The study examines long run relationship between economic growth, manufacturing output and export in Nigeria. What short run impact does manufacturing output and export have on economic growth in Nigeria from 1981 and 2016. The study hypothesized the interplay of some economic variables including Gross domestic product, Manufacturing output, Export, Inflation, Labour force and credit to private sectors. Owing to the fact that Nigeria economy has been marred by periodic booms and recession as reflected in her unsteady and unsustainable economic growth rate.The study in view of role of manufacturing sub-sector and export in determining economic growth in Nigeria aim to investigate whether these factors are significant and if they are significant it means that the variables have a positive impact on economic growth in Nigeria. In executing the study unit root which is done using Augmented Dickey Fuller (ADF), error correcting mechanism and also co-integration test is done using Johansen and Engel co-integration test in testing the long-run relationship between variables. It was observed from my empirical research using time series data from the Nigeria Economy shows that manufacturing output and export does not have short run significant impact on economic growth in Nigeria. A major policy implication of our findings is that effort should be made by policy makers to come tax reduction and try to partner with private and manufacturing sector in order to increase their output in Nigeria.
CHAPTER ONE: INTRODUCTION
1.1 Background to the study
According to Zulily (2014), economic growth refers to an increase in the output that an economy produces over a period of time. The achievement of economic growth is an important macroeconomic objective in all countries whether developed or developing. Rapid industrial development has been the main focus of economic growth because of its potential benefits. Adegbie and Adeniji (2014) opined that manufacturing and industrialization tends to propel economic growth and quicken the achievement of structural transformation and diversification of economies. According to Central Bank of Nigeria, before independence in 1960, the Nigerian economy was mainly agrarian both in production for domestic consumption and exports. Early manufacturing activities predating independence were limited to semi-processing of primary agricultural products as adjuncts to the trading activities of foreign companies. The agro-based manufacturing units that were established included vegetable oil extraction and refining plants, starch making, tobacco processing, pottery, raffia crafts, mat making, sew milling then followed by textiles, breweries, cement, rubber processing and plastic products (Dikko, 2005).
In post-independence, Nigeria witnessed national development plans, which provided the conceptual framework for the development objectives, strategies for industrialization, government participation in the process of industrialization, and the fiscal and related policies for influencing industrial development to stimulate exports. Before 1972, as further analyzed by Central Bank of Nigeria (2006), Nigeria economy was dominated by direct foreign investment capital. The second development plan of the Federal Government promoted Indigenous participation in industrial activities which became one of the prominent policy instruments designed to encourage industrial development. Nigeria’s manufacturing sub-sector is composed of a wide range of industrial activities which include large to medium and small scale manufacturing enterprises.
The factors that influenced the structural changes and performance of the manufacturing sub sector since independence include government intervention, low technological development, inward-looking strategy, and protectionism. The main objectives set by the industrial planners in Nigeria include the desire to achieve increase in the share of manufacturing, contribution to the Gross Domestic Product (GDP), replacement of imports with locally produced goods, innovations, stimulation of export, industrial disposal and employment generation. The high import dependency was more pronounced in the heavy capital intensive industrial sub-groups, Steady output growth average 11percent in the 1970’s, while its share in GDP increased from 5.4percent in 1977/78 to a peak of 13percent in 1982.In 2000 the growth rate has declined to 0.6percent. The CBN (2006) report reflected a growth rate of 1.8%
The overall manufacturing capacity utilization which fluctuated between 70 and 75 percent between 1975 to 1980 as a result of the over-valued naira and substantial supply of imported raw material dropped to 37percent in 1985, recorded 45percent in 2005 and declined by 3.3percentage point in 2006.The sectors’ share in the gross domestic product fell persistently from 9.2 percent in 1981-85 to 8.3percent for period 1986-90, 7.5percent in 1991-95 and 6.3percent in 1996-98. CBN (2005) report on sectorial share in GDP recorded unimpressive growth in the industrial sector where manufacturing industry belongs. Agriculture 4.2percent, services 15percent, wholesale trade and retail trade 14percent building and construction 1percent and industry 28percent.
The substantial devaluation of the naira during 1986-88 led to escalation of costs of imported inputs. The restrictive monetary policies of 1986 and 1987 reduced credit to the productive/ manufacturing sector and seriously hampered growth in effective demand for finished products. The rising costs of imports and private generation of electricity and other vital infrastructures to sustain production processes resulted in high cost of production, increase in product prices, and consequent low-consumer demand. The sector becomes a high risk for lending to banks. Arising from these developments, the manufacturing sub-sector which was expected to achieve 15percent value added contribution to GDP, registered dismal percentage.
