EFFECT FINAL GOODS IMPORTATION ON THE PERFORMANCE OF THE MANUFACTURING SECTOR OF THE ECONOMY

EFFECT FINAL GOODS IMPORTATION ON THE PERFORMANCE OF THE MANUFACTURING SECTOR OF THE ECONOMY

CHAPTER ONE

INTRODUCTION

1.1BACKGROUND TO THE STUDY

The manufacturing sector 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, 2023) Exchange rate in Nigeria witnessed a radical change from the long operated fixed system between the 1960s and the first half of the 1980s. It shifted dramatically from the second half of 1986 to a flexible regime when the structural adjustment programmes (SAP) began. Since the move to liberalized system, the economy witnessed series of changes that have substantially affected the trend and stability of the rate.

In considering the Nigerian economic development experiences therefore, it is instrumental to examine the growth and structural change in certain major aspects of the economy (Ajakaye, 2022). Productivity is higher in the manufacturing sector than in the agricultural sector.

As in the advanced economies, productivity growth in agriculture in developing countries tends to be higher than in manufacturing. In terms of output growth, manufacturing continues to outperform agriculture in both advanced and developing economies, because the share of manufacturing in the total economy is shrinking everywhere.

Therefore, the slow performance of manufacturing sector in Nigeria is mainly due to massive importation of finished goods and inadequate financial support. Which has resulted in the reduction in capacity utilization and input of the manufacturing sector in the economy (Tomola, Adebisi and Olawale, 2023).

From statistical report, it has been observed that the contribution of manufacturing to GDP has not been encouraging in spite of the several policies put in place to encourage production for export.

For instance, the manufacturing output in 1981 was 1558.70 #billion and its contribution to GDP was 10.23 and capacity utilization was 73.3. In 2015, its contribution to GDP was 9.54 and capacity utilization was 59.9 percent (CBN Statistical Bulletin, 2015).

It is evident that manufacturing sub-sector of the Nigerian economy has not reached a desired stable level to perform its function as an engine of growth.

This is one of the reasons why the emergence of manufacturing has been so important in growth and development. Sectoral capital stock estimates for developing countries are still scarce, but what data there are indicate that after 1950 manufacturing is indeed far more capital intensive than other sectors (Szirmai, 2018). Hence, manufacturing output growth fell drastically to an annual average of about 2.6 percent during the period 1978-1986 even with the introduction of SAP in 1986 up till 1999, growth in the sector was negative (Anyanwu, 2014).

Endogenous growth models emphasize two important mechanisms through which the participation in international trade can raise the long-term growth rate of countries. First, trade enables the use of better (Aghion and Howitt, 2013) and larger (Romer 2015) variety of intermediate products and capital equipments. Second, trade plays an important role as a transmission channel for knowledge spillovers across countries (e.g., Grossman andHelpman 1991, Coe and Helpman 1995, Coe et al, 1997, Keller 2000, 2004).

EFFECT FINAL GOODS IMPORTATION ON THE PERFORMANCE OF THE MANUFACTURING SECTOR OF THE ECONOMY

Countries that use imported intermediate products and capital equipments derive benefits because these products embody foreign knowledge. Spillovers arise in this process of knowledge diffusion to the extent the imported products cost less than its opportunity costs –including the R&D costs to develop the products.

Further, import might facilitate learning about the products (for example, reverse engineering), spurring imitation or innovation of competing products. Also, trade relationships stimulate personal interaction and other channels of communication leading to cross border learning of production methods, product design, organizational methods, and market conditions. Thus, countries import new goods first, then produce them by themselves, and eventually export them (Chuang, 2016).

The extent of trade-induced knowledge spillovers, however, crucially depends upon the tangible and intangible knowledge stock of the trading partners and the learning potential of the traded goods. Acemoglu and Zillibotti (2012) advanced a theoretical explanation.

Empirical analysis by Broda, Greenfield and Weinstein (2015) shows that imported varieties account for 15% of productivity growth in a typical country in the world, while the effects are larger in the developing countries, for the wide variation in knowledge stocked across countries. They argue that societies accumulate knowledge by repeating certain tasks and that the scarcity of capital restricts the repetition of various activities.

Therefore, richer societies tend to accumulate more knowledge compared to the poorer societies, which provides the former with a comparative advantage in knowledge-intensive/higher productivity products.

1.2 STATEMENT OF THE PROBLEM

The productive sector is in a crisis as its average contribution to the nation’s Gross Domestic Product over the past few years has not been large. Many years of neglect and maladministration on the part of successive military and civilian governments, coupled with corruption and indiscriminate policy reversals have all conspired to render the manufacturing sector ineffective in terms of productivity.

Governments after governments have failed to pursue policies that could create a vibrant real sector with the result that the impact of the manufacturing sector has steadily declined over the years and its contribution to national growth and development has been disappointingly low (Banmijoko, 2016).

The history of industrial development and manufacturing in Nigeria is a classic illustration of how a nation could neglect a vital sector through policy inconsistencies and distractions attributable to the discovery of oil (Adeola, 2015). The near total neglect of agriculture has denied many manufacturers and industries their primary source of raw materials.

However, all these constraints state above constitute a major which provoked the essence of this study. Thus, it is in the light of the foregoing that this study seeks to evaluate the role of the manufacturing sector and importation effect in the Nigerian economy.

 1.3 OBJECTIVES OF THE STUDY

The broad objective of this study is to ascertain the effect final goods importation on the performance of the manufacturing sector of the economy.

The specific objectives are:

1. To access the nature of the relationship between final goods import and the manufacturing sector of the economy.
2. To examine the impact of final goods import on the manufacturing sector of the economy.

1.4 RESEARCH QUESTIONS

The study would examine the following questions:

1. What is the nature of the relationship between final goods import and the manufacturing sector performance?
2. What is the impact of final goods importation on manufacturing sector performance?

1.5 RESEARCH HYPOTHESIS

H0: There exists no significant relationship between imports and the manufacturing sector performance.

H1: Imports of goods and services has no effect on the manufacturing sector performance.

1.6 SIGNIFICANCE OF THE STUDY

This study on the impact of final goods import on manufacturing sector performance in Nigeria is significant in the following ways:

1. It will influence various economic units both in the public and private sectors of the Nigerian economy.
2. The research report will be a veritable source of information to various categories of students as well as researchers wishing to conduct further research in this area.
3. It will be relevant to policy makers especially when making policy decisions on the choice of policy that will suit the Nigerian manufacturing sector.
4. Finally, the study will be useful to institutions outside the ones mentioned above.

1.7 SCOPE OF THE STUDY

This study evaluates the effect final goods importation has on the development of Nigeria manufacturing sector.  The study shall be restricted to the period from 1981 to 2019 using only relevant performance indicators such as Gross Domestic Product (GDP) and other control variables.

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