Project Finance, Infrastructural Development, and Economic Growth in Nigeria

Project Finance, Infrastructural Development, and Economic Growth in Nigeria (1986 - 2017) Adebayo Tunbosun Ogundipe Job Market Paper October 2020 ABSTRACT Achieving sustainable economic growth has been a global issue, as it is the focus of world leaders, governments, and interested individuals. It is a macroeconomic objective of all sovereign states, including Nigeria. Infrastructural development plays a key role in its achievement. This requires raising and utilization of appropriate project finance in the most economical and suitable manner. Research attention on this subject, in Nigeria, yet to explore the interrelationship between these three variables. This study, therefore, examined the effects of project finance and infrastructural development on economic growth in Nigeria within the time dimension 1986-2017. The study specified three inter- twined models based on endogenous growth theory. Economic growth was a function of infrastructural development and project finance. Infrastructural development (INFD) was proxied by INFD Index, and economic growth was proxied by Gross Domestic Product (GDP). Project finance was split into public- private partnership (PPP), public project finance (PBF), private project finance (PRF), official development assistance (ODA), and capital market-based project finance (CMF). Infrastructural development was split into economic, social and financial infrastructure. Transport development index (TDI), power production index (PPI) and road development investment (RDI) represented economic infrastructure. Health infrastructure (HI) and education infrastructure (EI) represented social infrastructure. Ratios of broad money to GDP and market capitalization to GDP represented financial infrastructure. Secondary data were sourced from various editions of Central Bank of Nigeria (CBN) Statistical Bulletin, Africa Infrastructural Development Group Report, and World Development Indicators. Autoregressive distributed lag, vector auto-regression and error correction mechanism were employed as estimation techniques. The study found that project finance of PPP (0.6372), ODA (0.1355), and CMF (0.1034) had significant positive long-run effects on infrastructural development in Nigeria with their respective p-values of 0.0000, 0.029 and 0.0022 at 0.05 level of significance. But PBR (0.1329) and PRF (0.1199) had insignificant positive long-run effects on it with their respective p-values of 0.1019 and 0.3447 at 0.05 level of significance. Infrastructural development of TDI (0.0125), PPI (0.6869), RDI (0.3763), HI (0.5284) and M2GDP (0.6102) had insignificant positive effects on economic growth in Nigeria with their respective p-values of 0.2726, 1.9180, 2.4037, 0.7990, 2.1544. But EI (-0.6051) and MCAPG (-0.2228) had insignificant negative effects on it with their respective p-values of -8.3199 and 0.8319. Project finance of PBF (0.0283) had positive effect on economic growth in Nigeria with a significant p-value of 0.273 while PPP (-0.2462), PPI (-0.0643), ODA (-0.2421), CMF (-0.0128) had insignificant negative effects on it with their respective p-values of -1.2643, -0.2034, -2.2324 and -0.2894.The study concluded that project finance exerts significant positive effects on infrastructural development, yet it does not translate to meaningful economic growth in Nigeria. It recommended that economic infrastructure should be properly maintained. Education and health infrastructure should be improved upon with complete re-engineering of the regulatory processes. Adequate budgetary allocation should be made to fund educational and health institutions at all levels. Keywords: Project finance, infrastructural development, economic growth, capital market 1|Page 1.0 Introduction 1.1.Background to the Study Achieving sustainable economic growth has been a global issue and as well the focus of world leaders, stakeholders, government, and interested individuals. Not only that, it also stands as one of the macroeconomic objectives of any sovereign state. Hence, different theories have been postulated by early economists on those factors that can stimulate economic growth of which, capital is the most significant (Mckinon-Shaw, 1973; King-Levine, 1993). Capital in the form of project finance is an investment in which the providers of the funds look primarily to the cash flow from the project as the source of funds to service their loans and provide returns on the equity invested in the project (Frimpong, Oluwoye, & Crawford, 2003; Kayser, 2013). Since project finance could involve the participation of private investors and the government, and it is mutually beneficial. However, despite its importance, many developing countries of the world have not embraced or explore fully, this type of finance, thereby leading to huge infrastructural deficit records (La cour & Muller, 2014). Aside this, infrastructural deficit in many developing countries including Nigeria has been attributed to lack of financial management, absence of independent audits, extensive use of funds for unauthorized expenditures, diversion of funds, and weak oversight, depriving its intended purpose(Badu, Edwards, Onwusu-Manu & Brown, 2012 Despite these barriers, it has been acknowledged by the existing literature that, infrastructural development is relevant for economic growth because it is a catalyst for sustainable growth both in developed and underdeveloped economies as it is known to stimulate production and consumption and it has the potential to reduce income inequality and poverty in 2|Page underdeveloped countries (Aschauer, 1989; Barro, 1990; Munnell, 1990 as cited by Igbokwe, (2015). In Nigeria, infrastructure investment is done majorly by the government through budgetary allocation and this has actually taken a chunk of the annual budget of the economy (Sanusi, 2010). Even when budgeted for, and the finance of government couldn’t cover up or execute the projects as expected, the outstanding values are carried over till the next budget period and as this continues, the level of infrastructure in the economy continues to deteriorate to the extent it is now. For example, as documented by Federal Ministry of Works (2013), road infrastructure, on average, the annual funding requirement is estimated at N500b against an average budgetary allocation of N120bn with a deficit of N380bn. In 2012, out of the N143bn budgetary allocation for road infrastructure development, only N110bn was released with a deficit of N33bn unimplemented. These evidence inadequacies of government funds that is public investment in providing and constructing adequate infrastructure in the economy. Although the Infrastructure Concession Registration Commission ICIC Reports (2018) acknowledged that most of these projects are in the early stages, it is the hope of the citizens and the stakeholders of this great country to see the nearest future, what the outcome of this commission would be to the development of economy, in term of bridging the infrastructure gap in Nigeria. 1.2. Statement of the Problem The importance of infrastructural development has been acknowledged in the empirical literature as a tool for achieving quick economic growth and sustainable economic development (Onakoya, Babatunde &Abiodun, 2013; Badalyan, Herzfeld & Rajcaniova, 2014; Nedozi, Obasanmi & Ighata, 2014). Several empirical studies have been done both in the developing and developed economies to unravel its effect on economic growth and its effect 3|Page has been enormous. However, despite replete literature on the subject matter, financing of these projects or infrastructure have been a tremendous problem for most of the developing countries especially Nigeria where there are still very large infrastructural deficits and this has been as a results of inadequate project financing options to facilitate and finance the infrastructure in the country. To intervene in this poor and ugly situation in Nigeria, there is need for the government at all levels to look inward and outward to explore different project financing options that can help in putting a lasting solution to the infrastructural gap so as to enhance the growth level in the country. In the literature, there have been series of project financing options that can be employed by sovereign states mostly in the developing countries to solve this problem and they ranges from public-private partnerships, concessional loans, official development assistance, equity financing, bonds, pension funds, government expenditure, government guarantees bonds to mention but a few. However, the effect of each of these options on different countries are based on different factors such as political risk, conducive environments, readiness of government, conditions attached by the lenders etc. Nevertheless; the impact has either been positive or negative at different degrees. 1.3 Research Questions Arising from the statement of the problem above, the following research questions have been raised to guide the study i. what are the effects of different sources of project finance on the infrastructural development in Nigeria? ii. how has infrastructural development in Nigeria influenced the level of economic growth? 