This research work on the manufacturing sector development and importation effect on Nigerian economy examines econometrically the impact of manufacturing sector and importation effect on economic growth in Nigeria using a time series data from the period of 1981 to 2016. It assesses the effect of manufacturing output (mangdp), investment (inv), government expenditure (gov.exp),(imp),importation and money supply (ms) on log of real gross domestic product (lrgdp). Appropriate multiple regression models is specified with parameters, which are estimated using the ordinary least square (OLS) technique. Test of hypothesis is carried out and the result shows in the period under review, manufacturing output has a positive impact on economic growth in Nigeria. However, the impact is statistically insignificant. The study found that imports has a positive and statistically significant impact on economic growth in Nigeria .Government expenditure and money supply has no statistically significant impact on economic growth in Nigeria. Finally, the study recommends that more efforts should be geared towards increasing the availability of credits to the manufacturing sector as well as to creating the necessary infrastructure that will allow the sector to thrive.
1.1Background tothe Study
The manufacturing sector plays a significant role in economic development. Industrialization acts as a catalyst that accelerates the pace of structural transformation and diversification of economic, enable a country to fully utilize its factor endowment and to depend less on foreign supply of finished goods or raw materials for its economic growth, development and sustainability. Industrialization which is a deliberate and sustained application and combination of an appropriate technology, infrastructure managerial expertise and other important resources has attracted considerable interest in development economies in recent times. (Okafor, 2005) Exchange rate in Nigeria witnessed a radical change from the long operated fixed system between the 1960s and the first half of the 1980s. It shifted dramatically from the second half of 1986 to a flexible regime when the structural adjustment programmes (SAP) began. Since the move to liberalized system, the economy witnessed series of changes that have substantially affected the trend and stability of the rate.In other words, in Nigeria, it has always been realized that economic development requires growth with structural change. In considering the Nigerian economic development experiences therefore, it is instrumental to examine the growth and structural change in certain major aspects of the economy (Ajakaye, 2002). Productivity is higher in the manufacturing sector than in the agricultural sector. The transfer of resources from agriculture to manufacturing provides a structural change bonus. We have examined sectoral productivity levels in 19 Latin American and Asian economies and found that between 1950 and 2005, value added in manufacturing was consistently much higher than in agriculture (Szirmai, 2008). A puzzling finding was that in postwar Latin America, value added per worker in services was higher than in manufacturing. This suggests that the structural change bonus for services might have been even higher than that manufacturing exceeded those in services. The structural change bonus argument focuses on the dynamics of sectors. Manufacturing is assumed to be more dynamic than other sectors. A transfer of productive resources to more dynamic sectors contributes to growth. Here the evidence turned out to be somewhat mixed (Szirmai, 2008). Between 1950 and 1973, productivity growth in manufacturing was indeed much higher than in agriculture. But after 1973, this was reversed. As in the advanced economies, productivity growth in agriculture in developing countries tends to be higher than in manufacturing. In terms of output growth, manufacturing continues to outperform agriculture in both advanced and developing economies, because the share of manufacturing in the total economy is shrinking everywhere. The macro and micro studies on manufacturing enterprises were carried out to establish the consequences of trade liberalization for the industrial sector in African countries. Contemporary economies are largely characterized by inter—border trade. This is made possible by differences in the factor endowment of each economy as postulated by the popular theories of comparative analysis and absolute advantages. When industrialization is compared to agriculture, the argument runs that the manufacturing sector offered special opportunities for capital accumulation. Capital accumulation can be more easily realized in spatially concentrated manufacturing than in spatially dispersed agriculture. This is one of the reasons why the emergence of manufacturing has been so important in growth and development. Sectoral capital stock estimates for developing countries are still scarce, but what data there are indicate that after 1950 manufacturing is indeed far more capital intensive than other sectors (Szirmai, 2008).
