Assessment Of The Impact Of Manufacturing Sector On Economic Growth
The manufacturing sector plays a pivotal role in driving economic growth by fostering innovation, creating employment opportunities, and stimulating overall productivity. Its impact on economic growth is profound and multifaceted, contributing significantly to a nation’s GDP and export earnings. By investing in advanced technologies and enhancing production efficiency, the manufacturing sector boosts competitiveness in global markets, thereby attracting foreign investments and promoting industrial development. Moreover, the sector’s interconnectedness with other industries, such as transportation and logistics, amplifies its ripple effect on the economy. A thriving manufacturing base not only generates wealth but also facilitates skill development and knowledge transfer, empowering local communities and fostering sustainable development. Thus, optimizing policies to support and leverage the manufacturing sector’s strengths is crucial for fostering long-term economic growth and resilience.
This research work examines econometrically the impact of manufacturing sector on economic growth in Nigeria, from 1981 to 2010. It assesses the effect of manufacturing output (mangdp), investment (inv), government expenditure (govexp) and money supply (m2) on log of real gross domestic product (lrgdp). Appropriate multiple regression model is specified with parameters, which are estimated using the ordinary least square (OLS) technique. Test of hypothesis is carried out and the result shows a positive and significant relationship between manufacturing output and economic growth in Nigeria within the period under investigation. Among other recommendations the study opines that manufacturing outfits should be encouraged by the government through policy packages such as tax holiday and other helpful concessions in order to enhance manufacturing output in the country.
Title page
Certification
Approval page
Acknowledgement
Abstract
CHAPTER ONE
1.0 INTRODUCTION
1.1 background of the study
1.2 statement of problem
1.3 objectives of the study
1.4 research questions
1.5 statement of research hypothesis
1.6 significance of the study
1.7 scope of the study
1.8 definition of terms
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
2.2 Role of Manufacturing Sector in an Economy
2.3 Review of Productivity
2.4 Structure of Nigerian Manufacturing Sector
2.5 Evaluation of the Performance of Nigerian Manufacturing Sector
2.6 Overview of Nigerian Industrial Policy
2.7 Theoretical Framework
2.8 The Problems of Capacity utilization in Economic Growth
2.9 Empirical review
CHAPTER THREE
3.0 REASEARCH METHODOLOGY
3.1 Introduction
3.2 Re- Statement of Research Questions
3.3 Re- Statement of Research Hypothesis
3.4 Research design
3.5 Sources of Data
3.6 Data Analysis Technique
3.7 Model Specification
3.8 A’ Priori Expectation
CHAPTER FOUR
4.0 PRESENATION AND ANALYSIS OF REGRESSION RESULT
4.1 Presentation of regression of regression result
4.2 Interpretation of regression result
4.2.1. Econometric A’priori Test
4.2.2. Statistical Tests
4.2.3. Evaluation Based On Econometric Criteria
CHAPTER FIVE
5.0 SUMMARY,RECOMENDATION AND CONCLUSION
5.1 Summary of findings
5.2 Recommendation
5.3 Conclusion
Bibliography
Appendix
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Prolonged economic recession occasioned by the collapse of the world oil market from the early 1980s and the attendant sharp fall in foreign exchange earnings have adversely affected economic growth and development in Nigeria. Other problems of the economy include excessive dependence on imports for both consumption and capital goods, dysfunctional social and economic infrastructure, unprecedented fall in capacity utilization rate in industry and neglect of the agricultural sector, among others (Ku et al, 2010; Adesina, 1992). These have resulted in fallen incomes and devalued standards of living amongst Nigerians.
Although the structural adjustment programme (SAP) was introduced in 1986 to address these problems, no notable improvement took place. From a middle income nation in the 1970s and early 1980s, Nigeria is today among the 30 poorest nations in the world. Putting the country back on the path of recovery and growth will require urgently rebuilding deteriorated infrastructure and making more goods and services available to the citizenry at affordable prices. This would imply a quantum leap in output of goods and services.
The path to economic recovery and growth may require increasing production inputs – land, labour, capital and technology – and or increasing their productivity (Kayode and Teriba, 1977). Increasing productivity should be the focus because many other countries that have found themselves in the same predicaments have resolved them through productivity enhancement schemes. For instance, Japan from the end of the World War II and the United States of America from the 1970s have made high productivity the centre point of their economic planning and the results have been resounding. Also, middle income countries like Hong Kong, South Korea, Singapore and India have embraced boosting productivity schemes as an integral part of their national planning and today they have made significant in-roads into the world industrial markets.