4|Page iii. What are the impacts of different sources of project finance on the economic growth in Nigeria? 1.4. Objectives of the Study The main objective of this study is to examine the relationship between project finance, infrastructural development, and economic growth in Nigeria. Specifically, the study; i. examine the effects of different sources of project finance on the infrastructural development in Nigeria ii. investigate the influence of infrastructural development on the economic growth in Nigeria iii. to assess the impact of different sources of project finance on economic growth in Nigeria 1.5. Significance of the Study The significance of this study is three folds; it looked at the contribution of project finance to infrastructural development and at the same time on the economic growth and thirdly, it looked at the contribution of infrastructural development to the economic growth. Bearing in mind the importance role of project finance in financing infrastructural deficit in Nigeria, therefore, this study becomes so important in three ways; first the problems of the Nigeria government in embracing project finance so as to solve the infrastructure problems. This becomes so pertinent because despite series of evidences showcasing infrastructural decay in the economy, project finance as a tool for achieving this has not been fully explored, most especially, in terms of other sources rather than public finance on infrastructure, hence, this study will provide information necessary which will educate Nigerian government more on the implication and opportunities that surrounds project finance. 5|Page 1.6 Scope of the Study The scope of this study is divided into three. The first is on geographical scope which limited this study to Nigeria alone. The second is a contextual scope which limited the study to the three major areas such as project finance, infrastructural development and economic growth and lastly is the time scope which will cover a period of 32years, that is, from 1986 to 2017. This period is justified as it covers post structural adjustment programmes in Nigeria where there is a drastic shift by the Nigeria government when they accepted to implement some IMF policies such as austerity measures and liberalization policies in with the hope of stabilizing the economy. Moreso, Nigeria as a country is the focus of the study because, despite her richness, the infrastructural deficit in the land is loud and need urgent attention. 2.1. Conceptual Framework 2.1.1 Project Finance The term project finance is a term that is difficult to conceptualized, however, many studies have conceptualized it to mean capital intensive investment either by government or private investors in infrastructure or project that would bring about economic growth and development in a nation. According to Ermela and Halit (2013), project finance is said to be non-modern finance but its arrival and implementation grew up due to some innovation in 70’s and 80’s and it later became a useful tool in many infrastructure sectors. Most importantly, implementing this form of financing is about providing funds for executing major infrastructure needs of a nation. This implies that, arrival of this type of finance open ways for execution of major capital-intensive project in an economy, that is, most of the sophisticated infrastructure project can be achieved through project finance 6|Page According to World Bank(2007) as cited by Bruce (1996), it is defined as the “use of nonrecourse or limited-recourse financing.” these two terms means “the financing which is non-recourse when lenders are repaid only from the cash flow generated by the project or, in the event of complete failure, from the value of the project’s assets. Lenders may also have limited recourse to the assets of a parent company sponsoring a project. The implication of this definition is that, in recovering the capital invested into the project by the investors, the investors are only to depend on the cash inflow coming from the project itself, meaning, the project pays back to the investors the funds that have been invested in such a project without having any recourse to the government or to the parents company. Although, in a world of uncertainties, project may fail, and in such a situation the only option for the investors to recover their funds is to rely on the project assets. From Switala (2004), he criticized that, many interpreted the term project finance incorrectly as they take it to be generic financing project. However, he defined it in line with World Bank definition to mean a specialized funding structure that relies on the future cash flow of a project as primary source of repayment, and at the same time, holds the project’s assets, rights and interests as collateral security. It is also referred to as non- or limited recourse finance, i.e. lenders have no- or limited recourse to the sponsors or shareholders of the project company for repayment of the loan. Also, from Chan-Lau et al. (2016) project finance is said to be an efficient way to fund capital intensive project of long term in nature. It further explains that, this type of funds is majorly used to fund the development of energy, resource and social amenities or any capital-intensive project capable of providing good economic benefits to a nation. This means that, project finance is majorly used to finance infrastructural projects in a nation and sometimes, it is long term in nature. Meaning it is a project that takes long time to complete and takes long time to recoup the cash flow from it 7|Page From the point of view of Kleimeier and Megginson (2000) project finance is defined as limited or non-recourse financing of a newly to be developed project through the establishment of a (separately incorporated) vehicle company. Therefore, the following features have been identified by the study, first, the creditors share much of the venture’s business risk and, second, the funding is obtained strictly for the project itself without the expectation that the corporate or government sponsor would co-insure the project’s debtor at least not fully. This definition pointed out that, project finance is applied to a proposed project, and as a result, the investor must have been acquitted with the necessary features which are non-recourse in nature, meaning both profit and risk arising from the project are bear by a separate incorporated company and the insurance of the project will be the sole responsibility of the sponsor since in the course failure, the company bear the risk hence the need for insurance of such projects. An extensive description of the features of project finance has been given by Brealey, Cooper, and Habib (1996). Accordingly, the first feature is that, project finance operates under a concession obtained from the host government. Secondly, major proportion of the equity of the project company is provided by the project manager or sponsor, thereby tying the provision of finance to the management of the project. Third, the project company enters into comprehensive contractual arrangements with suppliers and customers. Fourthly, the project company operates with a high ratio of debt to equity, with lenders having only limited recourse to the government or to the equity-holders in the event of default. Hence, this makes it different entirely from the traditional or conventional project finance as this contractual arrangement and agreement are not comprehensive compared to project finance and a separate incorporated company is not mandatory 2.1.1.1 Participants of Project Finance and their Roles 8|Page In a typical project finance contract, there are several participants that involves in the process. As stated by Brealey, Cooper and Habib (1996), some of these participants are government, project sponsors or owners, project company, contractor, operator, supplier, customer, commercial banks, capital market, direct equity investment funds, multilateral agencies. Each of these are explained below with their roles Figure Contractor(s) Supplier(s) Other Investors Government Project Company Project supervisors Lenders Customer(s) Adapted from Brealey, Cooper and Habib (1996) Government as one of the participants in project finance only plays an indirect role which are most influential. Mostly they play role in the area of project approval, control of the state company that sponsors the project, responsibility for operating and environmental licenses, tax holidays, supply guarantees, and industry regulations or policies, providing operating concessions. The project sponsors or owners are the major owner of the project with equity stake in the project. Sometimes, this may be owned by a single company or consortium of sponsors. Under here, sponsors include foreign multinationals, local companies, contractors, operators, suppliers or other participants. As advised by the World Bank, equity stake by the sponsor should not be less than 30% of the project cost. The reason being that, project financings use 9|Page the project company as the financing vehicle and raise nonrecourse debt, and they do not put their corporate balance sheets directly at risk but sometimes, some project sponsors incur indirect risk by financing their equity or debt contributions through their corporate balance sheets. Project Company is a single-purpose entity created solely for the purpose of executing the project and it is majorly controlled by project sponsors. Most essentially, Project Company is the center of the project through its contractual arrangements with operators, contractors, suppliers and customers and the only source of income for the project company is the tariff or throughput charge from the project. The amount of the tariff or charge is generally extensively detailed in the off-take agreement. Thus, in this agreement, it is the project company’s sole means of servicing its debt. Often, the project company is the project sponsors’ financing vehicle for the project, i.e., it is the borrower for the project. The creation of the project company and its role as borrower represent the limited recourse characteristic of project finance (Bruce, 1996). In addition, as said by Brealey et al.