ABSTRACT
This research work is on the “Impact of Industrialization on Economic Growth in Nigeria” between the period of thirty-one years (31) covered from 1981-2012. Impact of industrialization on economic growth in Nigeria is a continuous discussion to every economy especially developing economics which will give rise to economic growth and development of a nation. Secondary data was used on PC Give 8.00 version package to regress the model with RGDP as the dependent variable, and manufacturing sector output, oil and gas sector, solid mineral sector and money supply as independent variables. The model explain that the influence of industrialization on economic growth is not statistically significant, though the sign obtained from its à priori expectation is positively related to GDP but does not hold strong enough. There is a long run relationship between economic growth and the various explanatory variables and there is a positive relationship between economic growth and manufacturing sector output but there is negative relationship between money supply and economic growth.
Based on the findings, Increased money supply would inevitable hamper economic growth in the long run. The result also shows that linkage among the sectors is very low. The linkages run from the Oil sector to the manufacturing and solid minerals sectors. This means that the manufacturing sector has not contributed significantly to the oil sector. It also means that the oil sector has been dependent on imports for her manufacturing equipment.
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TABLE OF CONTENT
Title page – – – – – – – – – – – – – – – – – – – – – – – – – – – – i
Certification – – – – – – – – – – – – – – – – – – – – – – – – – – – – ii
Dedication – – – – – – – – – – – – – – – – – – – – – – – – – – iii
Acknowledgement – – – – – – – – – – – – – – – – – – – – – – – iv
Table of content – – – – – – – – – – – – – – – – – – – – – – – – – – v
Abstract – – – – – – – – – – – – – – – – – – – – – – – – – – – – – -vi
CHAPTER ONE:INTRODUCTION
1.0 Background of the study – – – – – – – – – – – – – – – – – – – – 1
1.1 Statement of the problem – – – – – – – – – – – – – – – – – 4
1.2 Research Question – – – – – – – – – – – – – – – – – – 5
1.3 Objective of the study – – – – – – – – – – – – – – – – – 6
1.4 Significant of the study – – – – – – – – – – – – – – – – 6
1.5 Statement of the hypothesis – – – – – – – – – – – – – 7
1.6 Scope of the study and limitation of the study – – – – – – – 7
CHAPTER TWO:LITERATURE REVIEWS
2.0 Introduction – – – – – – – – – – – – – – – – – – – – – – – – 8
2.1 Conceptual literature – – – – – – – – – – – – – – 8
2.1.1 Characteristics of Nigeria Industry – – – – – – – – – – – 12
2.1.2 Importance of Industrialization – – – – – – – – – – – – – – 13
2.1.3 Industrialization Strategies – – – – – – – – – – – – – – – – – -14
2.1.4 Sizes of Nigeria Industry – – – – – – – – – – – – – – – – – 16
2.1.5 Stages of Industrial Development in Nigeria – – – – – – – – 16
2.1.6 Prospect for Industrial Development in Nigeria – – – – – – – 17
2.1.7 The Role of manufacturing Industries in the growth of the Nigeria
Economy – – – – – – – – – – – – – – – – – – – – – – 18
2.1.8 Positive of Industrialization on the Nigeria Economy – – – – 20
2.1.9 Negative Impact of Industrialization on Nigeria Economy – – 21
2.1.10 Challenges faced by Industrialization in Nigeria Economy – – 22
2.1.11 The role of Industrialization on Economic Growth of Nigeria- 24
2.2 Theoretical Framework – – – – – – – – – – – – – – – – – 25
2.2.1 Neoclassical Growth model – – – – – – – – – – – – – – 25
2.3 Empirical Literature Review – – – – – – – – – – – – – – – 26
CHAPTER THREE:RESEARCH METHODOLOGY
3.0 Introduction – – – – – – – – – – – – – – – – – – – – – – -30
3.1 Sources of Data – – – – – – – – – – – – – – – – – 30
3.2 Model Methodology – – – – – – – – – – – – – – – 30
3.3 Description of Variables – – – – – – – – – – – – – 30
3.4 Estimation techniques and procedures – – – – – – – – – 32
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CHAPTER FOUR:
4.0 Presentation and discussion of result – – – – – – – – – 34
4.1 Unit root properties of Individual Series – – – – – – – – – 34
4.2 Co integration test – – – – – – – – – – – – – – – – 35
4.3 Vector Error Correction Model – – – – – – – – – – – – 36
4.4 Diagnostics test – – – – – – – – – – – – – – – – – – 37