Given the importance of high productivity in boosting economic growth and the standards of living of the people, it is necessary to evaluate the productivity of the Nigerian manufacturing sector. This will be useful in ascertaining the relative efficiency of firms, sub-sectors and sectors. A knowledge of the relative efficiency of industries in relation to economic growth and development could aid government in planning its programmes and policies, especially in deciding on which industries should be accorded priority. In the light of the foregoing, there cannot be a more appropriate time to evaluate the role of the Nigerian manufacturing sector in the economic growth and the development of the country than now.
1.2 STATEMENT OF THE PROBLEM
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.
Some of the constraints faced in this sector include:
• High interest rates
• Unpredictable government policies
• Non-implementation of existing policies
• Lack of effective regulatory agencies
• Infrastructural inadequacies
• Dumping of cheap products
• Unfair tariff regime
• Low patronage
It is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector in the Nigerian economy.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study is to appraise critically, the role of the manufacturing sector in Nigerian economy.
The specific objectives of the study include:
1. to investigate the impact of the manufacturing sector on the economic growth and development of Nigeria.
2. to assess the level of productivity in the Nigerian manufacturing sector.
3. to identify the major constraints confronting the Nigerian Manufacturing sector.
4. to find out the various policy measures available to the government that can be used to redress the persistent decline in the manufacturing production.
1.4 RESEARCH QUESTIONS
The study would examine the following questions:
1. To what extent has the Nigerian manufacturing sector contributed to the economic growth and development of the country?
2. What has been the performance of the Nigerian manufacturing sector?
3. What are the constraints that are confronting the manufacturing sector?
4. What policy measures could be adopted to redress the persistent decline in the manufacturing production?
1.5 STATEMENT OF RESEARCH HYPOTHESIS
The hypothesis tested in the course of the analysis is stated below:
H0: that the manufacturing sector does not contribute significantly
to Nigerian economy.
H1: that the manufacturing sector contributes significantly to
Nigerian economy.
1.6 SIGNIFICANCE OF THE STUDY
This study on the impact of manufacturing sector on economic growth in Nigeria is significant in the following ways:
i. It will influence various economic units both in the public and private sectors of the Nigerian economy;
ii. 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;
iii. It will be relevant topolicy 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 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 2010 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. In other words, it is the amount of
output produced by each unit of input.
(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 Liberalisation: This is the elimination of non-tariff barriers to imports, the rationalisation 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 liberalisation, deregulation of credit policy and the introduction of the Foreign Exchange Market (FEM).
Impact Of Manufacturing Sector On Economic Growth:
The manufacturing sector plays a significant role in the economic growth of a country. Its impact on economic growth can be understood through various channels and contributions:
- Job Creation: Manufacturing industries typically require a substantial labor force. When the manufacturing sector expands, it creates jobs for a large number of people, reducing unemployment rates and improving the overall standard of living.
- Economic Diversification: A strong manufacturing sector contributes to economic diversification, reducing a country’s dependence on a single industry or sector. This diversification can enhance economic stability and resilience to external shocks.
- Technological Advancement: Manufacturing often leads to technological innovation and adoption. Firms engaged in manufacturing tend to invest in research and development (R&D) to improve their processes and products. This, in turn, leads to the development and adoption of new technologies, benefiting other sectors of the economy.
- Export Potential: Manufactured goods are often exported, contributing to a country’s trade balance. A thriving manufacturing sector can lead to an increase in exports, boosting foreign exchange reserves and contributing positively to GDP growth.
- Supply Chain Development: Manufacturing requires a complex network of suppliers, distributors, and logistics providers. This leads to the development of a robust supply chain ecosystem, which can benefit other industries as well.
- Economies of Scale: Manufacturing often leads to economies of scale, which can result in lower production costs. This can translate into lower prices for consumers and higher profit margins for manufacturers, contributing to overall economic growth.
- Infrastructure Development: To support manufacturing activities, there is a need for infrastructure development, such as roads, ports, and energy supply. These investments not only benefit the manufacturing sector but also improve overall infrastructure, facilitating economic growth.
- Increased Productivity: Manufacturing processes tend to be more efficient and productive compared to some other sectors. The adoption of automation and advanced manufacturing technologies can further enhance productivity, leading to economic growth.
- Skill Development: The manufacturing sector often requires a skilled workforce. This can lead to investments in education and training programs, resulting in an overall improvement in the quality of the labor force, which can benefit other sectors as well.
- Multiplier Effect: The growth of the manufacturing sector can have a multiplier effect on the economy. As manufacturing companies prosper, they purchase goods and services from other sectors, leading to increased economic activity in those areas.
However, it’s important to note that the impact of the manufacturing sector on economic growth can vary depending on several factors, including the level of technological advancement, the quality of infrastructure, the global economic environment, and government policies. Moreover, in recent years, there has been a shift towards service-oriented economies in some developed countries, which has led to a changing landscape of economic growth drivers. Nonetheless, manufacturing continues to play a vital role in the economic development of many countries, especially in the early stages of industrialization and in emerging economies.