(1996), the project company in most cases retains the ownership of the project assets and this arrangement is always known as Build-own- operate-projects(BOOs) and in the other cases, the ownership of the project is transfer to the government and this arrangement is known as build-own-transfer where the project is transfer to the government at the end of the concession period. The Contractor in project finance is the one responsible for the construction of the project to the technical specifications outlined in the contract by the project company. In most cases, the primary contractors will then sub-contract with local firms for components of the construction. The contractors in project finance also own stakes in the projects. Lenders are the financier of the project. They are those that supply the needed funds to finance the project. In most cases, some of these projects require huge amounts of money which can be sourced or raised in form of debt from the syndicate lenders such as banks, and specialized 10 | P a g e lending institutions and sometimes, it can be raised through bond market. In addition, these long-term funds for project finance can also be sourced through capital market, as capital market is known as a platform through which medium to long term funds are raised. This money can also channel to finance long term infrastructure. The advantage of raising funds through capital market is that, the funds are cheaper and quicker than arranging bank loans. More importantly, agreement under capital market might be less restrictive than that of the bank loans. In addition, funds for project finance can be raised through private equity and multilateral institutions or agencies such as World Bank, International Finance Corporation, African development Banks, International Monetary Funds. These multilateral agencies not only provide funds for the execution of the project but they also play a facilitating role for projects by implementing programs to improve the regulatory frameworks for broader participation by foreign companies and the local private sector. In many cases, the multilateral agencies are able to provide financing on concessional terms. The additional benefit they bring to projects is further assurance to lenders that the local government and state companies will not interfere detrimentally with the proposed project. Supplier provides the critical input to the project. For example, the supplier would be the fuel supplier if it is a power plant project, but the supplier does not necessarily have to supply a tangible commodity. In the case of mining, the supplier might be the government through a mining concession. For toll roads or pipeline, the critical input is the right-of-way for construction which is granted by the local or federal government. Customer is the party who is willing to purchase the project’s output, whether the output is a product (electrical power, extracted minerals) or a service (electrical power transmission or pipeline distribution). The goal of the project company is to engage customers who are willing to sign long-term, off take agreements 11 | P a g e In a project of long-term nature like project finance, there are other participants who partake or whose service are very important to the success of the project and they are insurance company, legal advisers, financial advisers’ trustee and lots of participants 2.1.2 Infrastructural Development The term Infrastructure according to Tule, Okafor, Obioma, Okorie, Oduyemi, Muhammed and Laoye (2015) was described to be purely public goods, built and maintained by the public funds. From this assertion, it means public goods are goods made available by government through which all citizens can benefit from and it can also pose a risk or discomfort to some other people. These types of goods are majorly achieved through public funds, that is, funds generated by government through taxes, duties and financed through budgetary allocation. Example of public goods are railways, road network, airways, schools, hospitals, bridges, tunnels markets etc. these are goods that individual can benefits from. It is also described by Nedozi Obasanmi and Ighata(2014) to mean basic essential services that should be put in place to enable development to occur. This definition emphasized that development of a nation or a country could be made possible through adequate infrastructure. in addition, it pointed out that, infrastructure contribute to raising the quality of life by creating amenities, providing consumption of goods such as transport, energy, schools, hospitals, telecommunications etc. and contributing to macroeconomic stability According to Chong and Poole (2013) Infrastructure are the structures and facilities that are necessary for the functioning of the economy and society as it supports economic activities and social services. It categorized infrastructure to be economic infrastructure and social infrastructure. On the former, these are physical infrastructure that serves as a direct input to economic activity and this include roads, power, telecommunication, water sewage etc while the later refers to facilities that aid the provision of social services such as schools and hospitals. 12 | P a g e In addition, the study made a clear distinction between the infrastructural financing options which are of two categories, the public financing and private financing and in between is public-private partnership financing. This implies that, infrastructure can either be provided by government in which the assets later belong to government and when it is finance by private investors, the assets belong to the private. World Development Report (1994) defined infrastructure to mean economic infrastructure which is defined to include public utilities such as (telecommunication), public works (such as roads, railways, dam etc.), and other transport sectors such as (airports and water transport). From Ascheur (1989), although, the study did not give a precise definition of infrastructure but described it to mean core infrastructure such as street light, highways, airports, water system, sewers, dam etc. 2.1.3 Economic Growth Several studies did not conceptualize economic growth in their write up, however, for few that did so, this study shall recognize them. According to Jhingan (2003) economic growth is measured by the increase in the amount of goods and services produced in a country. This means, an economy is said to be growing when it increases its productive capacity which later yield more in production of more goods. The same Jhingan (2005) defined economic growth as a gradual and steady change in the long-run which comes about by a general increase in the rate of savings and population. It has also been described as a positive change in the level of production of goods and services by a country over a certain period of time. From the point of view of Anyanwuocha (2008) economic growth is said to be the process by which national income or output is increased. This means economic growth is a function of increase income that is gross national income and output which is also means gross domestic product. 