The Role of Manufacturing Sector in Economic Diversification of Nigeria (1986-2016)

Abstract

It is widely accepted that an effective manufacturing sector serve as perfect tool for export diversification in developing countries. Therefore, this study investigated the role of manufacturing sector on economic diversification in Nigeria from the period of 1986-2016. In order to achieve the objective of the study, ARDL technique was employed to establish long-run relationship between diversification proxy by Theil index decomposed into Theil Total (TT), Theil Between (TB) and Theil Within (TW) and Manufacturing sector which was proxy by Manufacturing Capacity Utilization(MCU) and Manufacturing Value Added (MVA) controlled by Gross Fixed Capital Formation (GFCF), Foreign Direct Investment (FDI) and Real Effective Exchange Rate (REER). The result revealed that long-run relationship exist among the estimated variables in the three models. MCU, MVA and GFCF promote total diversification and horizontal diversification in the long-run but the coefficients of MCU and MVA are insignificant. On the other hand, only Foreign direct investment and real effective exchange rate promote vertical diversification. The study recommended protection of infant industries, local sourcing of raw materials for production, Government programs that encourage competition among manufacturers in Nigeria and improved infrastructural development in order to enhance the productivity of the manufacturing sector in Nigeria that will position it for global competitiveness