nigeria and used a static CGE model of an open economy, although the model have certain implicit dynamic features like inclusion of discount rate to account for future valuation of forested land. The model has two types of sectors, the tradable-producing sectors namely forest, agriculture and industry and the non-tradable-producing sectors which includes infrastructure and service. In addition to this there are two other sectors that clear land namely logging and squatting sectors. The model was solved using a special package called the general algebraic modeling system (GAMS) it was developed by team researchers at World Bank.

Criticism of Computable General Equilibrium Models

One of the general Criticism leveled against CGE models are “black boxes” that can not be understood by unintended. While CGE models and the techniques needed to solve them could easily be quite intimidating when first introduced, methodological and computational advances makes this untrue today. Also the development of packaged software to solve complex mathematical or statistical problems has permitted modeless to return their attention to economics.

Conclusion

Computable general equilibrium models are very crucial to the understanding of intersectoral linkages within an economy, they are employed to address, multi-regional and multiperiod problems. They are capable of directly capturing inter industry inter action suggesting forward and backward linkages arising from the provision and purchase of intermediate inputs. The models have become a dominant methodology in the economic analysis of developing countries and some developed economies.

References

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Keuninh S. and Ruijter W. (1998) “Guideline for the construction of social accounting matrix” Review of income and wealth series 34 No. 1

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