Macroeconomic Variables Affecting a Business Environment

Topics: Inflation, Economics, Macroeconomics Pages: 9 (2204 words) Published: March 11, 2012


In today's world, no business operates in isolation without interacting with the environment where it operates. Irrespective of the nature of business whether public or private organization; manufacturing; service industry; local or international firm, its operations are inhibited by the environment in which it operates. During 2003-2007, Nigeria attempted to implement an Economic Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalization, privatization, transparency and accountability (Gbadebo, 2008). The popular view regarding the role of the financial sector, especially in a developing economy derives from its primary function of mobilizing financial resources from the savers and directing these resources into channels of desired development activities. Attention has been drawn to the relationship between real and financial developments in terms of the role of financial intermediation, monetization and capital formation in determining the path and pace of economic development. The linkage between financial sector development and real sector performance is through the mobilization of financial resources and the delivery of these resources to the investing public. Obviously if monetary policy is out of fume with the imperatives of the predominant channel of linkage between the financial sector and the rest of the economy, it is possible for the financial sector to become obstructive to economic growth and development.

Definition of terms
Precisely, in identifying and explaining macroeconomic variables affecting a named business environment like financial institutions; it will not be out of place to define the following terms;

• Macroeconomics
• Macroeconomics variables
• Business environment
• Financial institution

MACROECONOMICS: It studies economy-wide phenomena, including inflation, unemployment, and economic growth. (Mankiw 2007). Also, it looks at the broad range of opportunities and challenges facing an economy as whole.

MACROECONOMIC VARIABLES: These are parameters usually identify by economies of the world as key to helping successive government to achieve its objectives in the area of full employment, price stability, rapid economic growth and balance of payment.

BUSINESS ENVIRONMENT: This can be defined as the general condition in which a business operates whether public or private. Businesses generally operate in different environment which can be categorised as economic, socio-cultural, political, legal, technological, and international.

FINANCIAL INSTITUTION: It is an organization duly licences to accept, mobilize deposit from the general public- corporate or individual and other valuables for the purpose of safe keeping, making such deposit available on demand. It equally serves as intermediary between the ultimate lender and the borrower. Funds are mobilized from the surplus units and made available to the deficit unit for investment purpose. CHAPTER 2


Just like other business organizations, financial institutions are not immune from the effects of macroeconomic variables prevailing in their operating environment. The operation of a financial system is dependent on overall economic activity, and financial institutions are significantly affected by certain macroeconomic developments. Recent empirical analysis has shown that certain macroeconomic developments have often pre-dated banking crises, which suggests that financial system stability assessments need to take into consideration the broad macroeconomic picture, particularly factors that affect the...
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