FISCAL POLICY AND INDUSTRIAL SECTOR PERFORMANCE IN NIGERIA

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FISCAL POLICY AND INDUSTRIAL SECTOR PERFORMANCE IN NIGERIA

CHAPTER ONE/INTRODUCTION

1.1 Background of the Study

The need to achieve improved balance of payments position, balanced industrial development, high  employment level, increased     productivity, equitable income distribution, high revenue sources, price stability and economic growth has necessitated the development of various macroeconomic policies. Macroeconomic policies suggest the combination of government fiscal and monetary policies. It incorporates all policy frameworks geared at achieving a sound, stable and vibrant economy. Fiscal policy as a tool for macroeconomic management has been defined as a purposeful use of government revenue (majorly from taxes) and expenditure to manipulate the level of economic activities in a country (Akpapan, 1994). It can also be conceived as part of government policy relating to rising of revenue through taxation and other means and choosing on the level and pattern of expenditure for the purpose of manipulating economic activities or achieving some needed macroeconomic goals.

 

The implementation of fiscal policy is essentially routed through government’s budget. Budget as a fiscal policy tool could be conceived as a structure that balances the changes in government revenue against expenditure over a period of time. It is a comprehensive financial plan, setting forth the expected route for achieving the financial and operational goals of a country (Meigs & Meigs, 2004).

The intent of fiscal policy is to stimulate economic and social development by pursuing a policy stance that ensures a sense of balance between taxation, expenditure and borrowing that is consistent with sustainable growth. Macroeconomic policies (fiscal and monetary) are indispensable tools that can be used to lessen short-run fluctuations in output and employment (Oke, 2013). They have been recognized in policy debates by both developed and developing economies as potent apparatus in the hands of policy markers for handling macroeconomic issues like high unemployment, inadequate national savings, excessive budget deficits, and large public debt burdens.

The role of fiscal policy on the output and capacity utilization of the industry sector cannot be overemphasized. Fiscal policy drives the market for the manufacturing sector through the purposeful manipulation of government revenue and expenditure. When government is pursuing an expansionary policy, it reduces taxation and increases expenditure and the purchasing power  of the economic units which in turns expands the market for manufactured products. This in turn sends a signal to the manufacturers to increase their productive capacity to take opportunity of the increase market demand. The reverse holds when a contractionary policy is being pursued. Fiscal policy also provides the legal, social and economic framework required for a profitable operation.

 

The Manufacturing sector could be conceived as any economic unit that processes or creates new commodities through the transformation of raw materials or semi finished goods (Eze & Ogiji, 2013). Adebayo (2010) conceived manufacturing sector as those industries which are involved in the manufacturing and processing of items and which indulge or give free rein in either the creation of new commodities or  in value addition. Manufacturing plays a vigorous role in the economic transformation of any nation, whether developed or developing. In Nigeria, Loto, (2012) refers to manufacturing sector as an avenue for increasing productivity in relation to import replacement and export expansion, creating foreign exchange earning capacity, raising employment and per capita income which causes unrepeatable consumption pattern. It occupies a leading position in promoting productivity, investment, import substitution, export expansion, employment and per capita income at a faster rate than any other sector (Shebeb, 2002). It provides wider and more efficient linkage among different sectors.

1.2       Statement of the Problem

The problem before the study is despite the attempts to grow the Nigerian economy through the various programmes initiated by Government, not much progress has been recorded with the industrial sector contribution to economic growth. Studies have not thoroughly investigated to evaluate performance of the industrial sector on the Nigerian economy, and the few researches conducted have not been current. Many researches were made in countries and regions like

Ethiopia (Wakeford, Gebreeyesus, Ginbo, Yimer, Manzambi, Okereke, Black, & Mulugetta,2017),Sub-Saharan Africa (Rekiso, 2017), developing countries (Szirmai, 2012), South Africa(Morris & Fessehaie, 2014) and China (Yua, Dosia, Grazzic & Lei, 2017), few have beenconducted on the Nigerian economy. The study intends to address this gap and investigate the industrial sector on economic growth in Nigeria by improving the literature and give an up to date analysis on industrial sector and economic growth in Nigeria. Morris and Fessehaie (2014) argued for commodities based industrialization strategy and opined that economies of African countries have always been targeted toward economic growth where exports are encouraged to foster the needed economic growth which will lead to industrialization. This has not been possible and it becomes important to investigate how industrialization can foster economic growth.

1.3       Objectives of the Study

The main objective of this study is to determine the effect of compensation management on employee performance. Specific objectives include;

  1. To examine the ways can industrial output have an effect on economic growth as a result of fiscal policy
  2. To examine an extent is foreign direct investment having an effect on industrial sector output
  3. Examine the long run relationship between industrial indices (industrial output, maximum lending rate & foreign direct investment) and gross domestic product in Nigeria.

1.4       Research Questions

  1. In what ways can industrial output have an effect on economic growth as a result of fiscal policy?
  2. To what extent is foreign direct investment having an effect on industrial sector output?
  3. What are the long run relationship between industrial indices (industrial output, maximum lending rate & foreign direct investment) and gross domestic product in Nigeria?

1.5       Research Hypotheses

Hypothesis I

H0:Industrial output does not contribute to gross domestic product in Nigeria.

Hi:   Industrial output does contribute to gross domestic product in Nigeria.

Hypothesis II

H0:       Foreign Direct Investment has no significant impact on gross domestic product in Nigeria.

 

Hi:       Foreign Direct Investment has significant impact on gross domestic product in Nigeria.

 

Hypothesis III

H0:       There is no long run relationship between the industrial indices (FDI, MLR &IND) and gross domestic product in Nigeria.

 

Hi:      There is long run relationship between the industrial indices (FDI, MLR & IND) and gross domestic product in Nigeria.

1.6       Significance of the Study

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.7       Scope of the Study

The study is limited to Fiscal policy and industrial sector performance in Nigeria.

1.8       Limitations of the study

The demanding schedule of respondents made it very difficult getting the respondents to participate in the survey. As a result, retrieving copies of questionnaires in timely fashion was very challenging. Also, the researcher is a student and therefore has limited time as well as resources in covering extensive literature available in conducting this research. Information provided by the researcher may not hold true for all research under this  study but is restricted to the selected respondents used as a study in this research especially in the locality where this study is being conducted. Finally, the researcher is restricted only to the evidence provided by the participants in the research and therefore cannot determine the reliability and accuracy of the information provided. Other limitations include;

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

 

 

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