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THE IMPACT
OF INDUSTRIALIZATION ON ECONOMIC GROWTH IN NIGERIA
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), 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 jcolonial era,
the focus was to extract raw materials 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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