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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.
KEY WORDS: INDUSTRIALIZATION
AND ECONOMIC GROWTH.
THE
IMPACT OF INDUSTRIALIZATION ON ECONOMIC GROWTH IN NIGERIA
SECTION
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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