13 | P a g e According to Ayodeji and Onipede (2005) as cited by Ayodeji and Ajala (2018) economic was conceptualized to mean a process by which there is a sustained increase in the real per capita income over a period of time. The study ascertained that, where there is economic growth, the rate of national income or total volume of goods and services produced expands. In addition, Ishola (2011) defined it also to be increased in the output of goods and services per head or increase in the total volume of production of goods and services of a country. This definition was in line with Ayodeji and Onipede (2005) which explains that growth as increase in per capital income. That is the ratio of population to gross domestic product of a nation. Ayodeji, Ajala and Awoniyi (2018) defined economic growth to mean an increase an in a country’s productive potential measured by an increase in its real GDP. Gross Domestic Product (GDP) is therefore defined as the total value of goods and services produced in a country in one year and should have been adjusted for inflation. This means that gross domestic product is measured in terms of monetary terms and inflation will raise the value of GDP. Economic growth must be sustained when it does not fluctuate, because fluctuation in economic growth leads to business cycle (Surridge& Gillespie, 2014) There is consensus globally among economists on the measurement or proxy for economic growth. From the early classical growth theory such as Harold Domar, Adam Smith etc, economic growth was proxied by gross domestic product. In addition, the neoclassical growth theory such as Solow-Swan growth theory, recognized gross domestic product as measurement for economic growth. However, the recent new growth theory also accepts gross domestic product as a measurement for economic growth. Interestingly, several studies on economic growth such as Awan and Anum (2014), Nedozi, Obasanmi and Ighata (2014), Teklebirhan (2015), Teklebirhan (2015), Ayodeji, Ajala and Awoniyi (2018), SiyanEremionkhale and Makwe (2015) 14 | P a g e Many factors have been identified as a function of growth and as such, many economists have come up with different factors that can enhance growth of an economy. For example, Solow- Swan theory recognized that, capital, labour and knowledge bring about economic growth. The implication is that, increase in these factors will bring about increase in output which is economic growth. From Harold (1946) and Domar(1956), savings and investment was recognized as factors that can bring about growth. finance-led growth theory by recognized that, finance led while economic growth follows. This theory identified finance as one of the factors that can bring about growth. Likewise, from the point of endogenous growth theory, economic growth is usually brought about by technological innovation and positive external forces. Here, accumulation of knowledge has been identified as a factor that can bring about a plausible economic growth. 2.2. Theoretical Framework 2.2.1. Finance-Led Growth Theory Finance led growth theory explains the impact that finance plays in the development of the economy. It is basically rested on the existence of financial development in an economy which can be channeled towards economic activities to produce more growth. The leading proponents of this theory are Schumpeter (1911), Gurley and Shaw (1967), McKinnon (1973), King and Levine (1993), and Calderon and Liu (2003). This hypothesis states that, financial development has a positive effect on economic growth and that, it is caused by an improvement in the efficiency of capital accumulation or an increase in the rate of savings as well as the rate of investment (Ayodeji & Ajala, 2017). 2.2.2. Solow Growth Theory The neoclassical model of growth was first devised by Nobel price Wining economist, Robert Solow, over 40 years ago. The Solo model believes that a sustained increase in capital investment increases the growth rate only temporarily. This is because the ratio of capital to 15 | P a g e labour goes up (there is more capital available for each worker to use) but the marginal product of additional units of capital is assumed to decline and the economy eventually moves back to a long-term growth path, with real GDP growing at the same rate as the workforce plus a factor to reflect improving productivity (Shaw, 1992). A “steady-state growth path” is reached when output, capital and labour are all growing at the same rate, so output per worker and capital per worker are constant. The neo-Classical economist who subscribes to the Solow model believe that to raise an economy’s long-term trend rate of growth requires an increase in the labour supply and an improvement in the productivity of labour and capital. Difference in the rate of technological change between countries are said to explain much of the variations in growth rates that we see. The neo-classical model treats productivity improvement as an “exogenous” variable, meaning that productivity improvements are assumed to be independent of the amount of capital investment (Riley, 2006). 2.2.3. Endogenous Growth Theory Endogenous growth theory or new growth theory was developed in the 1980s by Romer (1986), Lucas (1988), and Rebelo (1991), among other economics as a response to criticism of the neo- classical growth model. Jhingan (2006) explains that the endogenous growth model emphasizes technical progress resulting from the state of investment, the size of the capital stock and the stock of human capital. 2.2.4. Samuelson Pure Theory of Public Expenditure This theory was first feature in the work of Samuelson in the year 1954, the theory centered on public goods, which is goods of collective consumption of non-rival and non-excusable through public expenditure. From Samuleson point of view on public expenditure theory, public goods cannot be provided by individuals they are provided collectively but Private goods on the other hand are provided on the basis of revealed preference but individual preferences are not known in the case of public goods. Therefore, the market principle cannot be applied to the provision 16 | P a g e of public goods. In democratic society the ultimate justification of the government provision of public goods or other activities is the desire of the members of the society for such action is desirable. It is only on this assumption that the market principle can be applied to the determination of the optimal provision and financing of public goods. Samuelson says that efficiency requirement in the case of private good is one in which the marginal benefit from such good for each individual equals its marginal cost. Also, in case of private good each consumer pays the same price but purchases different amount of this commodity. Also, Samuelson explains the rule of pricing is the same for public goods and private goods and this rule says that the price payable for each consumer equal the individual marginal benefit. Generally, Samuelson says in the world of private goods only MRS=MRT and MRS equals for all individuals for any pair of two goods. But in world consisting of both private and public goods, but MRS is different for each individual, thus the efficiency rule in the case of private goods implies that marginal benefit of such a good for each individual is equal to its marginal cost. 2.2.5 Theory of Efficient Public-Private Capital Structures This theory was postulated by Moszoro and Gasiorowski (2008) and it is centered on the importance of efficient public and private partnerships rather than public investment in infrastructure. A main argument supporting the PPP approach for investment projects is the transfer of know-how from the private partner to the investment vehicle. The paper shows how different knowledge transfer schemes determine an optimal shareholding structure of the PPP. Under the assumption of lower capital cost of the public partner and lower development outlays when the investment is carried out by a private investor, an optimal capital structure is achieved with both the public and the private parties as shareholders 2.2.6. Dual-gap theory by HarrodDomar Theory 17 | P a g e This theory was written or postulated by Harrod (1939) and Domar (1946). The theory is a classical Keynesian model of economic growth. The two parties however developed their models independently, but their assumptions and results are nevertheless the same. These two built their theories during the industrial crises in some industrialized countries as they faced recession, with high unemployment rate and sharp decline in gross domestic product. However, the theory stresses the importance of savings and investment as key determinants of growth. The theory suggests that, economic growth depends on the level of national savings and productivity of capital investment, that is, capital output ratio. The implication of capital output ratio was that, a low capital output ratio, produces lots of output from a little capital, but a high capital output ratio needs a lot of capital for production and it will not get as much value of output for the same amount of capital. The key points here are that, when the quality of capital resources is high, then the capital output ratio will be lower. Hence, in order to experience an increase in the level of economic growth, the level of savings needs to be increased while capital output ratio should be reduced for investment. As a result, the rate of growth has been stagnant, low and fluctuating. In order to achieve growth in these countries, the gap between savings and investment could be bridged by external financing such as official development assistance, financing through multilateral agencies and partnering with private investors in provision of needed social amenities in the economy which will boost investment and at the same time, enhances economic growth. 