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THE
IMPACT OF INDUSTRIALIZATION ON ECONOMIC GROWTH IN NIGERIA (1980-2010)
ABSTRACT
The
objective of this study is to analyze the impact of industrialization on
economic growth in Nigeria. Because of the link between industrialization and
economic growth, both theoretical and econometric analysis are used to examine
the contribution of industrialization to economic growth in Nigeria, using GDP
as the dependent variable and industrial output, labour force, capital stock
and human capital as independent variables from 1980-2010. The results show
that industrial output, capital stock, significantly contribute to economic
growth while human capital and labour force do not contribute significantly to
economic growth. The detailed results are: in industrial output, an increase in
industrial output by 1 unit increases GDP by 2 folds; an increase in capital
stock increases GDP by over 100 folds; an increase in human capital does not
stimulate increase in GDP because the t-statistic is insignificant; and in
labour supply, the same remark on human capital applies. On the whole, the
adjusted R2value shows that the explanatory power of the model is as
high as 92%. The study recommends that government should develop policy
measures to improve formal education that will produce graduates relevant for
industrial needs of the country, improve legal frame works to protect human right,
and property rights, and improvement on social and economic infrastructure to
make the industrial sector competitive.
CHAPTER ONE
INTRODUCTION
1.1 Background to 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 linkages 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), industriesare 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 jcolonial era,
the focus was to extract rawmaterials from Nigeria to foreign based industries.
Like the rest of African countries, the colonial government in Nigeriawas 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 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. 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 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.
Now that the Nigerian government has decided to play the
role of motivating industries through provision of infrastructure and improving
the environment where businesses are done, it is not clear how this can affect
industrial growth in Nigeria. After one and a half decades, there seems to be
no remarkable improvement but rather industries have folded up without new ones
coming up. What is the way forward?
1.2 The Statement of the Problem
The
tendency of the industrial sector to stimulate more economic growth has
prompted many economists to formulate theories to encourage industrialization.
Famous among the early theories formulated are: Leibenstein’s (1957) theory of
critical minimum effort thesis; Nelson’s (1956) theory of low equilibrium trap;
Rosenstein – Rodan’s (1943) theory of the big push; the doctrine of balance
growth; Hischman’s (1958) doctrine of unbalance growth; the import substitution
strategy; and export promotion strategy. Overtime, the influences of these
theories on policy decisions have been varied. The first three of these
theories(the theory of critical minimum effort thesis, the theory of low
equilibrium trap and the theory of the big push) emphasize market constraint as
a main barrier to industrialization and advocated state intervention to help
minimize this constraint through massive investment of resources. The middle
two (the doctrines of balance growth and unbalance growth) acknowledge market
constraint but advocated piecemeal approach to minimizing the market
constraint. The last two theories (import substitution strategy and export
promotion strategy) also identified market constraint as the main factor
impinging industrial growth in developing countries and advocated the taping of
existing domestic market and external market in tackling the constraint to industrialization.
Policies
of the first theory (the theory of critical minimum effort thesis) were applied
by the erstwhile USSR, Chinaand countries in
Eastern European to develop through huge investment in public resources; while
the last method (the export promotion strategy) was first applied by Japan,
later by the Asian Tigers (Singapore, Hong kong, South Korea and Taiwan) and
more recently by the Newly Industrialized Countries: Malaysia, South Africa,
Indonesia, etc. (Clunies-Ross, fosyth and Huq, 2010).
Given
the above scenario, can we say that the present levels of industrialization
efforts in Nigeria have contributed in stimulating economic growth in Nigeria?
What are the impact of labour force, capital stock, and human capital on
Nigeria economic growth? These are the questions this study is supposed to
address.
1.3 Research Questions
This study is
designed to answer the following questions:
i.
Has industrial growth in Nigeria stimulate economic
growth in the country?
ii.
What is the impact of human capital
development on economic growth in Nigerian economy?
iii.
Has labour input contributed to economic
growth in Nigeria? And
iv.
Does capital stock influence economic growth
in Nigeria?
1.4 Statements of Research Objectives
The broad
objective of the study is assessing the impact of industrialization on economic
growth in Nigeria. The specific objectives of the study are:
To
examine the impact of industrialization on economic growth in Nigeria;
To assess the impact of
human capital on economic growth in Nigeria;
To
highlight the impact of labour force on economic growth in Nigeria; and
To highlightthe
effects of capital stock on economic growth in Nigeria.
1.5 Significance of the Study
The study
in the area of impact of industrialization on economic growth in Nigeria is the
area has scanty empirical works (Usman and Wanjuu, 2011). This work is designed
to fill the vacuum that exists in this area. In the above cited study, the
study lays emphasis on the relationships between industrial output, labour,
capital stock, on one hand, and the level of output on the other hand.
Our
study attempts to relate industrial output, labour capital stock and human
capital to the level of output in Nigeria. Previous studies have not included
the human capital element in estimating the relationship between industrial
output and economic growth in Nigeria. So this study is an improvement over the
previous works.
Another
area of improvement is the specification of the equation. In the work of Usman
and Wnajuu (2011), for instance, the level industrial output as a proportion of
the GDP value was expressed in terms of output per worker. As observed by Ghali
(1997), Where output is expressed as a proportion of the GDP, the result of the
regression analysis is always negative, a sort of misspecification of the
model. This study corrects these defects by specifying the industrial output in
their absolute terms, as independent variable to the GDP.
1.6 Statement of Hypotheses
The null hypotheses
formulated to guide this study are:
i: Industrial output does
not contribute to economic in Nigeria;
ii: Human capital has no
impact on economic growth in Nigeria;
iii: Capital stock does not
contribute to economic growth in Nigeria;
iv: Labour force does not
contribute to economic growth in Nigeria;
1.7 Scope and Limitations of the Study
The
scope of the study is to assess the impact of industrialization on the Nigerian
economy. The study also assesses the impact of capital stock, human capital,
and labour force on economic growth in Nigeria. The limitations of the study
are:
The
period selected to be used for the investigation covers the period of
1980-2010; and
The
variables used to carry out the study are restricted to industrial output,
labour force, capital stock and human capital.
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