AN EMPIRICAL STUDY OF THE IMPACT OF MANUFACTURING SECTOR ON THE ECONOMIC GROWTH OF NIGERIA

ABSTRACT

This research work examines econometrically the impact of manufacturing sector on economic growth in Nigeria, from 1981 to 2010. It assesses the effect of manufacturing output (mangdp), investment (inv), government expenditure (govexp) and money supply (m2) on log of real gross domestic product (lrgdp). Appropriate multiple regression model is specified with parameters, which are estimated using the ordinary least square (OLS) technique. Test of hypothesis is carried out and the result shows a positive and significant relationship between manufacturing output and economic growth in Nigeria within the period under investigation. Among other recommendations the study opines that manufacturing outfits should be encouraged by the government through policy packages such as tax holiday and other helpful concessions in order to enhance manufacturing output in the country

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Prolonged economic recession occasioned by the collapse of the world oil market from the early 1980s and the attendant sharp fall in foreign exchange earnings have adversely affected economic growth and development in Nigeria. Other problems of the economy include excessive dependence on imports for both consumption and capital goods, dysfunctional social and economic infrastructure, unprecedented fall in capacity utilization rate in industry and neglect of the agricultural sector, among others (Ku et al, 2010; Adesina, 1992). These have resulted in fallen incomes and devalued standards of living amongst Nigerians.

Although the structural adjustment programme (SAP) was introduced in 1986 to address these problems, no notable improvement took place. From a middle income nation in the 1970s and early 1980s, Nigeria is today among the 30 poorest nations in the world. Putting the country back on the path of recovery and growth will require urgently rebuilding deteriorated infrastructure and making more goods and services available to the citizenry at affordable prices. This would imply a quantum leap in output of goods and services.

The path to economic recovery and growth may require increasing production inputs - land, labour, capital and technology - and or increasing their productivity (Kayode and Teriba, 1977). Increasing productivity should be the focus because many other countries that have found themselves in the same predicaments have resolved them through productivity enhancement schemes. For instance, Japan from the end of the World War II and the United States of America from the 1970s have made high productivity the centre point of their economic planning and the results have been resounding. Also, middle income countries like Hong Kong, South Korea, Singapore and India have embraced boosting productivity schemes as an integral part of their national planning and today they have made significant in-roads into the world industrial markets.

Given the importance of high productivity in boosting economic growth and the standards of living of the people, it is necessary to evaluate the productivity of the Nigerian manufacturing sector. This will be useful in ascertaining the relative efficiency of firms, sub-sectors and sectors. A knowledge of the relative efficiency of industries in relation to economic growth and development could aid government in planning its programmes and policies, especially in deciding on which industries should be accorded priority. In the light of the foregoing, there cannot be a more appropriate time to evaluate the role of the Nigerian manufacturing sector in the economic growth and the development of the country than now.

1.2 STATEMENT OF THE PROBLEM

The history of industrial development and manufacturing in Nigeria is a classic illustration of how a nation could neglect a vital sector through policy inconsistencies and distractions attributable to the discovery of oil (Adeola, 2005). The near total neglect of agriculture has denied many manufacturers and industries their primary source of raw materials. The absence of locally sourced inputs has resulted in low industrialization.

Some of the constraints faced in this sector include:

• High interest rates

• Unpredictable government policies

• Non-implementation of existing policies

• Lack of effective regulatory agencies

• Infrastructural inadequacies

• Dumping of cheap products

• Unfair tariff regime

• Low patronage

It is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector in the Nigerian economy.

1.3 OBJECTIVES OF THE STUDY

The broad objective of this study is to appraise critically, the role of the manufacturing sector in Nigerian economy.

The specific objectives of the study include:

to investigate the impact of the manufacturing sector on the economic growth and development of Nigeria.

To assess the level of productivity in the Nigerian manufacturing sector.

To identify the major constraints confronting the Nigerian Manufacturing sector.

To find out the various policy measures available to the government that can be used to redress the persistent decline in the manufacturing production.

1.4. RESEARCH QUESTIONS

The study would examine the following questions:

To what extent has the Nigerian manufacturing sector contributed to the economic growth and development of the country?

What has been the performance of the Nigerian manufacturing sector?

What are the constraints that are confronting the manufacturing sector?

What policy measures could be adopted to redress the persistent decline in the manufacturing production?

1.5. STATEMENT OF RESEARCH HYPOTHESIS

The hypothesis tested in the course of the analysis is stated below:

H0:     that the manufacturing sector does not contribute significantly to Nigerian economy.

H1:      that the manufacturing sector contributes significantly to Nigerian economy.

1.6 SIGNIFICANCE OF THE STUDY

This study on the impact of manufacturing sector on economic growth in Nigeria is significant in the following ways:

It will influence various economic units both in the public and private sectors of the Nigerian economy;

The research report will be a veritable source of information to various categories of students as well as researchers wishing to conduct further research in this area;

It will be relevant topolicy makers especially when making policy decisions on the choice of policy that will suit the Nigerian manufacturing sector.

Finally, the study will be useful to institutions outside the ones mentioned above.

1.7 SCOPE OF THE STUDY

This study evaluates the role of the Nigerian manufacturing sector in relation to the growth of the economy. The major constraints that confront the sector would be identified in the course of examining the overall development in the sector since the adoption of SAP.

The analysis of the contribution of the manufacturing sector to the economic growth of Nigeria shall be restricted to the period from 1981 to 2010 using only relevant performance indicators such as index of manufacturing, sector’s contribution to the Gross Domestic Product (GDP) and other control variables.

Most of the information and data needed for the study would be gathered from existing literature and from relevant government agencies such as the Central Bank of Nigeria, National Bureau of Statistics (NBS), Manufacturing Association of Nigeria (MAN) as well as international organizations such as United Nations Industrial Development Organization (UNIDO).

1.8 DEFINITION OF TERMS

(i) Productivity: It has been defined by Economists as the ratio of output to input in a given period of time. In other words, it is the amount of output produced by each unit of input.

Economic Development: This is the ability of a nation to expand its output at a rate faster than the growth rate of its population. Economic development viewed in this way has to do with growth of per capita GNP which will also determine the standard of living of the people.

Trade Liberalisation: This is the elimination of non-tariff barriers to imports, the rationalisation and reduction of tariffs, the institution of market determined exchange rates and the removal of fiscal disincentives and regulatory deterrents to exports.

Industrial policy: This is a systematic government involvement, through specifically designed policies in industrial affairs, arising from the inadequacy of macroeconomic policies in regulating the growth of industry.

Economic liberalization: This is a replacement of a state-led economy to private sector dominated economy. It focuses on privatization, deregulation of foreign investments, trade liberalisation, deregulation of credit policy and the introduction of the Foreign Exchange Market (FEM).