2.3. Empirical Reviews Kleimeierand, Versteeg (2006) examined project finance as a driver of economic growth in low-income countries from 1992 to 2005. Growth per capital was used as dependent variables while project finance and some control variables such as foreign direct investment, education, population growth, government consumption, and a dummy for the sub-Saharan countries were used as independent variable. Secondary data were collected from Loan Pricing Corporation’s 18 | P a g e Dealscan database and World Development Indicators (WDI) database and it covers 90 countries with panel regression as the estimation technique. It was found that, project finance indeed fosters economic growth and this effect is strongest in low-income countries, where financial development and governance is weak and not in the middle- or high-income countries La Cour, and Müller (2008) examined the relationship between growth and project finance in the least developed countries covering a period from 1994 to 2007. Cross-sectional data were sourced from World Development Indicators representing sample of 30 least developed countries and estimated using panel regression analysis method. It was found that project finance has a significant positive effect on economic growth thereby constituting an important source of financing in the selected set of countries. It was further revealed that, other factors of importance for economic growth in LDCs such as a higher regulatory quality, lower government consumption and a higher level of education helps increase growth. Kumo (2012) investigated the relationship between infrastructure investment and economic growth in South Africa for the period from 1960 to 2009. Dependent variable was proxied by gross domestic product while economic infrastructure investment by public and economic infrastructure investment by private were used to proxy independent variable. Relying on secondary data from South African Reserve Bank and estimating using granger causality analysis and Vector auto-regression methods, the findings indicate that there is a strong causality between economic infrastructure investment and GDP growth and it runs in both directions implying that economic infrastructure investment drives the long term economic growth in South Africa while improved growth feeds back into more public infrastructure investments. 19 | P a g e Adesoye (2014) examined the growth implications of infrastructural financing in Nigeria by using time series data covering a period from 1970 to 2010. Real gross domestic product was used to proxy dependent variable while government infrastructural spending on economic services, government infrastructural spending on social and community services, Private Investment, government total debt, broad money supply and total population level were proxied independent variables. The study made used of ordinary least square method to analyzed data sourced. Findings revealed that, government community service infrastructure spending, private infrastructure investment, broad money supply, and total population have positive effects on economic growth. On the other hand, government economic service infrastructural spending and total domestic and external debt exerts negative effects on economic growth in Nigeria. This implies that, infrastructural investment has significant effect on economic growth in Nigeria. Mawutor (2014) focused on the role of project finance in emerging economies by looking at schemes in constructing numerous public projects. It adopted content approach and revealed that, the success to the project finance scheme is its non-recourse in nature and allocating and shifting of project risk between the parties in the scheme. It was further found that, in spite of the complexity associated with project finance in emerging economies, it is prudent to formulate a very solid and suitable legal framework, provide enabling environment for investors to reap their investments and a stable political atmosphere considering the number of years required to recoup the initial cost of investment Sama and Afuge (2016) investigated the implications of infrastructural development on Cameroon’s economic emergence covering a period of 1990 to 2012. Infrastructural development was divided into Economic, financial and social infrastructure which was 20 | P a g e measured by investment into energy production, road development, rail network, and telephone (Tel) while economic emergence was proxied by gross domestic product. General method of moments and vector error correction mechanism were used as the estimation technique. Findings showed that in the class of economic infrastructure, telephone network, road infrastructure and energy production are the most significant forms of infrastructure worth emphasizing in the growth process; education and health infrastructure are the main growth- promoting social infrastructures while the mobilizations of savings and granting of domestic credits are more profound in the class of financial infrastructures that promote economic growth in the country. Furthermore, the Impulse-Response graphs found that the current state of infrastructural development would slowly plunge the economy to emergence as solicited by 2035 Chan-lau, Kelhoffer and Zhang (2016) accessed if project finance matters in achieving long- run economic growth using time series data running from 1981 to 2013. Data included in the model cover the number of issues (or projects) and the total amount of loans in each country. GDP per capita, exports and imports, education, population growth, government consumption and labor force. The data were sourced from 141 countries majorly obtained from Thomson Reuters database and included 16 low income countries (LIC), 34 lower middle-income countries (LMC), 35 upper middle-income countries (UMC), and 56 high income countries (HIC). Data were analyzed using panel regression. It was revealed that, increasing project finance by one percentage point of GDP could increase real GDP growth per capita by 6 to 10 percent, with growth effects higher for upper-middle income and advanced economies. In other words, in these countries, if GDP per capita is growing at three percent annually, the boost provided by project finance could deliver cumulative, additional growth as high as two percent during the next five years. These results suggest that proposals for stimulating economic 21 | P a g e growth and productivity via increased project finance merit careful consideration. Although in low-income countries, project finance appears to have less of an impact, possibly owing to deficiencies and weaknesses in financial systems and regulatory frameworks however, addressing these deficiencies, less developed countries could unleash increased growth and productivity Oseni and Oseni (2018) analyzed by identifying appropriate funding model for public infrastructure in Nigeria. This study is a non-empirical in nature, however, it employed content approach and surveyed the existing study. It was suggested that, the opportunities offered by the PPPs, bond and equity markets to fund infrastructural projects are massive in terms of limitless funds, expertise and timely completion of projects. A hybrid funding model that makes a right combination of PPPs, debts and equity could be less expensive than when the public infrastructures are funded wholly from PPP or debts. In his study, Kamau (2010) investigated on the link between financing infrastructure projects on economic growth in Kenya. Questionnaire was administered to 25 respondents on a census basis, both primary and secondary data sources were used and it was analyzed using descriptive statistics and a regression model. The results showed that there was a positive relationship between financing infrastructure and economic growth. Ncube (2010) researched on the relationship between financing infrastructure projects and its impact on economic development in developing countries. Descriptive survey involving 200 infrastructural projects on a large panel data for 136 countries were used. A comparative analysis was done on the projects in relation to the impact of projects on economic development. The results of the study found financing of infrastructure has a positive correlation with economic development 22 | P a g e Mwangi (2010) conducted a study to establish the effect of financing infrastructure projects on economic development. A descriptive survey was carried out at the ministry of Lands, targeting 15 respondents. The study made used of both secondary and primary data and was analyzed using descriptive statistics where mean and standard deviation were used to show the correlation between the two variables. The results revealed that in infrastructure projects has a significant influence on economic development in Kenya Benković, Jednak, Milosavljević, Žarkić and Kragulj (2011) assessed the risk of project financing on infrastructure projects in Serbia from 2000 to 2009. The study employed content approach and trend analysis method. It was found that in solving project financing problems in Serbia as a result of underdeveloped market to raise money, importing of capital for financing infrastructure projects should be encouraged. Furthermore, the following risks affecting the infrastructural development were identified such as macroeconomic risk, government efficiency risk infrastructure risk and certainty risk etc Ermela and Halit (2013) researched on project finance and projects in the energy sector in developing countries from 2000 to 2012. This is done by comparing project finance with corporate finance in financing a long-term investment project. Secondary data were used and pooled from 15 Central and Eastern European countries as well as Eastern Europe on information containing 72 projects. Data were analyzed using a logit regression method of analysis. It was found that project finance PF is the best choice for high-cost projects. Another factor that affects the use of PF is the country risk. Countries which are characterized by high political risks show a higher tendency to use PF for the implementation of infrastructure projects. 