INDUSTRIAL OUTPUT VOLATILITY IN NIGERIA: Causes and Consequences
- Ebi Bassey Okon
- Lionel Effiom
- ( paper pages. 1 - 15 )
Abstract
Empirical studies in Europe, America and Asia have shownoverwhelming evidence in support of the view that more volatilefinancial development raises industrial output volatility. The pertinentquestion is, does this evidence hold in the context of a mono economysuch as Nigeria, driven by exogenous oil prices and highmacroeconomic policy volatility? Accordingly, this paper investigateswhether industrial growth volatility is principally caused by volatilityof financial sector development in Nigeria. Total industrial outputvolatility was decomposed into the effects of financial developmentvolatility, fiscal volatility, trade openness volatility, and oil pricevolatility using the vector auto-regressive (VAR) mechanism. Allvolatility measures are standard deviations of the various variables.Results suggest that about 24 per cent of the variations in industrialoutput volatility are caused by industrial output volatility itself, about5 per cent and 38 per cent by financial institutions and financialmarkets volatilities respectively, representing a sum of 43 per centattributed to financial sector development volatility, while 28 per centare caused by volatility in openness to international trade, 2 per centby fiscal policy (government expenditure) volatility and about 4 percent by oil price volatility. The estimates also suggest that, on thewhole, about 32 per cent of volatility in Nigeria’s industrial sectorwas associated with exposure to external shocks while 68 per cent wasattributed to domestic factors (especially domestic capital marketdevelopment). The implication of these results is that industrial output instability is relatively determined more by volatility in the domesticfinancial sector, and less by oil price and other external relatedvolatility. Hence, volatility in the domestic capital market raised amajor concern. The consequence of high output volatility isunderdevelopment, as evident in low investment and widespreadpoverty in Nigeria.
Citation
Ebi Bassey Okon, Lionel Effiom.
2019.
"INDUSTRIAL OUTPUT VOLATILITY IN NIGERIA: Causes and Consequences"
The Nigerian Journal of Economic and Social Studies,
61 (1): 1 - 15.
JEL Classification
C23; E32, G2; O43