Endogenous growth models emphasize two important mechanisms through which the participation in international trade can raise the long-term growth rate of countries. First, trade enables the use of better (Aghion and Howitt 1992) and larger (Romer 1987) variety of intermediate products and capital equipments. Second, trade plays an important role as a transmission channel for knowledge spillovers across countries (e.g., Grossman andHelpman 1991, Coe and Helpman 1995, Coe et al, 1997, Keller 2000, 2004). Countries that use imported intermediate products and capital equipments derive benefits because these products embody foreign knowledge. Spillovers arise in this process of knowledge diffusion to the extent the imported products cost less than its opportunity costs –including the R&D costs to develop the products. Further, import might facilitate learning about the products (for example, reverse engineering), spurring imitation or innovation of competing products. Also, trade relationships stimulate personal interaction and other channels of communication leading to cross border learning of production methods, product design, organizational methods, and market conditions. Thus, countries import new goods first, then produce them by themselves, and eventually export them(Chuang, 1998).The extent of trade-induced knowledge spillovers, however, crucially depends upon the tangible and intangible knowledge stock of the trading partners and the learning potential of the traded goods. Acemoglu and Zillibotti (1999) advance a theoretical explanation Empirical analysis by Broda, Greenfield and Weinstein (2006) shows that imported varieties account for15% of productivity growth in a typical country in the world, while the effects are larger in the developing countries. See Feenstra (2004) for references to and discussion of the previous studies that show positive correlation between product variety and economic growth. for the wide variation in knowledge stock across countries. They argue that societies accumulate knowledge by repeating certain tasks and that the scarcity of capital restricts the repetition of various activities. Richer societies, therefore, tend to accumulate more knowledge compared to the poorer societies, which provides the former with a comparative advantage in knowledge-intensive/higher productivity products.
1.2 Statement of the Problem
The Nigerian manufacturing sector is sick. The productive sector is in a crisis as its average contribution to the nation’s Gross Domestic Product over the past few years has not gone beyond 5%. Many years of neglect and maladministration on the part of successive military and civilian governments, coupled with corruption and indiscriminate policy reversals have all conspired to render the manufacturing sector ineffective in terms of productivity. Governments after governments have failed to pursue policies that could create a vibrant real sector with the result that the impact of the manufacturing sector has steadily declined over the years and its contribution to national growth and development has been disappointingly low (Banmijoko, 2001).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. High interest rates, Unpredictable government policies, on-implementation of existing policies, Lack of effective regulatory agencies, Infrastructural inadequacies, Dumping of cheap produce, Unfair tariff regime, Low patronage are some of the challenges faced by the manufacturing sector in Nigeria.However,all these constraints state above constitute a major which provoked the essence of this study. Thus, it is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector and importation effect in the Nigerian economy.
1.3 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?
2.What is the impact of importation on economic growth in Nigeria
1.4 Objectives of the study
The broad objective of this study is to appraise critically, the role of the manufacturing sector and critically examine the effect of importation on the 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 investigate the impact of importation on economic growth in Nigeria
1.5 Statement of research hypothesis
H01: Manufacturing output has no significant impactwhatsoever on economic growth in Nigeria
H02: Imports has no significant impact on economic growth in Nigeria
1.6 Significance of the study
This study on the impact of manufacturing sector development on economic growth inNigeria 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 to policy 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 and importation effect 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 2016 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.
(ii) 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.
(iii) Trade Liberalization: This is the elimination of non-tariff barriers to imports, the rationalization and reduction of tariffs, the institution of market determined exchange rates and the removal of fiscal disincentives and regulatory deterrents to exports.
(iv). 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.
(v) 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 liberalization, and deregulation of credit policy and the introduction of the Foreign Exchange Market
(vi).Importation: The word ‘importation’ commonly refers to the bringing of goods into a customs territory. However this term is not used to describe the customs procedure relating to the clearance of goods brought into the customs territory of the Community.
The procedure allowing third country goods to circulate freely throughout the Community in the same way as goods made in the Community is called release for free circulation.
From a customs point of view the release for free circulation changes the status of non-Community goods to Community goods and entails the completion of all formalities laid down for importation.