23 | P a g e 3.0 Theoretical Framework This study employs new growth theory which is always explained under the endogenous growth theory model as its theoretical underpinning. The central motivation for work on new growth theory is the desire to understand variations in long-run growth. As a result, the initial work in this area focused fully on endogenous growth model, that is, model with constant or increasing returns to production factors, where changes in saving rates and resources devoted to research and development can permanently change growth. Endogenous growth is long-run economic growth at a rate determined by forces that are internal to the economic system, particularly those forces governing the opportunities and incentives to create technological knowledge. In the long run the rate of economic growth, as measured by the growth rate of output per person or growth rate of total output, depends on the growth rate of total factor productivity (TFP), which is determined in turn by the rate of technological progress The model suggests that endogenous factors such as physical capital, human capital, technological advancement etc. can significantly impact economic growth and this can be achieved through infrastructural development and accumulation of capital which will be incorporated in the model as project finance. Hence, the model of endogenous growth theory appears to be suitable for this study. Therefore, the standard model for this study shall assume a standard neoclassical production function that bgins from a premise that changes in quantities of factors of production (i.e. Labour and capital) account for growth. The neo-classical model is based on the Cobb- Douglas’s production function and is given as thus: Y= F (T, K, L) ----------------------------- (1) Where Y, K, L are aggregate real output, capital and labour respectively, and T denotes technical progress or total factor productivity. 24 | P a g e 3.1 Model Specification By adopting Cobb Douglas production function, that is Y= F (T, K, L) ----------------------------- (1) This study shall expand the model by incorporating other relevant internal factors that can induce growth such as infrastructural development and difference sources of project finance. However, three models will be specified in this study. The first model is on the effect of different sources of project finance on infrastructural development in Nigeria. In addition, the model will be included control variable such as exchange rate The model 1 is stated in a functional form below INFD = f ( PF)…………………………………………………………………..3.3 In order to expand this model, different source of project finance is therefore incorporated INFD f( PPP, PBF, PRF, ODA, CMF, EXR)………………………………………….3.4 In an explicit for, that is specifying it in a linear form, the model is stated as INFDt =βo +β1PPPt + β2PBFt + β3PRFt + β4ODAt + β5CMFt + β6EXRt+ Ut……….3.5 By employing Auto regressive distributed lag, the model is therefore specify thus n n nn ∆InINFDt= β0 + ∑β1 ∆InINFDt-1+ ∑β2 ∆InPPPt-1+ ∑β3∆InPBFt-1 + ∑β4 ∆InPRFt-1 i=1 i=0 i=0 i=0 n n + ∑β5∆InODA+ ∑β6 ∆InCMFt-1 + ∑β7 ∆InEXRt-1 α8InINFDt-1 + α9InPPPt-1 + α10InPBFt-1 i=0 i=0 + α11InPRFt-1 + α12InODA + α13InCMFt-1+ ∑α14 ∆InEXRt-1 + Ut ------------------------------3.6 Where, ∆= In= Logarithms, βo = Constant term, ∑= Summation, t-1= Previous year value, INFD= Infrastructural Development, PPP= Public-Private investment, PBF= Public project finance, PRF= Private project finance, ODA= Official Development Assistance, CMF= Capital 25 | P a g e Market based project finance, EXR= Exchange rate, Ut= Error term, β1----β7= long run coefficients, α9-----α14= Short run coefficients Model ll The model two is stated in line with the second objective which says infrastructural development is a function of economic growth. Hence, the model is stated in line with Sama and Afuge (2016). The model was stated in a linear form as LnGrowtht= δo+ δ1EIt+ δ2SIt+ δ3FIt+et Where; Growth=Economic Growth; EI is economic infrastructure; SI is social infrastructure; FI is financial infrastructure This model is therefore adopted and at the same time adapted by changing economic growth to gross domestic product (GDP). Therefore, the model is stated in a function form as GDPPC= f (EI, SI, FI)-----------------------------------------------------------------3.7 This model is expanded by incorporating proxies of each infrastructural development. Here economic infrastructure will be proxy by transport development (TDI), power production development (PPI). social infrastructure will be proxied by health infrastructure (HI), education infrastructure (EI) and financial infrastructure will be proxy by financial development of bank(M2/GDP) and financial size (MCAP/GDP). Therefore, the model is restated thus GDP = f (TDI, PPI,RDI, HI, EI, M2/GDP, MCAP/GDP) ----------------------------------------3.8 In a linear form, the model is stated thus GDPt = βo+ β1TDIt + β2PPIt+ β3RDIt+ β4HIt+ β5EIt+ β6M2Gt+ β7MCAPG+ Ut--------------3.9 By employing vector auto regression, the model is re-stated thus GDPt=λ1+β11∑GDPt-1 + β12∑TDIt-1 +β13∑PPIt-1 + β14∑RDIt-1 + β15∑HIt-1 +β16∑EIt-1 + β17∑M2Gt- 1 +β18∑MCAPGt-1 + Ut1 26 | P a g e TDt = λ2+ β21∑GDPt-1 + β22∑TDt-1 +β23∑PPIt-1 +β24∑RDIt-1+ β25∑HIt-1 +β26∑EIt-1 + β27∑M2Gt-1 +β28∑MCAPGt-1 + Ut2 PPt = λ3+ β31∑GDPt-1 + β32∑TDt-1 +β33∑PPIt-1 +β34∑RDIt-1 + β35∑HIt-1 +β36∑EIt-1 + β37∑M2Gt- 1 +β38∑MCAPGt-1 + Ut3 RDIt = λ4+β41∑GDPt-1 + β42∑TDt-1 +β43∑PPIt-1 +β44∑RDIt-1+ β45∑HIt-1 +β46∑EIt-1 + β47∑M2Gt- 1 +β48∑MCAPGt-1 + Ut4 HIt = λ5 + β51∑GDPt-1 + β52∑TDt-1 +β53∑PPIt-1 +β54∑RDIt-1 + β55∑HIt-1 +β56∑EIt-1 + β57∑M2Gt- 1 +β58∑MCAPGt-1 + Ut5 EIt = λ6+ β61∑GDPt-1 + β62∑TDt-1 +β63∑PPIt-1 +β64∑RDIt-1 + β65∑HIt-1 +β66∑EIt-1 + β67∑M2Gt-1 +β68∑MCAPGt-1 + Ut6 M2Gt=λ7+β71∑GDPt-1+β72∑TDt-1+β73∑PPIt-1+β74∑RDIt-1 +β75∑HIt-1+β76∑EIt-1+β77∑M2Gt-1 β78∑MCAPGt-1 + Ut7 MCAPG=λ8+β81∑GDPt-1+β82∑TDt-1+β83∑PPIt-1+β84∑RDIt-1+ β74∑HIt-1+β15∑EIt-1+β16∑M2Gt- 1 β17∑MCAPGt-1 + Ut7 Where λ1,λ2 …………..λ8 are the constant terms ; β11-β76 are the autoregressive coefficients matrices of the variables to be estimated; ∑ = Summation, t-1= Previous year value, U1 U2 U3- -----------------U8are random innovations Model lll The model 3 is stated in line with objective three which is on the effect of different sources of finance on economic growth. The model is stated in line with the study of Kumo (2012). The model was stated in a functional form as GDP= f( EIIP, EIPR) The above model stated that, economic growth proxy by gross domestic product is a function of economic infrastructure investment by public and economic infrastructure investment by private. Hence, this variable is therefore adapted by expanding it to 27 | P a g e incorporate different sources of project finance under public and private institutions. Hence the model is stated in a functional form as GDP= f (PPP, PBF, PRF, ODA, CMF, EXR) ----------------------------3.17 GDPt =βo +β1PPPt + β2PBFt + β3PRFt + β4ODAt + β5CMFt + β6EXRt+ Ut……….3.18 By employing Error correction mechanism, the model is therefore specify thus n n nn ∆InGDPt= β0 + ∑β1 ∆InINFDt-1+ ∑β2 ∆InPPPt-1+ ∑β3∆InPBFt-1 + ∑β4 ∆InPRFt-1 i=1 i=0 i=0 i=0 n n + ∑β5∆InODA+ ∑β6 ∆InCMFt-1 + ∑β7 ∆InEXRt-1 +ECM(-1) --------------------------------3.19 Where, Where, ∆= In= Logarithms, βo = Constant term, ∑= Summation, t-1= Previous year value, GDP= Gross domestic Product, PPP= Public-Private investment, PBF= Public project finance, PRF= Private project finance, ODA= Official Development Assistance, CMF= Capital Market based project finance, EXR= Exchange rate, Ut= Error term, β1----β7= long run coefficients, ECM(-1)= Speed of adjustment 3.2 Apriori Expectation Theoretically, it is rooted in the literature that, finance is a lubricant to the wheel of the economy. That is, finance plays a very vital role in the economic growth and development of a nation. Therefore, a positive effect of project finance is expected on infrastructur al development and at the same time on economic growth. In addition, economic growth can be achieved in an economy provided there is improvement in the level of infrastructural development. A country with deteriorated level of infrastructure is not likely to experience rapid growth or attract foreign investors. Hence, an increase in infrastructural development should exert positive effect on the economic growth. As a result, a positive relationship is expected to be between project finance, infrastructural development and economic growth. 