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IMPACT OF INDUSTRIAL OUTPUT ON THE ECONOMY OF NIGERIA

 Format: MS WORD   Chapters: 1-5

 Pages: 68   Attributes: COMPREHENSIVE RESEARCH

 Amount: 3,000

 Feb 19, 2020 |  10:53 pm |  1164

CHAPTER ONE

INTRODUCTION

 

1.0     Background to the Study

The overriding objective of industrial policy is to accelerate the pace of industrial development by radically increasing value-added at every stage of the value chain. Nigeria’s resources will no longer, in the main be traded in their primary state. The government will emphasize increases in Total Factor Productivity (TFP) by pursuing knowledge, skill and intensive production on the basis of available best practices. Nigeria’s Industrial Development Strategy will encourage forward and backward linkages within a few chosen niches (Iwuagwu, 2011). Government will continue to provide the enabling environment for private sector leadership, facilitate renewal for sunset industries, and encourage innovators (Djeudo, 2013). 

Industries are very important in a developing country like Nigeria because their marginal revenue products of labour are higher than the marginal revenue product of labour in the agricultural sector. Thus, the releasing of labour force from the agricultural sector to the industrial sector increases the marginal product of labour in the agricultural sector and increases the overall revenue and output of the society (economic-growth). Therefore, industrialization is a sin qua non for sustainable economic growth in Nigeria and it is what the present regime needs to achieve its change agenda. The tendency of the industrial sector to stimulate more economic growth has prompted many economists to formulate theories to encourage industrialization.Famous among the early theories formulated are: Leibenstein’s theory of critical minimum effort thesis (Leibensein, 1957); Nelson’s theory of low equilibrium trap; Rosenstein-Rodan’s theory of the big push(Rosenstein–Rodan, 1943); the doctrine of balance growth; Hischman’sdoctrine of unbalance growth (Hirschman, 1958); the import substitution strategy; and export promotion strategy. Over time, the influences of these theories on policy decisions have been varied. To examine the impact of industrialization in Nigeria, the study hypothesis that industrialization does not stimulate economic growth in Nigeria. 

More often than not, people commonly speak or argue that the Nigerian economy has myriad or hydra-headed economic problems. This means that people clearly observe the macroeconomic instability in Nigeria. Despite all efforts, since October 1960 the level of industrialization has remained very low, even with her oil wealth (Uzochukwu, 2008). This has been the situation notwithstanding the varied strategies that has been put to use overtime for its industrialization (Uzochukwu, 2008). Even though the economy was adjudged to be fairly good it, however, fluctuated because the real Gross Domestic Product (RGDP) was unstable (Central Bank of Nigeria, 2011). Also, other economic indicators such as industrial output, foreign direct investment, interest rate, foreign exchange rate and inflation rate show some symptoms of the ailing economy. It is against this background that this research is carried out to find monetary and fiscal policy in Nigeria that is effective in economic growth and stability.

Industry plays a very important role in building any economy. Highly industrialized countries are developed economies. Industrialization grows an economy, creates goods and services, provides jobs and incomes, increases the standard of living, and provides a healthy population. In defining the industrial sector, it is seen to be a section of the economy which consists of the manufacturing that provides goods and services and the structure of any economy should be one which has industry playing a dominant role in its composition.

The sustainable development goals (SDGs) are a new universal goals and targets which were initiated in 2015. The SDGs followed and expanded on the Millennium Development Goals (MDGs), and as explained by Ford (2015) the need for another set of goal emanated when no mention of human rights and economic development were specifically addressed by the MDGs. As the MDGs applied to countries, in reality they were targets for poor countries to achieve, with finance from wealthy states. SDGs set to end poverty; protect the planet and ensure prosperity for all through 17 goals. Two of the goals identified with this study are to promote inclusive and sustainable economic growth, employment and decent work for all; and, to build resilient infrastructure, promote sustainable industrialization and foster innovation.

Globally unemployment is on the increase and poverty levels are also on the increase. The emphasis for investment arises so that employment can be created and poverty levels reduced. Similarly, industrialization is a key to revenue generation, wealth creation and poverty eradication. It therefore becomes important to build the infrastructure that will make industry operate and bring about the needed economic growth.

The structure of the Nigerian economy is one which was dominated by the oil and gas sector followed by agriculture and then industry occupying the least position. The dominance of oil and gas sector brought about over 80% revenue to the country, making it to be the driver of the economy, leading to neglect in agriculture and decline in industry. Chete, Adeoti and Ogundele (2016) explain the structure of the Nigerian economy to be one driven by the oil and gas sector accounting for 95% of export earnings and 85% of government revenue between 2011 and 2012, with the industrial sector consisting of mining, manufacturing and services accounting for a tiny portion of 10% of the economy.

The Nigerian economic indicators showed that Gross Domestic Product (GDP) growth rate in 2017 was 3.23% and annual GDP growth rate was 0.55%. GDP at constant prices was N16,450,433 million, GDP was 405USD billion, GDP per capita was 2,458 USD, and gross fixed capital formation was N2,380,380 million. Unemployment rate was 14.2%, inflation rate was 15.98%, interest rates was 14%, government debt to GDP was 18.6%, balance of trade stood at N150,317 million and GDP from the manufacturing sector was N1,529,173 million (Trading Economics, 2017).

