ABSTRACT
The study investigated the effect of macroeconomic variables on manufacturing sector growth in Nigeria using time series data from 2001 to 2016. The dataset were sourced from Central Bank of Nigeria Statistical Bulletin 2016. The macroeconomic variables used as the independent variables were interest rate, inflation rate and money supply. Based on the analysis, it was found that inflation and interest rate had negative and insignificant effect on manufacturing sector growth in Nigeria, while money supply was positive and significant in affecting manufacturing sector growth in Nigeria. By these findings, it was revealed that money supply was the most significant macroeconomic variable in explaining the variations in manufacturing sector growth in Nigeria. Hence, it was recommended among other things that manufacturers should monitor the changes in macroeconomic variables when taking their business decisions.
TABLE OF CONTENTS
Title
Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table
of Contents vi
List
of Tables viii
Abstract ix
CHAPTER ONE
Introduction
1
1.1 Background to the Study 1
1.2 Statement of Problem 2
1.3 Objectives of the Study 4
1.4 Research Questions 5
1.5 Research Hypotheses 5
1.6 Scope of the Study 5
1.7 Limitation to the Study 6
1.8 Significance of the Study 6
CHAPTER
TWO
Literature Review 8
2.1 Conceptual
Framework 8
2.1.1 Manufacturing
Sector Growth and Foreign Direct Investment 10
2.1.2 Manufacturing
Sector Growth and Exchange Rate 10
2.1.3 Manufacturing
Sector Growth and Inflation (Consumer Price Index) 12
2.1.4 Manufacturing
Sector Growth and Broad Money Supply 12
2.1.5 Manufacturing
Sector Growth in Nigeria 14
2.2 Concept
of Productivity 19
2.3 Theoretical
Framework 27
2.3.1 Quantity
Theory of Money 28
2.3.2 Keynesian Theory 28
2.3.3 Monetarism 29
2.3.4 Structuralism 30
2.3.5 The Classical Theory 30
2.4 Empirical Review 31
CHAPTER THREE
Methodology
35
3.1 Research design 35
3.2 Area of Study 35
3.3 Types and Sources of Data 35
3.4 Validity and Reliability of the
Instrument 36
3.5 Analytical Techniques 36
3.6 Model Specification 36
3.6.1 Independent variables 37
3.6.2 Dependent Variable 37
CHAPTER FOUR
Presentation
of Data, Analysis and Discussion 38
4.1 Presentation of Data 38
4.2 Data Analysis and Discussion of Results 38
4.2.1 Descriptive Statistic 39
4.2.2 Regression Analysis 39
4.2.2.1 Discussion
of Results and Hypotheses Testing 41
CHAPTER
FIVE
Summary of Findings,
Conclusion and Recommendations 43
5.1 Summary of Findings 43
5.2 Conclusion 43
5.3 Recommendations 43
References
Appendix
LIST OF TABLES
Table
4.1: Time series data 38
Table 4.2:
Descriptive Statistics 39
Table 4.3:
Regression Analysis (IGDP) 40
CHAPTER
ONE
INTRODUCTION
1.1 Background
to the Study
The path to economic recovery and growth
may require increasing productive inputs such as land, labour, capital and
technology and or increasing their manufacturing capacity utilization in the
face of global economic meltdown (Alao, 2010), but the changes in the
macroeconomic policy have become increasingly significant within the
productivity sector as manufacturing has become more capitalized and more
dependent on international markets, consequently, the sector is being more vulnerable
to variations in interest rates, exchange rates, the size of gross domestic
product, foreign direct investment, etc. (Aloa, 2010).
Investigations by scholars such as Enisan
and Akinlo (1996) have shown that higher productivity is a sure means of boosting
economic growth and raising standard of living of the citizenry. Formulating
and implementing efficient industrial policies have helped to pull many
economies out of global recession and set them on the course of self-sustained
growth. This would imply a quantum leap in output of goods and services.
Emphasis should be on rapid industrialization and policies that will engender
this direction should be adequately implemented (Akinlo, 1996).
