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Impact of monetary and fiscal policies on manufacturing sector of the nigeria economic

The manufacturing, educational and agricultural sectors are the leading sectors in an emerging economy such as Nigeria.

As a result of these, the Nigerian government has embarked on various policies to address this issue. Some of the policies involved the use of monetary and fiscal policy. However, the fiscal policy seems to be more effective in addressing macroeconomic issues, especially when the economy is faced with crises as suggested by Keynes when he was addressing the great depression that once rocked most economies around the world. His 1 suggestion was that government should cut taxation and increase spending in order to boost their economy.

Witnessing this, has shown that fiscal policy is a governmental tool used for achieving certain macroeconomic objectives and the real sector is seen a major macroeconomic variable and therefore, it is automatically affected by the reaction of fiscal policy.

Impact of monetary and fiscal policies on manufacturing sector of the nigeria economic

Recently, government policies began to show more concern on the management and improvement of the economy. Government over the years have embarked on various macroeconomic policy options to grow the economy in terms of growth and development and the policy option employed is that of fiscal policy Peter and Simeon, Fiscal policy is the use of government revenue collection taxation and expenditure spending to influence the economy.

The two main instruments of fiscal policy are government taxation and government expenditure. It can also be seen as government spending policies that influence macroeconomic conditions.

  1. In addition, time constraints serve as limitation to the study.
  2. Asymmetry therefore seemed to be Nigerian phenomenon. Journal of Political Economy,
  3. More importantly, the public debate on the increasing size of the public sector and the attendant increase in spending have cut across boundaries of all economies in the world today.
  4. Research methods or techniques, thus, refer to the methods the researchers in performing research operations.

These policies affect tax rates, interest rates and government spending, in an effort to control the economy. Adebayo, ; Peter and Simeon, and Loto, The real sector is where goods and services are produced through the combined utilization of raw materials and other production factors such as labour, land and capital. It therefore forms the main driving force of any economy, and the engine of economic growth and development.

Effects of Fiscal and Monetary Policies on the Nigerian Manufacturering Sector

The real sector comprises agriculture, industry, building and construction, and services. Thus, the real sector is the key variable in an economy and motivates the conversion and production of products and services. Manufacturing industries creates employment, which helps to boost agriculture and diversify the economy on the process of helping the nation to increase its foreign exchange earnings.

These changes in the manufacturing share of the GDP and capacity utilization shows that firms that are efficient can contribute to job creation, technology promotion and as well ensure 4 equitable distribution of economic opportunities and the macroeconomic stability of the country.

Based on the nature and importance of the relationship between fiscal policy and the real sector, the study becomes necessary in Nigeria, where output and capacity utilization of real sector have suffered rapid fluctuations in recent years.

Thus, this is the focus of this research work. While most economic theories are inconclusive on the relationship between government revenue tax and real sector output, apparently, all 5 sustain a positive relationship between government expenditure and economic growth. Beside this, most previous studies in Nigeria have only shown the relationship that exists between fiscal policy components such as government spending and real sector output, with little or no attempt to acknowledge both recurrent and capital expenditure as a veritable component of government spending.

This knowledge is vital because the government do not just go into spending, its either they use either of recurrent or capital expenditure or the combination of both. This study is specifically interested in examining the level of significant fiscal policy has on real sector, acknowledging recurrent expenditure, capital expenditure and impact of monetary and fiscal policies on manufacturing sector of the nigeria economic as the indispensable tools of fiscal policy.

The study has the following specific objectives: To determine the impact of capital expenditure on the real sector in Nigeria. To determine the impact of recurrent expenditure on the real sector in Nigeria. To determine the impact of taxation on the real sector in Nigeria. To determine the relationship between the real sector and economic growth. To find out the causal joint effects of fiscal policy on the real sector in Nigeria.

How does capital expenditure affects the real sector in Nigeria? How does recurrent expenditure affects the real sector in Nigeria? How does taxation affects the real sector in Nigeria? How does the real sector relates with economic growth in Nigeria? What is the causal joint effect of fiscal policy on the real sector in Nigeria?

There is no significant relationship between capital expenditure and the real sector in Nigeria.

Effects of Fiscal and Monetary Policies on the Nigerian Manufacturering Sector

There is no significant relationship between recurrent expenditure and the real sector in Nigeria. There is no significant relationship between taxation and the real sector in Nigeria. There is no relationship between the real sector and economic growth in Nigeria. There is no causal joint effect of fiscal policy on the real sector in Nigeria. This will provide an insight and understanding to the government on how to be prudent in spending public funds that would bring about economic growth and development.

It is also of immense help in providing an insight and knowledge to the general public, policymakers, economic planners, and real sector regulatory authorities in Nigeria.