4.5 Granger causality test – – – – – – – – – – – – – – – 38
CHAPTER FIVE
5.0 Introduction – – – – – – – – – – – – – – – – 40
5.1 Summary of the main findings – – – – – – – – – – – 40
5.2 Policy implication and Recommendation – – – – – – – – 42
5.3 Limitation of the study and area of further research – – – – – 43
5.4 Conclusion – – – – – – – – – – – – – – – – – – – 43
References – – – – – – – – – – – – – – – – – 44
Appendix
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CHAPTER ONE
INTRODUCTION TO THE STUDY
1.0 Background of the study
Industrialization has been regarded as a veritable channel of achieving lofty and desirable goals of improved technology and improved quality of lives of the citizens of the country. Countries develop their industrial sectors for many reasons: (i) industries have more backward and forward leakages to the other sectors of an economy; (ii) they exhibit increasing returns to scale; and (iii) they have the ability to diffuse technology in the economy wider than the primary sector. According to Bolaky (2011), industries are very essential in a developing country like Nigeria because the marginal revenue products of labour in the industrial sector are higher than the marginal revenue product of labour in the agricultural sector. Based on this, the releasing of labour force from agricultural sector to the industrial sector increases the marginal product of labour in the agricultural sector and increases the overall revenue and output of the society and hence contributes to economic-growth. Therefore, industrialization is an ideal policy option for sustainable economic growth in Nigeria and it is what the present regime needs to achieve its transformation agenda.
Based on the above, Nigeria has designed policies to attract manufacturing and industrial activities during the colonial and postcolonial periods. In the colonial era, the focus was to extract raw materials from Nigeria to foreign based industries. Like the rest of African countries, the colonial government in Nigeria was interested in extracting raw materials for its industries at home. For this reason no conscious efforts was made to industrialize Nigeria. It used to be argued that countries should specialize in areas of production that they are best suited. Between
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the periphery and the centre, the centre had more advantage in industrial output and the periphery in raw materials ( Jhingan, 2008).
In the post-Independence Nigeria, the indigenous government that emerged was very ambitious not only to industrialize, but also to ensure indigenous participation. This led to the emergence of Indigenization policy along with Import substitution strategies. Nigeria had practiced this from 1960s to the early 1980s. It was noticed that the twin policies of import substitution and indigenization could not yield the expected industrialization in Nigeria. Two main problems were encountered here.
The oil boom of the 1970s made Nigeria neglected its agricultural and light manufacturing bases in favour of an unhealthy dependence on crude oil. In 2000, oil and gas export accounted for more than 98% of export earning and about 83% of federal government revenue. New oil wealth, the concurrent decline of other economic model fuelled massive migration to the cities and led
to increasingly wide spread poverty especially in rural areas. A collapse of basic infrastructures and social services since the early 1980s accompanied this trend, (CIA, 2010).
One, the Nigerian citizens to whom import substitution and indigenization policies favour lack the financial capacity, the technical knowhow, the entrepreneurial ability and the managerial acumen. Second, import substitution necessarily entails inefficiency of local industries because they are not established to face foreign completion and so were over protected. To industrialize, it became necessary to abandon these twin policies.
In 1985, Nigeria adopted the Structural Adjustment Programme (SAP) that was supposed to restructure the Nigerian economy, encourage both local and international investors to invest in Nigerian economy. The implementations of the policy, rather than improving the Nigerian
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economic performance, worsen the situation, leading to under capacity utilization of the economy.
