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THE IMPACT OF INDUSTRIAL SECTOR ON ECONOMIC GROWTH OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Industrialization is said to be the process of building up a nation’s capacity to convert raw materials and other inputs to finished goods for other production or for final consumption (Anyanwu, Oyefusi, Oaikhenan, and Dimowo 1997). Industrialization is the backbone of a country‟s economic growth and development. It brings about an increased volume and varieties of manufactured goods resulting in increased employment and improved standard of living of the citizens. Industrialization is also regarded as a veritable channel of attaining the lofty and desirable national goals and quality of life for the citizenry (Adeoye 2005).It forms the central object of economic policy in most developing economies and is seen as a crucial and powerful integral part of overall development and structural process of an economy (Uniamikogpo 1996). Attaining and sustaining full industrialization is therefore the goal and aspiration of every sovereign nation or economy. Thus, history recorded that the industrial sector performance in Nigeria’s economic growth is as old as the nation itself. It dates back to the amalgamation of the southern and northern parts of the country in 1914 to form the geographical land mass called Nigeria. In Nigeria as in many other developing countries, industries are attached to manufacturing as is considered the most dynamic component of industrial sector and a strong and thriving manufacturing sector usually precipitates industrialization. The manufacturing sector is widely considered to be the ideal industry to drive Africa’s development. This is due to the labor-intensive, export-focused nature of the industry. There is a direct correlation between exportation levels and the economic success of a country. By increasingly adding value to products before they are sold, revenues are boosted, thereby raising average earnings per input (Bigsten, Gebreeyesus and Söderbom 2008). Therefore, in recognition of this, successive governments in Nigeria have continued to articulate policy measures and programme to achieve industrial growth and development. This cannot be attained until manufacturing capacity is utilized to a reasonable extent. Industrialization has come to be regarded as a crucial and powerful engine in the overall development process. The growth of the Nigerian economy has not been stable over the years as the country‟s economy has witnessed so many shocks and disturbances both internally and externally over the decades. Internally, the unstable investment and consumption patterns as well as the improper implementation of public policies, changes in future expectations and the accelerator are some factors responsible for the instability. Similarly, some of the external factors identified include wars, revolutions, population growth rates and migration, technological transfer and changes as well as the openness of the country‟s economy. The cyclical fluctuations in the country‟s economic activities have led to the periodical increase in the country‟s unemployment and inflation rates as well as the external sector disequilibria (Gbosi 2001). While desiring to use industrialization to tackle economic growth problems, many nations have neglected the need to establish industries that are necessary towards absorbing the abundant labour resource and other local inputs for breaking the vicious circle of poverty among the larger percentage of the citizenry and in achieving dynamic and self-reliant economies (Iwuagwu 2011). Hence a slow pace of industrialization in Nigeria in the last three decades have been recorded despite much effort put in place by successive administration to bring about revolution in the sector via various policies and programmes. This situation calls for an urgent concern because this is the time when the country is aspiring to be ranked among the top 20 economies in the world by the year 20-20. Although, there a lot of studies conducted to assess the impact of industrialization on economic growth such as Ndiyo and Obinysi (2003), Isiksal and Chimezie (2016), Sharma, Varlish and Nishue (2008), Ogunnirola and Nishu (2010), Okafor (2008), Eze and Okpala (2011). However, most of these studies rely on the use of ADF to ascertain the stationarity properties of the time series data in which to some extent has been empirically conducted that useful results cannot be obtained on non-stationarity time series using OLS as a technique of analysis. Furthermore, in most of their studies they have a maximum scope of 15-25 year. It is against this background that this study is different from the previous studies and attempts to fill in the existing gap.

1.2 Statement of the Problem

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. Studies have not thoroughly investigated to

evaluate performance of the industrial sector on the Nigerian economy, and the few researches

conducted have not been current. 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.

1.3 Objectives of the Study

The main objective of this study is to determine the effect of compensation management on employee performance. Specific objectives include;

i. Examine the contributions of the industrial output to gross domestic product in the Nigerian economy.

ii. Assess the impact of foreign direct investment on economic growth.

iii. Examine the long run relationship between industrial indices (industrial output, maximum lending rate & foreign direct investment) and gross domestic product in Nigeria.

1.4 Research Questions

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

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

iii. In what way does inflation have an effect on economic growth?

1.5 Research Hypotheses

Hypothesis I

H0: Industrial output does not contribute to gross domestic product in Nigeria.

Hi: Industrial output does contribute to gross domestic product in Nigeria.

Hypothesis II

H0: Foreign Direct Investment has no significant impact on gross domestic product in Nigeria.

Hi: Foreign Direct Investment has significant impact on gross domestic product in Nigeria.

Hypothesis III

H0: There is no long run relationship between the industrial indices (FDI, MLR & IND) and gross domestic product in Nigeria.

Hi: There is long run relationship between the industrial indices (FDI, MLR & IND) and gross domestic product in Nigeria.

1.6 Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.7 Scope of the Study

The study is limited to the contributions of the industrial indices towards the growth of the Nigerian economy for a period of 1981-2015.

1.8 Limitations of the study

The demanding schedule of respondents made it very difficult getting the respondents to participate in the survey. As a result, retrieving copies of questionnaires in timely fashion was very challenging. Also, the researcher is a student and therefore has limited time as well as resources in covering extensive literature available in conducting this research. Information provided by the researcher may not hold true for all research under this study but is restricted to the selected respondents used as a study in this research especially in the locality where this study is being conducted. Finally, the researcher is restricted only to the evidence provided by the participants in the research and therefore cannot determine the reliability and accuracy of the information provided. Other limitations include;

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

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