1.2 Statement of the problem
The manufacturing sector which is expected to contribute an average of 15percent added contribution to the Gross Domestic Product (GDP), thus serving as the major source of growth registered dismal performance in recent past. Export has fallen dramatically by about 45percent in 2016. These negative trends in the performance of manufacturing production indicate falling productivity. Its stunted growth constrained the capacity of the reform process to pull the economy out of recession. In addition, capacity utilization low rate makes it difficult for profitable operations. It is not encouraging when it is recognized that over 48% of the nation’s foreign exchange earnings is allocated to a sub-sector that contributes only about 6percent of the GDP.
Secondly, some recent empirical studies reveal mixed results in the relationship between exports and economic growth in Nigeria (Omisakin 2009). The huge oil earnings since 1960 put at about $300 billion has not translated to meaningful economic growth and development but regrettably contributed to the neglect of the agricultural sector which provided the bulk of foreign exchange earnings before oil was discovered, thus making Nigeria a classic illustration of the Dutch Disease phenomenon.
Thirdly, the economic problem and difficulties of the early 1980s led to the implementation of the structural adjustment programme in 1986 which aimed at among others to diversify the export base and promote non-oil exports so as to reduce the reliance on oil earnings, an objective that has remained elusive till today. There is no doubt that various governments in Nigeria recognize the strategic role of exports in achieving economic growth and development, and have made conscious effort to create a strong export base for the Nigerian economy but all attempts regrettably seem to have failed.
1.3 Research Questions
The following research questions therefore become pertinent in view of the analyzed problems.
- Is there a long run relationship between economic growth, export and manufacturing output in Nigeria?
- What short run impact does export have on economic growth?
- What short run impact does manufacturing output have on economic growth?
1.4 Research Objectives
The broad objective of this study is to evaluate the impact of manufacturing output which is the real productive sector of the economy, so as to overcome the various problems confronting the output, enhance exports and take it as major contributor to the Gross Domestic Product, and also produce for economic needs of the nation.
The following other objectives will however be concentrated on to accomplish the task:
- To investigate if there’s a long-run relationship between Economic growth, export and manufacturing output in Nigeria.
- To evaluate the short-run impact of export on Economic Growth.
iii. To determine the short-run impact of manufacturing output on economic Growth.
1.5 Research Hypotheses
The following hypotheses stated in null and alternative forms were tested to show the accuracy of the discoveries of the research:
- H0: There is no long run significant relationship between economic growth, export and manufacturing output in Nigeria.
H1: There is a long run significant relationship between economic growth, export and manufacturing output in Nigeria.
- HO: Export has no short run significant impact on economic growth in Nigeria.
H1: Export has a short run significant impact on economic growth in Nigeria
- HO: Manufacturing output has no short run significant impact on economic growth in Nigeria.
H1: Manufacturing output has a significant impact in Nigeria.
1.6 Significance of the Study
This study investigates the role of manufacturing sub-sector and export in determining economic growth in Nigeria. Therefore its successful completion will be of great importance to both individuals, corporate bodies and governments.
It provides information to government about the contribution of the manufacturing sub-sector so far in the country. It gives big insight into prescriptions and methods of implementation of economic policies. It also provides possible solution for government on how to boost the activities of the sector so as to stimulate economic growth and development.
Corporate bodies, manufacturing companies and other market dealers also stand to benefit from this work as it gives an insight into the effects of the non-efficient performance of these bodies on the overall Nigerian economy and what the economy suffers if there exists malpractices within the system.
Other individuals such as students of economics and finance, researchers in related disciplines and general knowledge seekers will also benefit from this work as it serves as a source of reliable and timely information for further research into the area of economic development.
1.7 Scope and Limitations of the Study
This study examines the role of manufacturing sub-sector and export in determining economic growth in Nigeria. For the purpose of this study, the researcher considers the time periods from 1981 to 2016 (35 years) in order to get a better judgment as to the subject matter in most recent years in Nigeria. The choice of the period is that it combines both the period of high oil prices 2008 – 2013 and the crash of oil market 2013 till present which shaped the image of Nigerian export statistics and overall Gross Domestic Product. The variables considered in the analysis are Gross Domestic Product, Manufacturing output, Export, Inflation, Labour force and credit to private sectors.
The limitations encountered in the study include difficulty in obtaining data on some other relevant variables, finance to facilitate it write up, and time constraint.
1.8 Organization of the Study
Following the introduction, the rest of the paper is sectionalized as follows: Chapter two presents the literature review focusing on empirical findings on the links between manufacturing sub-sector, exports and economic growth. Chapter three deals with the description of the data and method used for the research, Chapter four reports and discuss the analysis and discussions of findings. While five presents the summary and policy implication of findings.
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