ABSTRACT
This research focused on the role of industrialization on economic growth of Nigeria (1987-2015). In carrying out the research, the time series data were obtained from the Central Bank of Nigeria statistical Bulletin for the macro-economic variables; Gross Domestic Product as dependent variable and industrial output, foreign direct investment and interest rate as independent variable. Data analysis was done using the Ordinary Least Square technique. The study revealed that at 5% level of significance, industrial output has a positive significant impact on Gross Domestic Product in Nigeria. Similarly, the study also revealed that at 5% level of significance, foreign direct investment has a significant impact on Gross Domestic Product in Nigeria. On the other hand, interest rate has no significant impact on Gross Domestic Product in Nigeria. The following recommendations are being made. First government should provide loan and incentives to industrialists to promote industrial activities in other to increase industrial output. Secondly, government should create an enabling environment in order to attract foreign direct investment and finally, the deregulation or liberalization of interest rate should be pursued to a local conclusion, so that loan can be made available to prospective investors at a reduced rate of interest which will further encourage them to invest in the industrial sector of the economy.
CHAPTER ONE
INTRODUCTION
- BACKGROUND OF THE STUDY
There is no gain saying the fact that every economy of the world tries to achieve a maximum level of economic growth and development. The ultimate goal of economic growth and development is to raise the level of Gross Domestic Product (GDP) and the standard of living in the society. It is because of this that the term has become a key one to all countries most especially developing ones like Nigeria (Onwumere, 2006).
The process of achieving economic growth and development involves a number of approaches, one of which the adoption of an industrialization strategy at a point in time relevant to the prevailing needs of development. Economic development involves not only the meeting of basic needs among several others, but also includes the development of different sectors of an economy that provides the necessary goods and services. in this way, therefore industrialization, economic growth and development are said to be interwoven, in the sense that industrialization brings development which leads to an increase in Gross Domestic Product (GDP).
Industrialization no doubt is a process of transforming raw material with the aid of human resources and capital goods into:
- Consumer Goods
- New capital goods which permits more consumers good to be produced with same human resources.
- Social overheads, capital, which together with human resources provide new services to both individual and business (Zuvokas, 1779). In a very board sense, the composition of industry includes manufacturing and such related sectors as mining and public utilities and in some cases constructions. However, in many developing countries including Nigeria, any talk of industrialization (or the industrial sector) is more or less reference to manufacturing.
The major objective of industrialization is to increase the level of employment opportunities, capacity utilization and GDP, reducing poverty and improving the standard of living of the people in Nigeria. However, industrialization is generally accepted as the process of ensuring growth in the modern world and increasing welfare. But as it were, the patterns of industrialization or industrial policies of most African countries have not been conducive to the development of their overall economics. This therefore accounts for low standard of living of most African countries (Ogbonna, 2004).
Industrialization in a country usually have a positive impact as it encourages increase in the use of country’s resources towards production of goods, employment of labour, provision of foreign exchange, technological acquisition, including agricultural production, aiding the process of economic self-reliance. The Nigeria government has instituted various policies and decree aimed at encouraging industrialization, obviously, in 1986; Nigeria introduced the structural adjustment programme (SAP) with the aim of rationalizing and restructuring of the tarrif regime, in other to aid the promoting of industrial diversification (Anyanwu, 1993:248).
Also in 1995, the Nigerian investment promotion commission (NIPC) was established through decree No.16 of 1995 to encourage investment in Nigeria. This increased the level of industrialization in Nigeria. Other decrees include:
The industrial development coordination committee (IDCC) decrees No.36 of 1988 and the Nigeria enterprises promotion decree (NEPD) of 1972 as amended in 1977 and 1999 which hitherto reserved for Nigerians the ownership of certain businesses.
The operation of the autonomous foreign exchange market as provided for in the decree, also aimed at encouraging industrialization in Nigeria. Furthermore, privatization which is the transfer of government owned enterprise such as manufacturing, agricultural and public utility to the private individuals are also aimed at encouraging industrialization in Nigeria.
Consequently, the 2005 recapitalization policy of the financial sector in Nigeria during the regime of former president, Chief Olusegun Obasanjo is also aimed to encourage industrialization in the country.
Actually, the essence of adoption of strategies that promotes industrialization is not for fun, rather to enhance the production of goods and services. Industrialization is seen as a major propelling force for economic growth and development and so apart from playing tremendous role in enhancing capacity utilization and employment opportunities, it also help in productive capacity of the economy and this has been seen as a strategy that will save Africa and Nigeria in particular from the obnoxious effect of the recent world economic crunch.
