IMPACT OF FISCAL POLICY ON MANUFACTURING OUTPUT AND CAPACITY UTILIZATION IN NIGERIA FROM 1984 TO 2021
Abstract
The importance of fiscal policy in stimulating, stabilizing and repositioning the manufacturing sector cannot be over-emphasized. This paper aims at evaluating the impact of fiscal policy on the Nigeria’s manufacturing output and capacity utilization rate from 1984 to 2025, with a view to determining the best fiscal options for repositioning the Nigeria’s manufacturing sector. The paper expresses capacity utilization rate and manufacturing output as the target-dependent variables, represented by models I and II respectively, while the fiscal policy instruments namely: government capital expenditure (GCAPEX), government recurrent expenditure (GREPEX), government non-oil tax revenue (GNTAX) and government budget deficit (GBDEF) are the explanatory variables. The study adopted the autoregressive distributed lag (ARDL) regression technique and the E-views version 10 application software to carry out various tests and analysis including, the pre-estimation tests, the parameters estimation and the post-estimation tests. To ensure that the data series was stationary overtime, the study conducted a unit root test, which confirmed that the data series were stationarity at 1(0) and 1(1) differencing and at 5% level of significance. The study also conducted the ARDL bound test, which confirmed that there was a long-run cointegration among the variables as revealed by the F-stats of 4.82 and 3.39 for model 1 and model II respectively, which were greater than both the lower and the upper bounds. The error correction model (ECM) revealed that the coefficients of the short-run speed of adjustment for model 1 and model II were 83% and 77% respectively, which were both negative, implying that the relationship among the variables was statistically significant at 5% level of significance. The t-stat of the individual variables revealed that the systematic components of each variable were statistically significant at 5% level of significance. Accordingly, the result revealed that apart from the GREPEX that made positive impact on both the capacity utilization and output in both the short-run and the long- run, the GCAPEX, GNTAX, GBDEF made negative impact on the target-dependent variables in the long-run. The result corroborated with the hypotheses, which states that despite the implementation of fiscal policy in Nigeria over the years, the aggregate manufacturing output and capacity utilization rate did not increase significantly. The study recommends among other solutions that the Nigeria’s fiscal policy needs to be restructured and finetuned in line with the Keynesian-Structuralist integrated framework, to boost capacity utilization rate and output of the manufacturing sector and the economy.
JEL: C32; E62; L60
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DOI: http://dx.doi.org/10.46827/ejefr.v10i5.2290
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