FINANCIAL SECTOR DEVELOPMENT AND THE QUEST FOR INDUSTRIALIZATION IN NIGERIA: A Multivariate Analysis
- B.O. Iganiga
- ( paper pages. 1 - 25 )
Abstract
The performance of the industrial sector in relation to financialdevelopment is examined in this study using manufacturing index asa major industrial sector development indicator. A structural varianceautoregressive (SVAR) model with structural breaks was formulatedand applied to Nigerian data spanning 1970 to 2015. The results fromthe analysis revealed that with the continuous upward swings in theofficial lending interest rates as expected theoretically, shocked offinvestment and ultimately manufacturing output. This phenomenonwas not restricted to the conventional deposit money banks (DMB),but also to the Bank of Industry (BOI) and allied financial institutionswhose loan processes are fraught with bureaucratic bottlenecks andpolitical intrigues. The level of financial deepening (M2/GDP)positively influenced manufacturing output though not statisticallysignificant. This calls for more concerted efforts on the part of themonetary authorities to implement the recent cashless monetary policyto the letter in order to reduce the liquidity ratio in deposit moneybanks and make investible funds available for the manufacturing andallied subsectors in Nigeria. The radioactive decay syndromeexhibited by a lag of the manufacturing index is novel and a sine quanon for policy makers and executors and is a factor that must beconsidered by policy makers and executors. It implies thatmanufacturing output will continue to accentuate as long asindustrialization policies and strategies are initiated, implementedand sustained in Nigeria. Exchange rates misalignment has the leastinfluence on manufacturing output as shown in the analysis. The paper further recommends that for industrialization to be achievedand sustained, the yawning gap between interest rates on savings andlending — interest rates spread should be bridged to stimulate creditfor the private sector for maximum manufacturing output and theexchange rates misalignment currently experienced in Nigeria willultimately fizzle out.
Citation
B.O. Iganiga.
2019.
"FINANCIAL SECTOR DEVELOPMENT AND THE QUEST FOR INDUSTRIALIZATION IN NIGERIA: A Multivariate Analysis"
The Nigerian Journal of Economic and Social Studies,
61 (1): 1 - 25.
JEL Classification
E44, O16