SAP was finally abandoned in the 1990s for private sector to take the leading role in the manufacturing and the industrial sectors of the economy. Government has agreed to take up boosting local technology expertise and promoting small scale industries. It is not yet clear how government intends to improve local technology and encourage small and medium scale industries for stimulating industrial growth in Nigeria. By 2000, Nigeria’s per capita income had plunged to about one quarter of its mid 1970s high, below the level at independence. Along with the endemic malaise of Nigeria’s non-oil sector, the economy continues to witness massive growth of informal sector‟ economic activities estimated by some to be as high as 75% of the total economy. The U.S United State remains Nigeria’s customer for crude oil accounting for 40% of the country’s total oil export, Nigeria provides about 10% of overall U.S oil import and ranks as the fifth-largest source for U.S imported oil and ranked 44th worldwide and third in Africa in factor output. (Adeolu Banyawale, 1997)
Industrialization is obviously the replacement of hand tools by machine and power tools is the sine qua non of an industrialized society. But industrialization a) so involves vast economic and social changes, e.g., a tendency toward urbanization, a growing body of wage earners, increased technical and advanced education.
By studying these and other concomitants, one can detect the sign of incipient industrialization in Nigeria.
Historically, the pattern of settlement in Nigeria has been, for the most part, one of farmers living in towns and cities, traveling many muse a day to tend their fields. Today the forces of urbanization are serving to accentuate this existing tendency.
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There are two large sources of existing and potential wage eamel’8: peasant farmers who either begin to produce a surplus for sale, or who go to work for another farmer, and the ever increasing number of school graduates.
Most of these young, literate Nigerians feel that peasant farming offers no future, and yet the majority of them have not been trained for any specific job. Although all young developing economies suffer from the problem of underemployment and unemployment, the situation has been aggravated in Nigeria by the increased pace of basic education. Advanced education is still somewhat of a novelty, and tends to become a status symbol rather than a force for economic progress. The Nigerian economy simply cannot at present absorb the existing labor supply. In spite of the large amount of labor available, Nigeria greatly handicapped by the paucity of skilled labor. This is probably her greatest obstacle to more rapid development. Managerial skills are in short Supply. Very few Nigerian businessmen are willing to launch a manufacturing venture at their own risk. This is largely due to limited capital and to the lack of an industrial tradition.
Although ideally, government role in economic development should be, for the most part, one of help and encouragement to the private sector of the economy.
How or why some agrarian societies have evolved into industrial states is not always fully understood. What is certainly known, though, is that the changes that took place in Britain during the Industrial Revolution of the late 18th and 19th centuries provided a prototype for the early industrializing nations of western Europe and North America. Along with its technological components (e.g., the mechanization of labour and the reliance upon inanimate sources of energy), the process of industrialization entailed profound social developments. The freeing of the laborer from feudal and customary obligations created a free market in labour, with a pivotal
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role for a specific social type, the entrepreneur. Cities drew large numbers of people off the land, massing workers in the new industrial towns and factories.
Later industrializers attempted to manipulate some of these elements. The Soviet Union, for instance, industrialized largely on the basis of forced labour and eliminated the entrepreneur, while in Japan strong state involvement stimulated and sustained the entrepreneur’s role. Other states, notably Denmark and New Zealand, industrialized primarily by commercializing and mechanizing agriculture.
Although urban-industrial life offers unprecedented opportunities for individual mobility and personal freedom, it can exact high social and psychological tolls. Such various observers as Karl Marx and Émile Durkheim cited the “alienation” and “anomie” of individual workers faced by seemingly meaningless tasks and rapidly altering goals. The fragmentation of the extended family and community tended to isolate individuals and to countervail traditional values. By the very mechanism of growth, industrialism appears to create a new strain of poverty, whose victims for a variety of reasons are unable to compete according to the rules of the industrial order. In the major industrialized nations of the late 20th century, such developments as automated technology, an expanding service sector, and increasing suburbanization signaled what some observers called the emergence of a postindustrial society.
1.1 Statement of The Problem
The malfunctioning of industrial sector in a country is widely seen as a major handicap improving a country’s economy and power pushing many governments to encourage or enforce industrialization (Wikipedia, free encyclopedia). One of the problems bedeviling the Nigeria
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economy is that of output from its industrial sector of the economy. Admittedly, the decay in the manufacturing sector is the result of diverse factors that conspire to render many industries comatose (ill). The study is therefore necessary to enable a thorough investigation of the problems of the industrial sector especially that of manufacturing industries and various government agencies set up to provide credit facilities to the industrial sector to ensure continual growth of this sector for rapid economic development of this nation.
