CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Economic growth and development remain keygoals desired by underdeveloped and developing nations. It is the process of transformations in national attitudes, structure and system of production and the distribution of output that leads to improvement in standard of living. According to Wilson (2002), industrialization dates back to the 18th and 19th centuries when the industrial revolution took place. This period was marked by the invention of machines and the setting up of factories and other industrial changes of that period.

 Industrialization is the bed rock of economic development to the extent that the process of economic development usually begin with industrialization and impossible without it. The pursuit of industrialization by developing economies is hinged on the theoretical and empirical evidences that development nations themselves are highly industrialized.

Industrialization and economic growth are tied together as it provides a large scope for technological progress, on-the-job training and increases in productivity that give rise to wage increases. In addition, it leads to greater backward and forward linkages, more stable and easily controllable production process than agricultural and the most favorablecondition for growth occurs when a proper balance is achieved between industry and agriculture. Industrialization is the process of transforming raw material into consumer goods, producer goods, and services with the help of capital and as well as human resources (Amechi and Azubuike 2004). Today, nations are partitioned intotwo distinct categories as industrialized and unindustrialized. Developed nation are usually the industrialized nations with very high output figures. Industrialization has a trickle down effect on every other activity sector of the economy and the aggregate economy.

Just like any other development effort, industrialization flows from national planning and the efforts are usually deliberate as it aims at certain macroeconomic goals beginning with economic growth.Industry is usually grouped into primary and tertiary production. Primary production has to do with the mining and extraction of deposits of mineral resources while tertiaryproduction anchors on manufacturing the conversion and transformation of raw materials or primary products into finished consumable or tertiary products. CBN (2012) classifies industrial output in the Nigerian economy into three namely:  crude petroleum and natural gas, solid mineral mining, and manufacturing.Industrialization is synonymous with manufacturing- the process of building up of a nation’s capacity to convert raw materials and other input into finished goods either for further production or for final consumption.

1.2    STATEMENT OF THE PROBLEM

There are underling views that all sectors are not equally important for economic growth. The view that economic growth depends on the expansion of a key sector was formalized in the eighteenth century physiocratic analysis of the production and distribution of agricultural output and has persisted in various forms ever since. The role assigned to industrialization has been a central element of numerous analytical studies.

The thought above may have been what engineered or spurred the efforts made so far by successive governments in Nigeria to promote industrial activities as they contribute immensely to the growth of the economy through employment generation, increases in foreign exchange earnings, acquisition of both semiand highly specialized skills, minimization of the risk of complete foreign dependence and utilization of resources.

The effort towards industrialization began in the pre-colonial period. During the post-independence period of 1960s government policy of import substitution gained prominence and after the civil war of 1970s huge foreign exchange flowed in from the export of crude oil which provided avenue for direct government investments in manufacturing activities. The import substitution policy was followed by the indigenization policy programme aimed at making Nigerians assume full control of many firms operating in the country. Other strategies and incentives have been adopted by government such as export promotion, tax holidays, duty reliefs, provision of loans etc.These efforts saw industry including crude petroleum and natural gas accounting for large percentage of foreign exchangeearning and federally collected revenue.

But the recent downturn in the world oil market calls for a test of the contribution of the industrial sector to economic growth in Nigeria. In 1981 the share of industry in GDP was 51.89% (derived from CBN testified bulletin 2014). A decade later (1991) it rose to 54.89 %. In the successive decades it maintained a steady decrease from 44.15% in 2001 to 42.86% in 2011. It decreased further to 39.03% in 2012 and 34.54% in 2013. These could be attributed to the decline in the output of crude petroleum and natural gas component of industrial activities. The implication of this is that other sub sectors of the industrial sector have been relatively dormant.

Manufacturing activities are classified by the CBN into three components namely: oil refining, cement, and other manufacturing, the share of non-oil industrial activities to the economy has remained insignificant. In 1981, it was 33.34% and decreased 17.88% in 1991. It went further down to 7.52% in 2011with an all time low of 1.61% in 2012.these results are not commensurate with the various government efforts and drive towards industrialization. Could it be that government efforts have been wrongly applied or that the efforts have been too insignificant to yield the desired results;and has the industrial sector contributed significantly to the economic growth of Nigeria? This is the problem that necessitated this study.

1.3    RESEARCH QUESTIONS

To attempt to solve this puzzle of finding out how industrialization has impacted economic growth in Nigeria, the following research questions are developed in this study:

1.     Does the industrial sector impact significantly on economic growth in Nigeria?

2.     Does any causal relationship exist between growth of the industrial sector and economic growth performance in Nigeria?

1.4    OBJECTIVES OF THE STUDY

The broad objective of the study is to determine the impact of the industrialization on economic growth in Nigeria. Therefore, following the research questions developed above, the specific objectives of this study are to:

1.     Determine the impact of the industrial sector on economic growth in Nigeria.

2.     Find out the existence or not of any causal relationship between growth of the industrial sector and economic growth in Nigeria.

1.5     RESEARCH HYPOTHESIS

Following the research questions and objectives developed in this study, the hypothesis to be tested are:

1.     HO:The industrial sector has not impacted significantly on economic growth in Nigeria.

H1: the industrial sector has impacted significantly on economic growth in Nigeria.

2.     HO: There is no causal relationship between growth of the industrial sector and economic growth in Nigeria.

H1: there is causal relationship between growth of the industrial sector and economic growth in Nigeria.

1.6     SIGNIFICANCE OF THE STUDY

A study of the impact of industrialization on economic growth in Nigeria has economic wide implications and importance. This study is significantly in the following ways:

1.     It will aid the ministry of trades and investment in reassessing the destination of investment flow with a view to directing them at the manufacturing industrial activities.

2.     It will enable government determine its policy direction in capital budgeting.

3.     The result of this study will trigger investment into the industrial sector especially manufacturing.

1.7     SCOPE AND LIMITATIONS OF THE STUDY

This study has both space and time coverage, it is an investigation into the impact of industrialization proxy by industrial sector output of the economy on aggregate output proxy by gross domestic product (GDP) from 1986 to 2014 and the variables are gross domestic product industrial sector output, interest rate and agricultural sector output.. The other limitation of this study is data inconsistencies from different sources. However, reliability of data was ensured by sourcing them from reliable source (CBN).