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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