ABSTRACT
The study examined the impact of fiscal policy on the manufacturing sector output in Nigeria. The data used was secondary data, sourced from Central Bank of Nigeria statistical bulletin. Multiple regression of ordinary least square (OLS) technique of analysis was used. The result from the study revealed that government expenditure had negative and insignificant impact on the manufacturing sector output in Nigeria while, government tax revenue had positive and significant impact on the manufacturing sector output in Nigeria. Based on the findings, the study concluded that fiscal policy had significant impact on the manufacturing sector output in Nigeria. The study therefore recommended the following; That government should refocus and redirect government expenditure towards the manufacturing sector for production of goods that will enhance economic growth and government should increase its budgetary allocation on the capital expenditures that will accelerate or enhance economic growth in Nigeria through manufacturing sector output, that government should create more awareness on the importance of tax payment which is one of the major sources of government revenue, the process of tax collection should be convenient to the tax payers and the revenue accrued from tax payment should be judiciously utilized such as in construction of good roads that will enhance economic activities geared towards achieving economic growth in Nigeria through manufacturing sector output.
TABLE
OF CONTENTS
Title
page - - - - - - - - - - i
Declaration - - - - - - - - - - ii
Certification - - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgement - - - - - - - - - v
Table
of Contents - - - - - - - - - vi
List
of Tables - - - - - - - - - vii
Abstract - - - - - - - - - - viii
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study - - - - - - - 1
1.2 Statement of the Problem - - - - - - - 4
1.3 Objective
of the Study - - - - - - - 5
1.4 Research
Question - - - - - - - - 5
1.5 Research
Hypotheses - - - - - - - 6
1.6 Scope
of the Study - - - - - - - - 6
1.7 Significance
of the Study - - - - - - - 6
1.8 Limitation of the Study - - - - - - - 7
1.9 Definition
of Terms - - - - - - - - 7
CHAPTER TWO:
REVIEW OF RELATED LITERATURE
2.1 Conceptual
Framework - - - - - - - 9
2.1.1 Types of Fiscal
Policy - - - - - - - 12
2.1.2 Tools of Fiscal
Policy - - - - - - - 13
2.1.2.1 Government Spending
as a Fiscal Policy Tool - - - - 13
2.1.2.2 Government Tax
Revenue as a Fiscal Policy Tool - - - 14
2.1.3 Functions of Fiscal Policy - - - - - - - 14
2.1.4 Objectives of Fiscal
policy - - - - - - - 16
2.1.5 Limitation of Fiscal Policy Implementation - - - - 17
2.1.6 Fiscal Deficit in Nigeria and How to Solve it - - - - 17
2.1.6.1 Significance of Sources Covering Government Debts - - - 19
2.1.6.2 Deficit Reduction Techniques - - - - - - 20
2.2
Theoretical Framework - - - - - - - 21
2.2.1 Classical school of thought - - - - - - - 22
2.2.2 Keynesian School of Thought - - - - - - 22
2.2.3 Neoclassical school of thought - - - - - - 22
2.2.3.1 Managerial Theory of the Firm - - - - - - 23
2.2.3.2 The Savers-Spenders Theory - - - - - - 23
2.3 Empirical
Review - - - - - - - - 24
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research
Design - - - - - - - - 31
3.2 Sources
of Data - - - - - - - - 31
3.3 Area
of Study - - - - - - - - 31
3.4 Model
Specification - - - - - - - - 32
3.5 Techniques
of Analysis - - - - - - - 33
3.6 Decision
Rule - - - - - - - - 33
3.7 Description
of Variables - - - - - - - 33
3.7.1 Dependent
variable - - - - - - - - 33
3.7.1.1 Manufacturing Sector Output (MSO) - - - - - 33
3.7.2 Independent Variables - - - - - - - 34
3.7.2.1 Government Expenditure (GEXP) - - - - - - 34
3.7.2.2 Government Tax Revenue (GTR) - - - - - - 34
CHAPTER FOUR: DATA
PRESENTATION, ANALYSIS AND DISCUSSION
OF FINDINGS
4.1 Data presentation - - - - - - - - 35
4.2 Regression Analysis and interpretation of
Result - - - - 36
4.3 Test of Hypotheses - - - - - - - - 36
4.4 Discussion of findings - - - - - - - 37
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings - - - - - - - - 39
5.2 Conclusion - - - - - - - - - 39
5.3 Recommendations - - - - - - - - 40
REFERENCES
LIST
OF TABLES
Table
4.1 Data used for the Regression
analysis - - - - 31
Table
4.2 Regression Result - - - - - - - 32
Table 4.3 Test of Hypothesis one - - - - - - 32
Table 4.4 Test of Hypothesis two - - - - - - 33
CHAPTER
ONE
INTRODUCTION
1.1 Background to the Study
Government
over the years has employed various macroeconomic policies instruments for the
attainment of the desired economic growth and development, and these policies
option employed is that of fiscal policy and monetary policy. The use of these macroeconomic tools in
attaining economic growth according to the classical view reveled that
harmonizing the fiscal and monetary policies would either increase the pace of
economic growth or reduce it depending on the direction of the policies
(Blanchard, 2006).