In Nigeria however, the manufacturing
sector is favoured based on the fact that it is a general notion that the main
instruments of rapid growth, structural changes and self-sufficiency lies on
the manufacturing sector. Thus resources have been channeled into the preferred
sectors through heavy public sector investment predicted on import substitution
strategy of level protection for private investment (Anyanwu, 1993).
Industrialization in Nigeria seems to be at the cross roads given the fact that
in the face of the pursuits of the industrialization strategy heralded more
inefficiency in resource usage, intensified foreign exchange constraints, high
cost and balance of payment difficulties (Adebiyi, 2001). This is paradoxical
given that the industrial sector is theoretically at least expected to have the
capacity to innovate and thus exude the dynamism that affect the other sector
of the economy.
Besides, industry specific factors and
industrial policy, macroeconomic conditions are the most influential drivers of
manufacturing growth (European Commission, 2009). The term “Macroeconomic
conditions” usually assumes domestic business cycle fluctuations, foreign
demand, interest and exchange rates, taxes, government expenditure and relative
prices. Thus, the aim of this study is to determine which macroeconomic
variables drive output in the Nigerian manufacturing sector (Odior, 2013).
The manufacturing sector is a vital
catalyst for economic growth in many developing countries worldwide, including
Nigeria. The commission on growth and development (2008) indentified the common
features of countries that have achieved episodes of high and sustained growth
since the conclusion of the Second World War, with such a period defined as
being one of uninterrupted growth, in GDP per capita, in excess of 7% per annum
for 25 years or more. Of the thirteen success stories identified in the
publication, ten of them were economies driven by manufacturing-led growth.
Nigeria was not among the economies mentioned. This is pathetic giving the fact
that Nigeria is the largest economy in Africa.
1.2 Statement
of Problem
The empirical literature on the
relationship between manufacturing sector and macroeconomic variables is very
scarce, especially when looking at particular manufacturing industries in
Nigeria.
Due to the ongoing forces of economic
reforms along with the liberalization measures, Nigerian economy has been
facing challenges in terms of both external shocks and internal issues. The
external shocks include a phenomenal increase in the foreign capital outflows,
exchange rate volatility, oil shocks and contagion effects. Internal structural
issues have been in terms of slow face of legal and lack of social security
system, industrial restructuring, non-performing assets in the banking sector,
etc., which have been hindering the reform process. Macroeconomic uncertainty
has given rise to several risks impinging on banks, mutual funds, financial
firms and non-financial firms. Macroeconomic risks in terms of exchange rate,
inflation, interest rate and liquidity risks would translate into the financial
institutions. For instance, banking sector fragility can be attributed to the
credit risk or the risk of loss resulting from counter party default.
In addition, the role of institutional
framework, interest rate policy and other macroeconomic variables in the
development of Nigerian manufacturing sub-sector have not been fully addressed
and the impact has not equally been fully felt. Manufacturing sub-sector has
been experiencing a stunted growth and its contribution to gross domestic product
has remained low as extant studies have shown. For instance, the manufacturing
sector declined from about 70.1% in 1980 to just 44.3 percent in 2009 (CBN,
2009).
Furthermore, all the strategies utilized
by successive governments in Nigeria aimed at reinvigorating and strengthening
the sector has not only led to isolated growth, but also generated a
relatively, small modern sector employment with its attendant capital intensive
methods (Odior, 2013). The capital intensive structure of these industries in anchored
on the labour savings obtained by replacing the technology of their parent
firms in metropolitan countries substituting plants. The potentials and
opportunities for SMEs in Nigeria to rebound and play the crucial role of
engine of growth, development and industrialization, wealth creation, poverty
reduction and employment creation are enormous (Momoh, 2012).
The sub-sector continued to experience
challenges with accessing credit from the balancing sector, which in turn
affected the importation of raw materials. Similarly, the delay in the passage
of the 2009 Appropriation Act by the National Assembly affected the business
and investment plans of manufacturers. In addition, the epileptic electricity
supply and the increased pump price of diesel used in the sector as alternative
electricity generation retarded the progress of the industry. This poor
performance, has been attributed to high production cost due to high cost of
foreign exchange, high interest rate, poor demand, incessant poor description,
insufficient raw materials, inadequate working capital and frequent machine
break downs. All these occurrences coupled with inadequate finance snow-balled
into low capacity utilization.
