Assessment of the Impact of Manufacturing Sector on Economic Growth in Selected Countries in West Africa
Chapter One
Objective of the study
The following objectives will be assessed. To ascertain the contribution of manufacturing sector on Nigeria economy
- To determine the impact of manufacturing capacity on the gross domestic product of the nation
- To ascertain the growth rate of manufacturing capacity utilization on the Nigeria economy
REVIEW OF RELATED LITERATURE
THEORETICAL REVIEW
Kaldor (1966) postulated that manufacturing is the engine of growth for any nation who vies to promote growth and development in its economy. According to the author, manufacturing is subject to increasing returns, both dynamic and static whereas petty services and land based activities are subject to diminishing returns. Similarly, he argued that manufacturing sector tend to expands by drawing labour from other sectors of the economy in which diminishing returns exists. In this case, productivity automatically rises due to the fact that the average product of labour exceeds the marginal product. Hence, the more the output of the manufacturing sector grows, the more the productivity growth grows faster in the economy, which in turn serves as the key determinants of gross domestic product and standard of living of people (Pacheco-López&Thirlwall, 2013). Thomas (2003) revealed that there is three principal themes in any manufacturing sector, which they identified to include that manufacturing evolved into solution base- high innovation; it is also committed to technology and innovation, which is the key for sustaining competitiveness and growth in the level of productivity. Similarly, manufacturing sector accelerate productivity and innovation in which the spillover effects spread to other sectors of the economy. In other words, manufacturing sector is a growth-led sector as it leads to increase in economic growth via increasing returns, which is a macroeconomic phenomenon because it resulted from increasing returns to scale. Kaldor (1966) stated three laws, which expresses how economic growth is affected by the manufacturing sector in an economy. The author identified that a rise in the output of manufacturing sector leads to improved national output of a country; similarly, economic growth is a manufacturing-base and finally, he postulated that the developed and fastest growing economies in the world today are the industrializing nations in which the contribution of the manufacturing output to gross domestic product (GDP) is expanding rapidly. Kaldor’s law as cited in Teshome (2014) also postulated that increase in the productivity of labour is based on the output of the manufacturing production. Pons-Novell &Viladecans-Marsal (1998) expressed that manufacturing output growth has positive nexus with gross domestic product (GDP) growth rate, which means that industrial sector leads to higher productivity than other productive sectors of the economy. This is because, industrial sector incorporate technology progress that promote growth in the economy as a whole. According to neoclassical proposition of Solow (1956), the relationship between manufacturing and growth is discussed under the diminishing marginal productivity of capital, constant returns to scale, technical progress that are exogenously determined and substitutability between labour and capital. Solow argued that investment and savings are very important factors responsible for immediate growth in economy. In the long run, Solow identified progress and sophisticated technology as the key factor responsible for growth and development in an economy, even though technology was treated as exogenous to the economy. The approach of the neoclassical growth even though favours capital-labour as indixes of growth in the economy, the growth in technology considered exogenous remained unexplored (Olorunfemi et al.,2013).Banjoko, Iwuji&Bagshaw(2012) revealed that manufacturing sector had since its emergence with industrial revolution been transformative for all economies via its spillover effects to other sectors. Oyati (2010) stated that developed countries that could harness its powers attained higher profitability, prosperity significant growth in their economies. For example, the experiences of the developed countries and emerging economies of India, Singapore, China, Malaysia and North Korea showed the positive nexus between economic growth and manufacturing sector (Banjoko et al., 2012). Similarly, developing nations who are oriented agrarian and services in the past also formulated several initiatives to sustain growth and development of the manufacturing sectors.
Chapter Three
RESEARCH DESIGN AND METHODOLOGY
To examine the impact of manufacturing sector on economic growth in Nigeria from 1985 to 2020, stationarity test via the application of Augmented Dickey-Fuller (ADF) unit root test, Auto Regressive Distributed Lag (ARDL) model and Pairwise Granger causality technique were utilized in the analysis. The unit root test is carried out to determine the order of integration among the variables of the study. The ARDLbound model is used to investigate the short run and long run coefficients of the variables. The Pairwise Granger causality on the other hand is utilized to investigate causality between manufacturing sector and Nigeria’s economic growth. The variables used in the research include real gross domestic product (RGDP), manufacturing capacity utilization (MCU), manufacturing output (MO), government investment expenditure (GINVEXP), broad money supply (M2) and interest rate (INR). Data for the variables are sourced from the Central Bank of Nigeria (CBN) statistical bulletin and National Bureau of Statistics (NBS) of various publications ranging from 1985 to 2020.
Chapter Four
METHOD OF DATA ANALYSIS
Regression analysis is a statistical tool to be used for the investigation of relationship between two or more variables
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