The
term fiscal policy is defined as the use of government revenue collection
(taxation) and expenditure (spending) to influence the economy. The fiscal
policy main instruments are government taxation and government expenditure.
Fiscal policy can also be seen as government spending policies that influence
macroeconomic conditions. These policies affect tax rates, interest rates and
government spending, in an effort to control the economy. The government as the
manager of the entire economic activities of any nation determines the overall
macroeconomic direction of that nation. Its functions transcend its activities
as a regulator of specific industries. The government also manages the overall
pace of the economic activities, seeking to maintain high levels of employment
and stable prices. To achieve these objectives, it has two main tools: fiscal
policy, through which it determines the appropriate level of taxes and
government spending; and monetary policy, through which it manages the supply
of money, interest rate and inflation (Bakare
& Osobase, 2014).
The
role of fiscal policy on the output and capacity utilization of manufacturing
industry in Nigeria has been a growing concern, despite the fact that the
government had embarked on several policies aimed at improving the growth of
the Nigerian economy through the contribution of manufacturing industry to the
economy and capacity utilization of the sector (Adebayo, 2010; Peter &
Simeon, 2011 and Loto, 2012).
The
manufacturing sectors are those industries that engage on the transformation or
conversion of raw materials into finish products. They are one of the most
important sectors of every economy which accounts for a significant portion of
overall economic activity. Manufacturing sector is also the most important
tradable sector of the economy, which in turn implies that they are often the
most competitive sector. The significance of manufacturing also stems from the
fact that it is the carrier of innovation, research and development activities
that eventually spill over to other sectors and results in an increased
productivity (Marina & Maruška, 2009).
According
to Adebayo (2011), manufacturing sector refers to those industries which are
involved in the manufacturing and processing of items and indulge or give free
rein in either the creation of new commodities or in value addition.
Manufacturing sector accounts for a significant share of the industrial sector
in developed countries. The final product can either serve as finished goods
for sale to customers or as intermediate goods used in the production process
(Dickson, 2010). Loto (2012) sees manufacturing sector as an avenue for
increasing productivity in relation to import replacement and per-capita income
which causes unrepeatable consumption pattern. As a result, manufacturing
industries are the key variables in an economy and motivates conversion of raw
materials into finished goods. Manufacturing industries according to Charles
(2012) create employment which helps to boost agriculture and diversify the
economy on the process of helping the nation to increase its foreign exchange
earnings.
Manufacturing
industries came into being with the occurrence of technological and
socio-economic transformations in the western countries in the 18th-19th
centuries (CBN, 2011). This period was widely known as industrial revolution.
It all began in Britain and replaced the labour intensive textile production
with mechanization and use of fuels (Olakunori, & Ejionueme, 1997)
Manufacturing
sector are categorized into; Engineering sector, construction sector,
electronics sector, Chemical sector, Energy sector, Textile sector, food and
beverage sector, metal-working sector, plastic sector, transport and
telecommunication sector (CBN, 2012).
In
recent times, some manufacturing industries in Nigeria have been characterized
by declining productivity rate, by extension employment generation which is
caused by inadequate electricity supply, smuggling of foreign products into the
country, trade liberalization, globalization, high exchange rate and inadequate
government investments in infrastructure. It has been argued that the
persistent poor performance of the manufacturing sector in Nigeria is mainly
due to massive importation of finished goods, inadequate financial support and
other variables which has resulted in the reduction in capital utilization and
output of the manufacturing sector of the economy (Tomola, Adebisi &
Olawale, 2012). Looking at the manufacturing sector share in the GDP in recent
years (1996-2016), it has not been relatively stable. In 1996, it was about
4.92% while it increased to 5.50% in 2016. Also at the same period, the overall
manufacturing capacity utilization grew from 40.3% in 1996 to 58. 92% in 2016
(CBN, 2011). This may be attributed to the increase in government capital
expenditure in recent times.
Furthermore,
in Nigeria, the level of growth in manufacturing sector has been affected
negatively because of high lending rates, which invariably is responsible for
high cost of production (Adibiyi, 2001 and Rasheed, 2010). Okafor (2012)
further observed that the level of Nigerian manufacturing sector performance
has continue to decline because of low implementation of government budget and
difficulties in assessing raw materials.
Based on the forgoing relationship between fiscal policy and
manufacturing sector, a study such as this becomes paramount. This study,
therefore, is designed to examine the impact of government expenditure
(spending) and government taxation (revenue collection) on the manufacturing
sector output of Nigerian economy.
1.2 Statement of the Problem
There have been a lot of challenges facing
the growth of Nigerian manufacturing industry notwithstanding several
government policies employed to stabilize the economy via this sector. These
challenges as reviewed by researchers include: corruption and ineffective economic
policies (Gbosi, 2007); inappropriate and ineffective policies (Anyanwu, 2007);
lack of integration of macroeconomic plans and the absence of harmonization and
coordination of fiscal policy (Onoh, 2007); gross
mismanagement/misappropriations of public funds (Okemini & Uranta, 2008);
and lack of economic potential for rapid economic growth and development
(Ogbole, 2010). Despite the emphasis placed on fiscal policy in the management
of the economy, the manufacturing sector inclusive, Nigerian economy is yet to
come on the path of sound growth and development because of low output in the
manufacturing sector to the economy (GDP).