The industrial sector is expected to contribute to the economic growth of any country. The output created by the sector is expected to create jobs, incomes, wealth, and contribute to the standard of living of the populace. The industrial sector therefore creates productivity, profitability; investment and growth. Industrial output, total savings by Government, foreign direct investment and inflation are therefore viewed as the components of the industrial sector which are expected to contribute to economic growth. Yua, Dosia, Grazzic and Lei (2017) inform on another view that improved macroeconomic policies, and increased domestic demand and shift from capital, labour and entrepreneurship into the industrial sector, contributed to economic growth of Africa.


1.1     Statement of Research Problem

Adofu, Taiga & Tijani (2015) expressed that economic growth in Nigeria is affected adversely due to prolonged economic recession caused by a fall in the world oil market in the early 1980s alongside the sharp decline in the foreign exchange earnings. Consequently, the economy suffered series of problems ranging from excessive dependence on import for consumption and input materials, socio-economic infrastructure decay, capacity under-utilization in the industrial sector, poor management strategies and institutional framework, and agricultural sector neglect which used to be the economic base of the Nigerian economy and so on. As a result, the economy has remained undiversified with a decreased in incomes and standard of living of the people.

The problem before the study is despite the attempts to grow the Nigerian economy through the various programmes initiated by Government, not much progress has been recorded with the industrial sector contribution to economic growth. Many researches were made in countries and regions like Ethiopia (Wakeford, Gebreeyesus, Ginbo, Yimer, Manzambi, Okereke, Black, & Mulugetta, 2017),Sub-Saharan Africa (Rekiso, 2017), developing countries (Szirmai, 2012), South Africa (Morris & Fessehaie, 2014) and China (Yua, Dosia, Grazzic & Lei, 2017), few have been conducted on the Nigerian economy. The study intends to address this gap and investigate the industrial sector on economic growth in Nigeria by improving the literature and give an up to date analysis on industrial sector and economic growth in Nigeria. Morris and Fessehaie (2014) argued for commodities-based industrialization strategy and opined that economies of African countries have always been targeted toward economic growth where exports are encouraged to foster the needed economic growth which will lead to industrialization. This has not been possible and it becomes important to investigate how industrialization can foster economic growth.

There have been considerable studies that are carried on the impact of industry on economic growth where scholars used several variables of economy as a unit of analysis (see Adugna, 2014; Rioba, 2014; Inakwu, 2013; Obamuyi, Edun, Kayode, 2012; Szirmai and Verspagen, 2011; Awad, 2010; Elhiraika, 2008; Mahdavi and Fatemi, 2007; Libanio, 2006). Although, as revealed by Adugna (2014), Rioba (2014), Inakwu (2013), Szirmai et al (2011), Elhiraika (2008), Mahdavi et al (2007), and Libanio (2006) respectively that industry has a positive and significant impact on economic growth but only Inakwu (2013) explored the Nigeria’s case. Obamuyi (2012) posit that the relationship between industrial and economic growth cannot be establish during the period of the study. The higher growth of the industry can have multiple effect on the national economy. Based on the findings of Awad (2010), The industrial output has a significant impact on economic growth in the long-run but has no significant impact on economic growth in the short-run.

1.2     Research Questions

This study intends to find answer to the following questions:

1.    In what ways can industrial output have an effect on economic growth?

2.    To what extent is foreign direct investment having an effect on economic growth?

1.3             Objectives of the Study

The main objective of this study is to assess the impact of the industrial output on economic growth in Nigeria. The specific objectives are:

1.    To examine the impact of industrial output on economic growth in Nigeria

2.    To investigate the impact of foreign direct investment on economic growth in Nigeria.

1.4     Hypotheses of the Study

In order to achieve the objectives of the study and provide answers to the questions raised, the following hypotheses have been stated in full form.

H01:

Industrial output has no effect on economic growth in Nigeria

H02:

Foreign Direct Investment has no effect on economic growth in Nigeria

 

1.5     Significance of the Study

The significance of this study is the ability to draw a relationship between industrial output and economic growth in Nigeria. Whether industrial output have significant impact on Nigeria’s economic growth and development. Again, this research will be of immense value to the different sectors of the economy (both public and private).

This study would be of immense help to the government, fiscal authority, monetary authority, individuals, economists, students, planners, financial analysts, stock brokers and others who might be interested in researching into the field in the future, by shedding more light into the widely held view about the relationship between manufacturing industries and economic growth.

1.6     Scope of the Study

This study evaluates the impact of the industrial output on economic growth in Nigeria. The analysis of the contribution of the manufacturing industries to the economic growth of Nigeria will be restricted to the period from 1988 to 2018 using relevant performance indicators such as index of manufacturing, sector’s contribution to the Gross Domestic Product (GDP) and other control variables.

The empirical analysis and estimation cover the period between 1988 and 2018. This restriction is unavoidable because of the non-availability of some data. The data for this study would be obtained mainly from secondary sources; particularly from Central Bank of Nigeria (CBN) publications such as the CBN Statistical Bulletin, CBN Annual Reports and Statements of Accounts, and National Bureau of Statistics publications.

1.7     Organization of Chapters

This study will be structured as follows: the chapter one contains the general background of the study, statement of problem, research questions, and objectives of the study, statement of hypothesis, significance of the study, scope of the study and organization of chapters. Chapter two contains literature review, empirical studies, gaps in the literature and theoretical frame that underpins the study. Chapter three presents the research methodology, research design, population of the study, sources of data, sample of the study, techniques of data analysis data accuracy and reliability and model specifications. Chapter four of focuses on data presentation and analysis, while the last chapter which is chapter five contains summary, conclusion, recommendations and suggestion for further research.

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