28 | P a g e Mathematically, the study expected that, project finance such as PPP> 0; PBF>0; PRF>0; ODA>0; CMF>0 EXR<0. The study also expected that, infrastructural development such as TDI>0; PPI>0; RDI>0; HI>0; EI>0; M2G>0 MCAPG>0. 3.3 Sources and Method of Data Collection The relevant data for this study is secondary data and it is majorly sourced from CBN Statistical Bulletin, African Infrastructural Development Group report of various editions and World Development Indicator spanning from 1986 to 2017. The variables captured are project finance which was proxied by public private partnership (PPP), public project finance (PBF) was proxied by public expenditure on capital project, private project finance (PRF) was proxied by private sector investment, official development assistance (ODA) was proxied by foreign aid channeled to infrastructural development, capital market project finance (CMF) was proxied by bonds and stocks for developmental projects and exchange rate (EXR) was used as control variable. In addition, infrastructural development (INFD) was proxied by economic infrastructure such as transport development index, power production and road development investment. Transport development can either be by road, rail and air but for this study, air transport development was used. On social infrastructure, the study proxied health by contribution of health sector to GDP and education by contribution of education to GDP and financial infrastructure was proxied by financial development comprising that of banks and financial market such as M2/GDP and MCAP/GDP while economic growth was proxied by real gross domestic product. 3.4. Estimation Techniques The estimation techniques employed in the course of this work are of different type as a result of different models stated. This means in order to achieve objective one, auto 29 | P a g e regressive distributed lag was used. For the objective two, vector autoregressive distributed lag was employed and to achieve objective three, error correction mechanism was employed. However, the study subjected the variables to the preliminary test by using as Augmented Dickey Fuller and Philip Peron tests to test the stationarity of the variables. 4.4 Tests for Unit Roots Augmented Dickey-Fuller (ADF) test and Phillips-Perron (PP) test was the two tests for stationarity employed in this research study. These tests also gave an indication of the order of integration or the number of time series of the variables must be differenced before it qualified to be stationary. The lag length was selected using AIC criterion. The unit root test was carried out based on the formulated models which are known as group unit root test. Table 4.3 shows a summary of the test and order of integration of each of the transformed variable. The order of integration of the variables in the grouped models was of order I (1), at 5% and 10% significant level respectively. Table 4.3: Unit Root Results of the Models Augmented Dickey Fuller Test Phillips-Perron Test Model Test Statistic Lag Length Prob*. Test Statistic Lag Length Prob*. Model I 115.371 1 0.000 113.489 1 0.000 Model II 126.922 1 0.000 130.893 1 0.000 Model III 119.511 1 0.000 119.515 1 0.000 Source: Researcher Estimate from CBN Data (2017) *Significant at 5% and 10% level respectively 4.5 Test of Co-integration The Table 4.4a, Table 4.4b, and Table 4.4c show the Johansen’s Multivariate Co-integration test of the variables used in this research study. The cointegration test was investigated for the three formulated models in the study. Based on the hypothesized number of co-integrated 30 | P a g e equation(s), it is revealed that both the Trace and Max-Eigen statistic test for Model I has 3 and 2 co-integrating equation as shown on Table 4.4a, for Model II, it has 4 and 1 cointegrating equation as shown on Table 4.4b, for Model III, it has 5 and 1 cointegrating equation as shown on Table 4.4c, because their p-values are lesser than the test of significance at 5%; we therefore reject the null hypothesis and conclude that there are co-integrating equation between the variables despite their fairer relationship. Table 4.4a: Johansen’s Multivariate Co-integration test for Model I Hypothesized Eigen-value Trace 0.05 Prob.** Max- 0.05 Prob.** No. of CE(s) Statistic Critical Eigen Critical Value Statistic Value None* 0.9356 240.2876 150.5585 0.0000 79.5507 50.600 0.0001 At Most 1* 0.8966 160.7369 117.7082 0.0000 65.8136 44.497 0.0001 At Most 2* 0.7098 94.9233 88.8038 0.0168 35.877 38.331 0.0931 At Most 3 0.5856 59.0463 63.8761 0.1192 25.5441 32.118 0.2558 At Most 4 0.4505 33.5022 42.9153 0.3118 17.365 25.823 0.4275 At Most 5 0.2977 16.1372 25.8721 0.4816 10.2469 19.387 0.5924 At Most 6 0.1838 5.8903 12.518 0.4744 5.8903 12.518 0.4744 Source: Researcher Estimate from CBN Data (2017) Table 4.4b: Johansen’s Multivariate Co-integration test for Model II Hypothesized Eigen- Trace 0.05 Prob.** Max- 0.05 Prob.** No. of CE(s) value Statistic Critical Eigen Critical Value Statistic Value None* 0.8894 221.3779 159.5297 0.0000 63.8588 52.363 0.0023 At Most 1* 0.7825 157.5191 125.6154 0.0001 44.2354 46.231 0.0807 At Most 2* 0.7211 113.2837 95.7537 0.0018 37.03 40.078 0.106 At Most 3* 0.6697 76.2537 69.8189 0.014 32.1212 33.877 0.0798 At Most 4 0.5676 44.1325 47.8561 0.1072 24.3125 27.584 0.1242 At Most 5 0.3856 19.8201 29.7971 0.4351 14.1284 21.132 0.3546 At Most 6 0.1736 5.6917 15.4947 0.7316 5.5304 14.265 0.6739 At Most 7 0.0055 0.1612 3.8415 0.688 0.1612 3.8415 0.6880 Source: Researcher Estimate from CBN Data (2017) 31 | P a g e Table 4.4c: Johansen’s Multivariate Co-integration test for Model III Hypothesized Eigen- Trace 0.05 Prob.** Max- 0.05 Prob.** No. of CE(s) value Statistic Critical Eigen Critical Value Statistic Value None* 0.8501 179.6447 125.6154 0.0000 55.05124 46.231 0.0045 At Most 1* 0.7197 124.5934 95.7537 0.0001 36.889 40.078 0.1095 At Most 2* 0.6669 87.7044 69.8189 0.0010 31.8833 33.877 0.0849 At Most 3 0.5399 55.8211 47.8561 0.0075 22.5132 27.584 0.1952 At Most 4 0.5019 33.3078 29.7971 0.0189 20.2146 21.132 0.0668 At Most 5 0.2874 13.0932 15.4947 0.1114 9.8276 14.265 0.2235 At Most 6 0.1065 3.2656 3.8415 0.0707 3.2656 3.8415 0.0707 Source: Researcher Estimate from CBN Data (2017) 4.6 Autoregressive Distributed Analysis Autoregressive distributed lag was used to estimate the model which says infrastructural development is a function of project finance. As it has been established by Perasan, Shin and Smith (2001), this test can be used for variables integrated at level I(0), at first difference I(1) or integrated at difference order of I(0) and I(1). This test has both long run and short run estimates. However, the result of the long-run estimate of the investigation is shown on Table 4.5. Looking at the coefficient of determination of the model, it could be found that, the variation in infrastructural development in Nigeria are explained by the explanatory variables to the tune of 0.9967 which implies that, 99.67% variable in dependent variable are explained by project finance while 0.33% are explained by variables not included in the model. This is likewise supported by the adjusted R2 of 99.59% which also explained the variation in the infrastructural development based on the variables included in the model. The F-statistics of 1220.02 and the corresponding p-values of 0.0001 show the significant of the model. This implies that, there is a very strong relationship between infrastructural development and different categories of project finance in the model 32 | P a g e Checking the effect and significant of the variables in the model, the long run-estimation analysis shows that only PBF, PRF, and EXR are statistically not significant in the direction of the formulated model. Considering the estimated coefficient of PBF, holding other variables constant, an increase in PBF will cause a very slight invaluable insignificant effect on the INFD by 13.29 per cent. Also, considering the estimated coefficient of PRF, holding other variables constant, an increase in PBF will cause a little insignificant effect on INFD by 11.29 per cent. In addition, observing the estimated coefficient of EXR, holding other variables constant, an increase in EXR will lead to a negative decrease on the INFD by 8.9 per cent, although it’s statistically insignificant. However, when considering the variables that has a significant positive effect on INFD such as PPP, ODA, and CMF, they show a significant effect. Considering the estimated coefficient of PPP, holding other variable constant, an increase in PPP will lead to an increase in INFD by 63.72 percent. Also, considering the coefficient estimate of ODA, holding other variables constant, an increase in ODA will lead to a slight positive increase in INFD by 13.55 percent. Also, from the estimated coefficient of CMF, holding other variables constant, an increase in CMF will lead to a slight positive increase in INFD by 10.34 percent. This result indicates that, in the long run, financing from PPP, ODA and CMF can bring about the needed infrastructural development in Nigeria. Table 4.5: Result of Estimated Long-Run Relationship Variable Coefficient Std. Error t-statistic Prob. PPP 0.6372 0.0807 7.8978 0.0000 PBF 0.1329 0.0781 1.7006 0.1019 PRF 0.1199 0.1243 0.9640 0.3447 ODA 0.1355 0.0583 2.3227 0.029 CMF 0.1034 0.0301 3.4372 0.0022 EXR -0.0890 0.0963 -0.92441 0.3645 C -0.4184 0.1825 -2.2926 0.0309 R-squared 0.9967 Adjusted R-squared 0.9959 F-statistic 1220.027 Prob.