INTEREST RATE POLICY AND THE PERFORMANCES OF NIGERIA’S MANUFACTURING SUB SECTOR (1984-2003).





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INTEREST RATE POLICY AND THE PERFORMANCES OF NIGERIA’S MANUFACTURING SUB SECTOR (1984-2003).


TABLE OF CONTENTS
Certification                                                                             i
Dedication                                                                               ii
Acknowledgment                                                                     iii
Table of Contents                                                                     iv
Abstract                                                                                   v
CHAPTER ONE: INTRODUCTION
1.1   Background of study                                                                1
1.2   Statement of problem                                                      1
1.3   Objective of study                                                            3
1.4   Research hypothesis                                                                4
1.5   Method of study                                                               4
1.6   Scope of study                                                                 5
1.7   Significance of study                                                                5
1.8   Organization of study                                                       6
CHAPTER TWO: LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.1   Introduction                                                                     7
2.2   The concept of interest rate                                             8
2.3   Theories of interest rate                                                   11
2.4   Interest rate policy in Nigeria                                           22
2.5   The concept of manufacturing firm                                  26
2.6   Evaluation and overview of the Nigerian manufacturing industries                                                                         28
2.7   The impact of interest rate policy in the performance of the manufacturing sub sector                                                        31
CHAPTER THREE: METHOD OF STUDY
3.1   Introduction                                                                     37
3.2   Research design                                                               37
3.3   Data collection                                                                 38
3.4   Model specification                                                          38
3.5   Mathematical form of the model                                      40
3.6   Method of analysis                                                           42
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1   Introduction                                                                     43
4.2   Data presentation                                                            43
4.3   Result presentation of the model                                     45
4.4   Re-statement of hypothesis                                             46
4.5   Analysis and inter presentation of result                         47
4.6   Test of significance of the parameter estimates                        48
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION
5.1   Summary of major findings                                             51
5.2   Research findings                                                            51
5.3   Recommendation                                                             52
5.4   Conclusion                                                                      54
Bibliography                                                                            55


ABSTRACT
The objective of this study is to examine the relationship between interest rate and manufacturing output in Nigeria. A regression analysis was run between the dependent variable manufacturing output and independent variable interest rate. The hypothesis test was carried out at 5 percent level of significance. Also the coefficient of determinant (R2), 0.50 implies that about 50 percent change in the manufacturing output in Nigeria during the period under review (1984-2003) is explained by change in the explanatory variable, interest rate. The residual 50 percent of the total variation in manufacturing output is explained by other factors like taxation, credit availability, profit, expected rate of returns on capital assets etc. recommendations were made in the study, to ensure growth in the manufacturing sub sector.


CHAPTER ONE
INTRODUCTION
1.1   BACKGROUND OF STUDY
Manufacturing involves the conversion of raw materials into finished consumer goods or intermediate or producer goods. Manufacturing is a sub-set of the industrial sector (others being processing craft, and mining sub sectors).
Before the 1950s, when Nigeria was still a British colony, there was virtually no manufacturing industry in Nigeria. The Nigeria manufacturing industry as at that time mainly based on semi-processing of raw material for export. The bulk of the contribution came from semi-processing of cotton, palm oil, saw milling, rubber creeping and veneer production (Diaku, 1989:3).
However, in recent years and particularly since 1959, there has been a rapid and important growth of the manufacturing industry in Nigeria. The development of the manufacturing sub sector became important to the government with the objective of promoting growth in the country’s industrial sector, to increase the wealth of the country and also to provide new source of employment.
Manufacturing activities helps to boast agriculture by creating market for this sector and also manufacturing fertilizer, herbicides, pesticides etc to boast it. It also helps in increasing the nation’s foreign earnings enabling local labour to acquire skills and minimizes the risk of over dependence on foreign trade which in turns leads to the fullest utilization of available resources.
There are factors that affects the manufacturing sub sector which are the economic and non-economic factor, the utilization etch while non-economic variable include political stability, availability of necessary raw materials, availability of essential social amenities such as good road network, communication system etc. these factors form the bedrock for any meaningful manufacturing process that will be undertaking in any given economy.
Interest rate is regarded as the rental payments for the use of credit borrows and return for parting liquidity by lenders (CBN, June 1977). Interest rate is a tool for monetary and credit control. For this reason, interest rates have important allocative influence on the level and directions of economic activities. By also affecting the vial operating cost of business, changes in interest rate can also exert a significant role in the manufacturing sub sector.
 1.2  STATEMENT OF PROBLEM
Structurally, Nigeria industry has shown a number of important changes. However, the manufacturing sub sector of Nigeria has witnessed slow growth rate. According to the central bank of Nigeria (1995), the unsatisfactory performance of the industrial sector in general has been attributed largely to the high cost of production due to high interest rates.
The role interest rate in Nigeria play in the efficient allocation of resources in the manufacturing sub sector for the development of the economy cannot be overlooked. The variations in interest rate over the years have been a problem to this sector. This study is aimed at examining the impact of interest rate variation on the performance of the manufacturing sub sector.

1.3   OBJECTIVE OF STUDY
From the statement of problem discussed above, the following are the objectives of this study.
i.      To find out what the government has been doing in the management of interest rates in Nigeria.
ii.     To examine the impact of interest rate policy in the performance of Nigeria manufacturing sub sector.
1.4   RESEARCH HYPOTHESIS
H01: There is no significant relationship between interest rate and manufacturing output.
H02: There is a significant relationship between interest rate and manufacturing output.
1.6   METHOD OF STUDY
The study shall be empirical. Data will be collected on the hypothesized variables from 1984- 2003. The data shall be collected from the central bank of Nigeria statistical bulletin 2003 and the major economic, financial and banking indicators 2003.
The model shall specify the significant relationship between interest rate and manufacturing output and this will involve the use of ordinary least squares regression method.
T-values and F- ration of the parameter estimates shall be computed to determine whether the estimates are significant or not. Only coefficients which are significant at probability levels not exceeding at 0.05 will be accepted and analyzed.
1.6   SCOPE OF STUDY
The study covers the period of 1984-2003. It is limited to the examination of how interest rates influence the manufacturing output.
1.7   SIGNIFICANCE OF STUDY
The result of this research will enable us understand the influence of the rate of interest on the output of the manufacturing sub sector. If we determine the extent to which the interest rate influence and how this variable affects the output of the manufacturing sub sector, we will be in a position to advice the government on whether or not interest rate should be lowered, fixed or at increased.
1.7   ORGANIZATION OF STUDY
This study is structured into five chapters. The first chapter introduced the study to be carried out. The second chapter reviews different point of views concerning the concept of interest rate policy management in Nigeria, evolution of the manufacturing firm in Nigeria et cetera. The third chapter specifies the statistical and econometric techniques and methods used to analyze the data, while chapter five summarized the study, gives recommendations and concludes the study. 


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