THE IMPACT OF MONETARY POLICY ON INDUSTRIAL GROWTH IN NIGERIA

ABSTRACT

This study empirically examines the Impact of Monetary Policy on Industrial Growth in Nigerian Economy. In line with the objectives of this study, secondary data were obtained from Central Bank of Nigeria Statistical Bulletin covering the period of 1995 to 2014. In concluding the analysis, Multiple Regressions were employed to analyze data on such variables as Open Market Operation, Cash reserve, Exchange Rate and Monetary Policy Rate for Nigeria over the period 1995 to 2014 were all found to have significant  effects on Industrial Growth with Adjusted R2 of 0.694 (69.4%).   Following the outcome of this study, it is therefore concluded that Cash Reserve Rates and Exchange Rate have significant positive effect on the Nigerian Manufacturing Sector Gross Domestic Product, but Open Market Operation and Monetary Policy Rate have negative effect on the Nigerian Manufacturing Sector’s GDP.  All the variables are statistically significant. In order to improve economic growth, it is recommended that government should develop the Manufacturing Sectors of the economy through its capital expenditure. With this, capital expenditure on productive activities and social overhead capital will contribute positively to industrial growth which will invariably enhance economic growth. 

1.2     STATEMENT OF THE PROBLEM

Industrialization has always constituted a major objective of development strategy and government policy. Through industrialization, developing nations aspire to achieve higher economic growth, and to eventually attain developed nation status. Yet, it remains doubtful whether the approach of industrial policy-making in Nigeria has indeed been successful in transforming the economy. Over the past three decades, the outlook of industrial growth and development in Nigeria has been gloomy and uncertain. Industrial output, measured in terms of aggregate index and its contribution to GDP has fluctuated very widely.

The industrial contribution to GDP which went up from 17.2 percent in 1996 to 18.1 percent in 1998, declined to 16.1 percent in 2002. Existing evidence highlights the main contribution to industrial development in Nigeria to include such diverse problems as poor infrastructure, scarce human capital, and limited access to inputs, high macro-volatility, poor legal and judicial system, small product market and thin financial market (Obitayo, 1991, Asogwa ,2003, Nnanna, 2003).

One of the major objectives of monetary policy in Nigeria is price stability. But despite the various monetary regimes that have been adopted by the Central Bank of Nigeria over the years, inflation still remains a major threat to Nigeria’s industrial growth. Nigeria has experienced high volatility in inflation rates. Since the early 1970’s, there have been four major episodes of high inflation, in excess of 30 percent. The growth of money supply is correlated with the high inflation episodes because money growth was often in excess of real industrial growth. However, preceding the growth in money supply, some factors reflecting the structural characteristics of the economy are observable. Some of these are supply shocks, arising from factors such as famine, currency devaluation and changes in terms of trade.  

1.3     OBJECTIVES OF THE STUDY

The main objective of this study is to assess the impact of the monetary policies on the growth of the Manufacturing sector in Nigeria. Other specific objectives are, thus;

1. To investigate the impact of the Open Market Operation on the   Nigerian Manufacturing Sector Gross Domestic Product.
2. To investigate the impact of the Cash Reserve Ratio on the   Nigerian Manufacturing Sector Gross Domestic Product.
3. To investigate the impact of the Monetary Policy Rate on the   Nigerian Manufacturing Sector Gross Domestic Product.
4. To investigate the impact of the Exchange Rate on the   Nigerian Manufacturing Sector Gross Domestic Product.

1.4     RESEARCH QUESTIONS

The following research questions are intended to sharpen the focus of the problem and are deduced from the above objectives. Thus;

1. Does the Open Market Operation (OMO) have an impact on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP)?
2. Does the Cash Reserve Ratio (CRR) have an impact on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP)?
3. Does the Monetary Policy Rate (MPR) have an impact on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP)?
4. Does the Exchange Rate (EXCR) have an impact on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP)?

1.5     STATEMENT OF HYPOTHSES

The purpose of the research work having been stated, a number of hypotheses have been selected for testing. Thus;

         HYPOTHESIS ONE:    

Ho1:  Open Market Operation (OMO) does not have a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).

Hi1:   Open Market Operation (OMO) has a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).

HYPOTHESIS TWO:

Ho2:  Cash Reserve Ratio (CRR) does not have a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).

Hi2:   Cash Reserve Ratio (CRR) has a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).

HYPOTHESIS THREE:

Ho3:  Monetary Policy Rate (MPR) does not have a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).

Hi3:   Monetary Policy Rate (MPR) has a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).

HYPOTHESIS FOUR:

Ho4:  Exchange Rate (EXCR) does not have a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).

Hi4:   Exchange Rate (EXCR) has a significant effect on the Nigerian Manufacturing Sector Gross Domestic Product (MGDP).