PROPOSAL ON THE IMPACT OF INDUSTRIALIZATION ON THE ECONOMIC GROWTH OF NIGERIA 2010-2017

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.

INTRODUCTION

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:  industries have more backward and forward linkages to the other sectors of an economy;  they exhibit increasing returns to scale; and  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 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 The promotion of industrial development became a major challenge to the African continent during the1960s as the majority of African countries gained their independence at this time. The respective governments saw industrial development as a means for the continent to gain self-reliance and lower their dependence on the industrialized economies. The ideology and beliefs of Africa were based on the vision that industrialization would transform the African economies from traditional agrarian – to progressive and industrialized – based economies. Industrialization was perceived as an instrument of economic growth that will assist the continent to attain its macroeconomic objectives (high income, improved standard of living, selfreliance, job creation and balance of payment stability). Nigeria presents an example of a developing economy. The bulk of the gross domestic product is from the primary sector with agriculture carrying the greatest share. The oil and gas sector is a major player in the economy and contributes about 95% to the country’s export earnings.

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, China and 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?

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