ASSESSMENT OF THE IMPACT OF MANUFACTURING SECTOR ON ECONOMIC GROWTH IN SELECTED COUNTRIES IN WEST AFRICA
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ASSESSMENT OF THE IMPACT OF MANUFACTURING SECTOR ON ECONOMIC GROWTH IN SELECTED COUNTRIES IN WEST AFRICA
Abstract
The study looked at the impact of the manufacturing sector on Nigeria’s economic growth from 1985 to 2020. The Autoregressive Distributed Lag (ARDL) model and Granger causality approach were used.
Data from the Central Bank of Nigeria, a statistical bulletin on RGDP, manufacturing capacity utilisation (MCU), manufacturing output (LMO), government investment expenditure (GINVEXP), money supply (LM2), and interest rates (INR) were utilised.
Evidence of long-run and short-run correlations between the variables is found. The findings revealed that MCU has a favourable effect on RGDP, whereas LMO has a positive effect on RGDP. It also demonstrated that GINVEXP has a detrimental effect on RGDP, whereas LM2 has a beneficial effect.
Furthermore, evidence of unidirectional causality exists between RGDP and MCU, LMO and LM2. Therefore, the government should intensify efforts to promote socioeconomic infrastructural, macroeconomic
and institutional framework in Nigeria to provide a favourable environment for external and domestic institution interactions; thus, harnessed mobilised funds effectively towards productive manufacturing sector.
Chapter one
Introduction
Background of the study.
Kuznets (1966) described long-term development patterns of countries based on empirical analyses of national accounts and argued that industrialization, or increases in the share of manufacturing in GDP, is a key feature of modern economic growth
which differs significantly from the much lower growth rates observed prior to the industrial revolution. Kaldor investigated the link between industrial development and economic growth and, based on empirical findings, identified the manufacturing sector as “the main engine of fast growth” (Kaldor, 1967:48).
Manufacturing is often regarded as a driver of economic growth and development in any country. In modern economies, industrialization is usually regarded as an important tool for boosting economic growth and development. It is a route for producing goods and services, creating vast employment opportunities, and generating money (Olorunfemi, Tomola, Felix, & Ogunleye, 2013).
Manufacturing, according to Adofu, Taiga, and Tijani (2015), is the process of producing items for sale or usage using tools, machines, labour, chemical, and biological formulations. It combines human craftsmanship with high-tech processes for transforming raw materials into final products on a huge scale.
Logical creation of effective techniques. This simply means transforming an economy from a traditional low-production system to a modern mass-production system, which entails a more efficient and automated system through sustained and deliberate combination and application management techniques, appropriate technology, and other resources that promote high-tech production techniques (Ayodele & Falokun 2003).
It has been argued that the fastest path to rapid sustainable growth and development in any economy is through industrial capacity, technological innovation, and enterprise development, rather than vast human and material resources (Olamade, Oyebisi, & Olabode, 2014).
Most industrialised countries, such as Germany, rose to become one of the world’s greatest economies despite having low natural resources and experiencing chronic inflation since the 1920s, thanks to effective exploitation of the manufacturing sector.
Furthermore, Bennett, Anyanwu, and Kalu (2015) proposed that industrial development is concerned with the use of modern equipment, machines, and technology in the creation of goods and services, as well as mitigating human suffering and improving societal welfare.
As a result, modern manufacturing processes require the development of administrative and entrepreneurial abilities, as well as high-tech inventions, which frequently encourage large-scale productivity and better living conditions.
In Nigeria, the history of manufacturing and industrial development demonstrates how a country can neglect a vital sector due to economic policy inconsistencies and the abandonment of the agricultural sector in favour of the oil sector, which was the country’s primary economic base following the discovery of oil in commercial quantities in the 1970s (Adeola, 2005).
Ogbu (2012) argued that the oil industry in Nigeria is not a major driver of employment; thus, it makes limited contributions to other sectors of the economy because the government has yet to develop the capacity to vigorously pursue the more value-added activities of the petrochemical value chain. Thus, the oil business has always lacked technical spillover effects.
For example, prior to the 1970s, Nigeria’s industrial sector contributed 10% of economic development. According to Adofu, Taiga, and Tijani (2015), Nigeria’s economic growth has been hampered by a prolonged economic recession induced by a drop in the global oil market in the early 1980s, as well as a steep reduction in foreign exchange revenues.
As a result, the economy faced a slew of issues, including excessive reliance on imports for consumption and input materials, socioeconomic infrastructure decay, capacity underutilization in the industrial sector, poor management strategies and institutional frameworks, and neglect of the agricultural sector, which served as the Nigerian economy’s economic foundation, among others.
As a result, the economy has remained undiversified, with a fall in earnings and standard of living for the population (Adesina, 1992).Nigeria’s economic structure is typical of an underdeveloped nation, with a single primary sector accounting for more than 50% of total GDP.
Similarly, figures reveal that capacity utilisation in the manufacturing sector has been sluggish and extremely low in comparison to other strong countries around the world.
For example, Nigeria’s manufacturing industry had a capacity utilisation rate of 40% in 1990 and 53.9% in 2008. By 2009, the manufacturing sector’s capacity utilisation was 55.88%, which increased to 60.50% in 2015.
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