Impact of Manufacturing Sector on Economic Growth in Nigeria: An ARDL Bounds Testing Approach

Abstract

Manufacturing is widely recognized as a catalyst for economic growth and development globally. This study examines the impact of the manufacturing sector on economic growth in Nigeria using annual time series data spanning 1985–2023. The statistical properties of the data were examined using the Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests. The results show that real gross domestic product (RGDP), manufacturing output, and agricultural output are stationary at first difference, while the exchange rate is stationary at level. Based on this mixed order of integration, the Autoregressive Distributed Lag (ARDL) model was employed. The short-run results indicate that manufacturing output has a positive but statistically insignificant effect on RGDP, while it’s lagged values at lag 1 and lag 3 are negative and insignificant; however, at lag 2, manufacturing output exerts a positive and statistically significant impact on RGDP. Agricultural output shows a negative and statistically insignificant effect on RGDP, though its first lag is negative and statistically significant. Exchange rate has a positive but insignificant effect contemporaneously, is negative and insignificant at lag 1, negative and significant at lag 2, and positive and significant at lag 3. In the long run, manufacturing output and agricultural output have positive but statistically insignificant effects on RGDP, while exchange rate has a negative and statistically insignificant effect. The study recommends adequate foreign exchange provision to manufacturers and improved investment in research and development to enhance innovation, manufacturing, and agricultural productivity in Nigeria