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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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