(F-statistic) 0.0000 Durbin-Watson Stat. 1.5298 Dependent variable: INFD: Source: Author Computation from Eview 10 33 | P a g e However, due to the insignificant effect of PBF, PRF, and EXR, there is need to carry out a further analysis of the short-run impact of explanatory variables on INFD to be investigated alongside the long run as shown on Table 4.6.The empirical long-run and short-run relationship on Table 4.6 revealed that they displayed both positive and negative significant relationship with INFD at 1%, 5% and 10% respectively, except for ODA, PRF and EXR that are statistically insignificant in explaining INFD in Nigeria. It’s important to note that PBF which displayed a measure of insignificant effect in the long-run however became much stabilized when analyzed on the long-run and short-run distributional effect. This change fluctuation can easily be explained based on the ECM. The ECM result showed a coefficient of -0.3473. This value validated the properties of ECM used to control the short run dynamics and combined effect among the variables. The ECM result signifies that the combined effect of both short and long run dynamics effect is 34.73%, which means that any shock in the long run can be corrected by 34.73% in the short run. This weak correctional effect value of the ECM has a low significant impact on the long-run and short-run dynamics. Table 4.6: Short-run and Long-run Impact of Explanatory Variable Analysis Variable Coefficient Std. Error t-statistic Prob ∆(INFD(-1)) -0.4488 0.2040 -2.2002b,c 0.0249 ∆(PPP(-1)) 0.2709 0.0958 2.8279a,b,c 0.0005 ∆(PBF) 0.1093 0.0520 2.1034b,c 0.0139 ∆(PRF) 0.0523 0.0782 0.6691 0.3145 ∆(ODA(-1)) -0.0275 0.0317 -0.8685 0.4321 ∆(CMF(-1)) 0.0335 0.0209 1.6013c 0.0525 ∆(EXR) -0.0327 0.0526 -0.6220 0.9118 ECM(-2) -0.3473 0.1674 -2.0751b,c 0.0436 C 0.0938 0.0186 5.0487 0.3249 R-squared 0.5353 Adjusted R-squared 0.3494 Prob.(F-stat F-statistic 2.8797a,b,c 0.000943) Dependent variable: ∆INFD Notes: The symbols a, b, and c indicate significant at 1%, 5%, and 10% statistical levels respectively. Source: Author Computation from Eview 10 34 | P a g e 5.1. Summary The interrelationship between project finance, infrastructural development and economic growth were extensively researched on so as to know how they affect each other. The subject matter was researched on due to the infrastructural deficit in the country and as well because of the limited studies on infrastructural development in Nigeria. Three research questions were stated in line with the statement of the problems and they are; what are the effects of different sources of project finance on the infrastructural development in Nigeria? how has infrastructural development in Nigeria influenced the level of economic growth? what are the impacts of different sources of project finance enhances the economic growth in Nigeria? The objectives and hypotheses of the study were stated in tandem with the questions For the methodology, ex-post facto research design was used and data for the study were sourced from CBN Statistical Bulletin, World development indicators and African development bank group report. The findings of the study revealed that, there is a significant relationship between project finance and infrastructural development and economic growth. not only that, for objective one, study showed that, there is significant effect of project finance on infrastructural development. It further revealed that all sources of project finance except ODA impacted positively on infrastructural development while exchange rate negatively affected the development of infrastructural development in Nigeria. However, PPP was found to impact the infrastructural development more The second object two, study found a significant relationship between infrastructural development and economic growth. However, among all the variables, economic infrastructure such as TDI, PPI, and RDI together with banking sector development (M2G) impacted positively on economic growth while health infrastructure and financial market development (MCAPG) negatively impacted on GDP. Among all the variables, power production was found 35 | P a g e to exert more impact on GDP. In addition, the impulse response of the VAR and decomposition error found that, response of GDP was highly as a result of negative impulses from TDI, PPI and MCAPG while this negative effects were counter by positive impulses from RDI,HI, EI, M2G while variance decomposition error found lagged value of GDP, RDI, M2G causes more variation in GDP For objectives three, the study also found a significant short run relationship between project finance and economic growth. Furthermore, studies showed that, previous year of GDP, ODA and EXR significantly impacted on economic growth while other have insignificant impact. In addition, in the short run, it is only public project finance and exchange rate that have positive effect on economic growth while PPP, PRF, ODA, CMF have negative effect on economic growth in the short run. Summarily, from the findings so far revealed, the study can say that, there is strong relationship between infrastructural development and project finance, also between economic growth and infrastructural development and between project finance and economic growth 5.2 Conclusion Having critically examined the interrelationship between project finance, infrastructural development and economic growth in Nigeria covering a time scope 1986 to 2017, the following conclusion were made despite the unavailability of data to make a robust output. Although, the relationship between project finance, infrastructural development and economic growth turn out to be substantial. For the first objective, the study concluded that, project finance most especially PPP, PBF, PPI, CMF have positive impact infrastructural development. For objective two, the study concluded that, infrastructural development most especially the economic and financial infrastructure exert positive impact on economic growth and lastly for objective three, the study concluded that, there is significant short run effect of project finance especially PPP, PPI, ODA, CMF on economic growth but private project finance does not and 36 | P a g e it has insignificant effect on economic growth. Summarily, the study concluded that, the relationship between project finance, infrastructural development and economic growth are significant. 5.3. Recommendations In line with findings and conclusion of this study, the following recommendations were made i. Government should create an enabling environment for the private sectors both the local and the foreign ones to invest in the critical infrastructure such as social, economic and financial infrastructure in the economy so as to bring about development of infrastructure in Nigeria ii. Both bilateral and multilateral official development assistance should be well directed to social infrastructure, that is, health and education, this will go a long way to compensate for dwindling government budget towards development of our social infrastructure iii. Judicious use and allocation of funds from various sources of project finance are very important. When these funds are well utilized, apparently, it would ginger economic growth upwards and since this is the broad objective of the economy, it can be guaranteed with these sources. iv. Monetary authority should ensure that, exchange rate should be well managed as this was found to affect the flows of funds 5.4 Contribution to Knowledge This study contributes to knowledge by expanding the theory on infrastructural development to include PPP, ODA etc. It will enrich the literature by expanding the proxies of infrastructural development theory (social and economic infrastructure) and financial infrastructure (Bank Capital and Market Capitalization) on economic growth in 37 | P a g e Nigeria. The study will expand and contribute to knowledge on the joint effects of sources of finance on infrastructural development and economic growth in Nigeria 5.5 Suggested Area for Further Study This study did not cover the implication of pension funds on infrastructural development, hence, further study can be done on it References Abouraia, M.K. (2014). Impact of foreign aid in economic development of developing countries: A case of Philippines. 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