The
research problem is to inquire into these unfolding realities, by probing into
the impact of the fiscal policy of the Nigerian government on the manufacturing
sector output. While asking the question of whether or not, government spending
and revenue collection policies have impact on manufacturing sector output in
Nigeria?
Most studies on fiscal policy dwelt
on its effect on the economic growth and development, its determinant, its
impact on capital formation, its impact on capital stock, deficit and
macroeconomics variables, while studies on manufacturing sector focuses on its
productivity, bank lending, economic growth, global economic downturn, monetary
policy, banking sector reform, and its performance.
However,
in Nigeria, both variables have valuable significant effect on economic growth
and stabilization, but study about their relationship has research gap, as
there seems to be little or no attention on the impact of fiscal policy on
manufacturing sector in Nigeria. This study seeks to fill this research gap.
1.3 Objective
of the Study
The
main objective of this study was to ascertain the impact of fiscal policy on
the manufacturing sector output in Nigeria.
The specific objectives include the
following:
1.
To examine the impact of government expenditure on the
manufacturing sector output
in Nigeria.
2.
To determine the impact of government tax revenue on the
manufacturing sector
output
in Nigeria.
1.4 Research
Question
The research questions include the
following:
1. To what extent has government
expenditure impact the manufacturing sector output in
Nigeria?
2.
How does government tax revenue impact the manufacturing
sector output in Nigeria?
1.5 Research
Hypotheses
The following null hypotheses was
formulated in line with the objectives of the study:
H01: Government expenditure has no significant impact on the
manufacturing sector output in
Nigeria.
H02: Government Tax revenue has no
significant impact on the manufacturing sector output
in Nigeria.
1.6 Scope
of the Study
This
study intends to examine and measure the overall impact of fiscal policy on the
manufacturing sector output in Nigeria, therefore our analysis falls within the
boundary of fiscal policy vis-à-vis the manufacturing sector. Data for the
analysis covered the time period of 21 years (1996-2016). Secondary data
generated from the Central Bank of Nigeria statistical bulletin and academic
journals was used in carrying out the research work.
1.7 Significance
of the Study
The study will enormously contribute in giving support to
the government, policy makers, economic planners, researchers and the academia
generally.
i.
Government: This will go a long way in
providing an insight and understanding to the government on how to spend public
funds judiciously which will bring about economic stability as well as economic
growth and development.
ii.
General Public: The study will immensely help in
providing an insight and knowledge to the general public on how the government
influences the economy through its spending and revenue especially as it
relates to the manufacturing sector.
iii.
Policy Makers: This work will be of immense
advantage to the policy makers and economic planners in terms of using its
findings in formulating and implementing appropriate policy measures towards
accelerating economic growth through the manufacturing sector.
iv.
Manufacturing Sector Regulatory
Authorities:
It will provide the manufacturing sector regulatory authorities with the
knowledge of the impact of fiscal policy on the manufacturing sector output in
Nigeria.
v.
The academia: To the academia, the findings of the study
will contribute to the available literature on the current scenario of
manufacturing sector in Nigeria and its level of contribution to the GDP.
vi.
Researchers: Based on our empirical findings and
analysis, the result of the study will be of immense benefit to researchers who
will rely on their contributions to existing knowledge for further research.
vii.
Monetary Authorities: The findings of this research will
assist monetary authorities in assessing the performance of the fiscal policy
in Nigeria particularly in terms of their impact on the output of manufacturing
sector.
1.8 Limitation
of the Study
This
work is limited to Nigeria because of the nature of the study which only aims
at the Nigerian environment. In addition, time constraints and finance
constituted a major limitation to the study which consequently, hampers the
researcher’s ability to source enough research materials and periodicals needed
for the study.
1.9 Definition
of Terms
1.
Fiscal policy: Fiscal policy refers to the
use of government spending and tax policies to influence macroeconomic
conditions, including aggregate demand, employment, inflation and economic
growth. It is the means by which a government adjusts its spending levels and
tax rates to monitor and influence a nation's economy. Fiscal policy is the
sister strategy to monetary policy through which a central bank influences a
nation's money supply.
2.
Manufacturing: The process of converting raw
materials, components, or parts into finished goods that meet a customer's
expectations or specifications. It is the production of merchandise for use or
sale using labour and machines, tools, chemical and biological processing, or
formulation. Manufacturing commonly employs a man-machine setup with
division of labor in a large scale production.
3.
Manufacturing sector: Agglomeration of industries
engaged in chemical, mechanical, or physical transformation of materials,
substances, or components into consumer or industrial goods. Manufacturing and
Industry sector known as secondary sector, or sometimes called the production
sector, includes all branches of human activities that transform raw materials
into products or goods.
4. Output: An output is the amount of something (such as energy, work,
goods, or services) produced by a machine, factory, company, or an individual
in a given period. The manufacturing output is the total output of all the
facilities producing goods within a country, is a sub-set of individual output.
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