That industrialization of a truth is the catalyst of economic prosperity for many nations in the twentieth century can no longer be disputed. It has been a much emphasized development strategy in Nigeria as in many other countries even see industrialization as providing the basic means of overcoming their economic backwardness. While the exact relationship between industrialization and economic development has been a controversial issue in the economic literature, not many economists doubt the capacity of industry for rapid growth and in turning sharply the table of economic progress. To the less developed countries like ours, the high level of industrialization and rapid economic growth of the advanced countries taken account of and are making frantic efforts towards attaining it too, through several industrial policies aimed at encouraging both individuals and the public/government to establish industries. However, the greatest obstacle to rapid industrial development in Nigeria has been identified to be; inadequate finance. Abdulkadir, (1984) pointedly puts it that “if the country’s industrial aspirations are to be achieved, the provision of adequate finance should be accorded high priority. But regrettably, Nigerian industrialists have been badly starved of this very important ingredient for both the establishment and maintenance of industry. This exists in the following forms:
i) Inadequate initial capital for takeoff.
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ii) Inadequate funds for maintaining existing industries.
iii) Insufficient funds for expansion.
The lack of funds by industrialists has greatly denied the nation of many opportunities of achieving development industrially or industrialization which it (Nigeria) has always longed, hoped and craved for. Considering the enormous importance attached to industrialization in our economic development, any problem militating against its achievement should be of interest to us.
1.2 Research Question
This study is designed to answer the following questions:
1. Has industrial growth in Nigeria stimulated economic growth in the country?
2. What are the linkages among the various industrial sectors in Nigeria?
1.3 Objective of the study
The broad objective of the study is to assess the impact of industrialization on economic growth in Nigeria. The specific objectives of the study are:
To examine the impact of various industrial sectors on economic growth
To determine the linkages among the various industrial sectors.
1.4 Significant of the Study
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There is a debate going on in Nigeria about Industrialization which lies in the fact that the work will expose the extent of which industrialization has contributed to economic growth in Nigeria thereby highlighting some obstacles hindering increase in industrial output.
Industrialization plays a significant role in economic development. Industrialization acts as a catalyst that accelerates the pace of structural transformation and diversification of economic, enable a country to fully utilize its factor endowment and to depend less on foreign supply of finished goods or raw materials for its economic growth, development and sustainability. Industrialization which is a deliberate and sustained application and combination of an appropriate technology, infrastructure managerial expertise and other important resources has attracted considerable interest in development economies in recent times.(Okafor, 2005). Since the move to liberalized system, the economy witnessed series of changes that have substantially affected the trend and stability of the rate.
The role of industrialization in economic development of developing countries has been
demonstrated by David Coleman and Frederich Nixson, Colman (1978). They argued that the industrialization of a basically agricultural, primary export-oriented economy was seen by policy makers and planners in a developed countries as a means of breaking loose from the chains of dependency forged during the colonial epoch thereby matching the newly acquired independence with economic independence. Industrialization is fundamental in that it will create “extensive employment opportunities, raise output per head and living standards throughout the economy and, significantly, it would induce necessary and desirable changes in social and cultural attitudes and institutions through modernizing’ impact of imported organizational
methods and technologies”. It is believed that industrialization would also alleviate balance of payments constraint, diversify the economy and reduce excessive dependence on the export of a
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few primary products whose prices were allegedly subjected to long-run secular deterioration and which in the short-run, exhibited substantial year-to-year fluctuation around the trend. This work differs from those of others in that it divides the industry into three industrial sectors, and analyse the impact of each one on economic growth.
1.5 Statement of the hypothesis
The following hypotheses are tested on this study:
HO: Industrialization does not stimulate economic growth in Nigeria
H1:Industrailization stimulate economic growth in Nigeria.
1.6 Scope of The Study And Limitation of the study
The scope of the study is to assess the impact of industrialization in the Nigerian economy. the period selected to be used for the investigation covers the period of 1981 to 2012.The limitations of the study are the variables used to carry out the study are restricted to industrial output, capital stock and human capital.
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