Researches on the relationship between
macroeconomic variables and manufacturing sector performance have been ongoing
in advanced countries of the world with little or no research in developing
countries of the world such as Nigeria. It is this existing gap that informed
the rationale behind this study.
1.3 Objectives
of the Study
The
general objective of the study is to evaluate the effect of macroeconomic variables
on manufacturing sector of Nigeria. However, the specific objectives are stated
as follows:
1. To
ascertain the effect of inflation rate on manufacturing sector performance in Nigeria
2. To
analyze the effect of exchange rate on manufacturing sector performance in
Nigeria.
3. To
determine the effect of interest rate on manufacturing sector performance in
Nigeria.
4. To
determine the effect of money supply on the performance of manufacturing sector
in Nigeria.
1.4 Research
Questions
In
the light of the objective, the following research questions are raised:
1. What
is the extent of the effect of inflation rate on manufacturing sector
performance in Nigeria?
2. To
what extent is the effect of exchange rate on manufacturing sector performance
in Nigeria?
3. How
does interest rate affect manufacturing sector performance in Nigeria?
4. How
far has money supply affected the performance of manufacturing sector in
Nigeria?
1.5 Research
Hypotheses
In
order to validate the effect of macroeconomic variables on the performance of
manufacturing sector in Nigeria, this study was guided under the framework of
the following hypotheses:
Ho1: Inflation rate has no significant effect on manufacturing sector performance.
Ho2:exchange
ratet has no significant effect on manufacturing sector performance.
Ho3: Interest rate does not affect manufacturing
sector performance in Nigeria.
Ho4: Money supply has no significant effect on
the performance of manufacturing sector in Nigeria.
1.6 Scope
of the Study
This study examines the effects of
macroeconomic variables on the manufacturing sector performance in Nigeria. The
study basically covers a time period between 2001-2016 because the researcher
intends to access the effect of inflation rate, interest rate, exchange rate, and
the manufacturing sector performance of Nigeria. This period was chosen as it
corresponds to the period where uniform and consistent data on the relevant
variables are available. More importantly, this period witnessed several
economic policy regimes.
1.7 Limitation
to the Study
This study is limited by some factors
which include difficulty in assessing necessary data. The problem of data is
based on our poor culture of keeping data. In order to overcome these
difficulties, the researcher has to limit the study to only four independent
variables which include inflation rate, exchange rate, interest rate and money
supply.
1.8 Significance
of the Study
The findings of this study have both
empirical and theoretical significance. Theoretically, the findings of this
study will be beneficial to economic policy makers and the public. To the
economic policy makers, the findings of this study will help them to know the
extent to which their policies on inflation rate, interest rate, exchange rate,
foreign direct investment and money supply have impacted on the economic
wellbeing of the country; the findings of this study will guide them in
formulating better monetary policies especially on the area of inflation rate,
interest rate, exchange rate, foreign direct investment for improved economic
development.
The findings will be useful to anyone who wishes
to understand the extent of association between interest rate, inflation rate,
exchange rate, foreign direct investment, money supply and GDP of Nigeria.
Empirically, this study will contribute to
the wealth of study conducted on this work where researchers in this field will
find the study as a source of reference material.
This study is expected to be relevant to a
number of persons and institutions in Nigeria. First, the Federal Government of
Nigeria will find the outcome of this study useful in terms of making decisions
relating to the macroeconomic environment; in other words, it will help the
government to regulate the interest rate, inflation rate, exchange rate and
other with a view to achieving macroeconomic stability so as to assist the
manufacturing industries in Nigeria. The Central Bank of Nigeria definitely
will find the study very much useful in terms of devising good monetary policy
so as to enhance industrial performance as well as, attract foreign investors
into the Nigerian economy. Similarly, future researchers will find the study
useful in terms of reference materials on a related topic or subject matter as
this.
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