- STATEMENT OF PROBLEM
The need for industrialization has become one of the problems facing Nigeria, notwithstanding that industrialization can lead to economic development, creation of employment opportunities, increase in productivity and increase in foreign exchange.
Insufficient capital is one of the reasons Nigerian economy is termed under-developed or developing. Huge amount of capital is needed for industrial development because it is a capital project that needs both labour intensive and capital intensive in abundance. When such funds are made available for industrialization, and it is not properly utilized, it tends to create problems in the economy.
Presently in Nigeria here are sources of finance specified by the government but inspite of these, many industries have collapsed while a good number are making effort to survive. The industrial sector encounters the problem of low price elasticity of export and lack of comparative advantage.
The absences of an indigenous entrepreneurship class coupled with other problems of Multinational Corporation affect the structure and influence the nature of scientific and technological labour for national development. The provision of finance for industries is generally problematic worldwide and is therefore not specific to a developing countrylike Nigeria.
- OBJECTIVE OF THE STUDY
The objective of this study includes:
- To ascertain whether or not industrialization has any significant impact on economic growth of Nigeria.
- To assess the role of foreign direct investment in the growth of industrial sector in Nigeria.
- To examine the impact of interest rate in the growth of gross domestic product (GDP) in Nigeria.
- REASEARCH QUESTION
The following research questions are examined in this research.
- Does industrial output contribute to economic growth in Nigeria?
- Has foreign direct investment contribute to the growth of industrial sector in Nigeria.
- What are the effects of the current high interest rate to the gross domestic product of Nigeria?
- RESEARCH HYPOTHESIS
In this research, the following hypotheses are stated:
HO1: there is no significant relationship between industrial sector and GDP in Nigeria.
HO2: foreign direct investment is not statistically significant to the growth of industrial sector.
HO3: there is no significant relationship between interest rate and GDP in Nigeria.
- SIGNIFICANCE OF THE STUDY
The significance of this study lies on the fact that it exposed the extent to which industrialization has contributed to economic growth in Nigeria. It highlights some obstacle hindering Nigeria from becoming an industrialized nation.
The work is relevant to entrepreneurs and to government by directing them on the easiest means to embarking on an industrial development plan. It helps in establishing the relevance of industrialization in order to uplift the economy. This study revealed that the industrial sector isnecessary for economic growth and development in Nigeria.
To the academia, the findings of this research contribute to the available literature on the current scenario of industrial sector in Nigeria and its level of contribution to the GDP.
- SCOPE OF THE STUDY
In analyzing the role of industrial sector of the Nigeria economic growth, we are going to limit ourselves to growth rates. Hence we are going to take an approach of considering the relationship between the growth rate of the GDP and that of the industrial sector.
The industrial sector in this research work was limited to the manufacturing sector, and the growth rate would be used for our data analysis. The period between 1987-2015 will be the main time frame of our research.
- LIMITATION OF STUDY
This research faces a number of constraints in the course of carrying it out. They are:
- Limited time under which the research is carried out coupled with the normal semester work that must be done.
- High financial cost which manifest in travelling and visiting someuniversities, public libraries, cost of procuring stationaries, typing, considering the present high cost of living.
- ORGANIZATION OF THE STUDY
This research is organized in five chapters.
Chapter one (1) is general introduction and contains the background of the study, research questions, research hypothesis, scope and limitations of study, organization of the study, definitions of terms and references.
Chapter two (2) deals with the literature review, theoretical literature review and empirical literature review.
Chapter three (3) deals with the research methodology which consist of research design, model specification, sources of data for the study, and method of evaluation.
Chapter four (4) consists of data presentation, analysis of data, interpretation and discussion of findings.
While chapter five (5) consists of, summary of finding, conclusion, recommendation and references.
- DEFINITIONS OFTERMS
- Industrialization: This is the process of transforming raw material to produce capital and consumer goods.
- Economic development: This is the process by which a nation improves the political and social wellbeing of the people.
- Economic growth: This is the increase in the amount of goods and services produced in an economy over a long period of time.
- Capacity utilization: This refers to the extent to which an enterprise ornation actually uses its installed production capacity.
- Gross Domestic Product (GDP): It is the total value of all goods and services produced by a country in one year.