To the academia, the findings of the study will contribute to the available literature on the current scenario of real sector in Nigeria and its level of contribution to the GDP. Based on our empirical findings and analysis, the result of the study will be of immense benefit to researchers who will rely on their contributions to existing knowledge for further research.

The findings of this research will assist monetary authorities in assessing the performance of the fiscal policy in Nigeria particularly in terms of their impact on the performances of the real sector.

This work is also of immense benefit to the policy makers and economic 9 planners in terms of using its findings in formulating and implementing appropriate policy measures towards accelerating economic growth through the real sector. The study will also make use of data collected mainly from the secondary sources, that is, statistical bulletins from CBN while variables such as government expenditure, data on real sector output as reflected on the GDP shall be considered.

The work will be reviewed empirically from the period between andthough works before this time shall also be reflected on in other to enhance our knowledge. This work is 10 however limited to Nigeria because of the nature of the study which only aims at the Nigerian environment.

In addition, time constraints serve as limitation to the study. Government expenditure; Government expenditure, or government spending on goods and services includes all government consumption and investment but excludes transfer payments made by a state.

Monetary Policy Shocks and Manufacturing Sector Output in Nigeria: A Structural Var-Approach

Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classified as government investment gross fixed capital formation. Government expenditure is further classified into capital and recurrent expenditure. Real sector; The real sector is simply the productive part of every economy, involved in the production of goods and services.

Sub sectors in this sector consist of the agricultural, manufacturing, mining, education, transportation. Capital expenditure; Capital expenditures are used for creating future benefits. A capital expenditure is incurred when a government spends money on a fixed asset or to add to the value of an existing one. Recurrent expenditure can also be seen as expenses incurred during the operation of a typical year.

Taxation; Taxation is a way by which government finances its expenditure by imposing charges on its citizens and the business firms. Sector; A sector is a distinct subset of a market, society, industry or economy, whose components share similar characteristics.

Overtime, government involvement has increased in absolute and relative terms, especially in developing countries. With detailed acknowledgment of the above framework, we shall be exploring some literatures on how fiscal policy would be of effect on the real sector.

Discussion of both empirical and theoretical review will be done to bring out the literature gaps if any as accorded to the study at hand. Therefore, the attempt to empirically test the efficacy of monetary and fiscal policy in an economy dates back to the pioneering studies of Friedman and Meiselman who empirically investigated the responsiveness of general price level on economic activity represented by aggregate consumption to change in money supply and autonomous government expenditure using ordinary simple linear regression model to estimate the US data from In their conclusion, they found out that a stable and predictable casual relationship existed between demand and money supply 15 while no such significant relationship was observed for government expenditure Bogunjoko, Hence, there was a stable aggregate and money supply for the period.

Therefore, only the unanticipated components of external price changes in the level of external economic activity leads to the deviation of domestic output from natural and observed that monetary tightening once anticipated in an economy would have no effect on real domestic output in the short-run. However, on the other hand, all the fiscal variables significantly reduced unemployment in Nigeria. This except one was highly significant in reducing the level of unemployment generation in Nigeria than monetary policy measure.

Iyeli and Ijomah M. Azubuike sited that, the increase in the growth of public sector has aroused interest in the way the public sector functions in the economy. Above all, this equally had increased in the volume and content of scholarly works to learn economic growth and development in a given society. More importantly, the public debate on the increasing size of the public sector and the attendant increase in spending have cut across boundaries of all economies in the world today.

Consequently, two schools of thought exist; the first argues that large government participation is inimical to efficiency, productivity and growth in the system. The basis of this view is that the public sector not being responsive to market signals, has enormous regularity processes that engenders high production debts and are prone to distortions arising from both fiscal and monetary policies.

On the other hand, those in favor of government articulate the need for provisions of certain goods and services that would otherwise not be provided by the private sector in order to place the economy on a predetermined growth path.

The standpoint of the later position is the inability of the market economy to function efficiently due to externalities Al- Yousif, and Cooray Despite these discernible views, government expenditures can breed economic growth in Nigeria. This position was earlier supported by some eminent scholars like BaroChenery and SyrquinLandauDiamondLongeOdusola and Ekpo Baro was among the first to formally endogenize government and the rate of growth and savings.

He concluded that an increase in the resources devoted to non productive government services is associated with low capital. From an allocating perspective, an increase in government consumption leads to capital formation or private consumption. Some development economists of the structuralist school prove that some categories of government expenditures are necessary to overcome constraints to economic growth Chenery and Syrguin, In the seminal work of Landauthe share of government consumption of GDP reduces economic growth.

This is 18 consistent with the pro-market view that the growth in government constraints the overall economic growth. Diamond note that in Nigeria, less attention has been given to examining the productiveness of the various components of public spending. Longe examines the growth and structure of government expenditures in Nigeria with a view to ascertaining if the pattern fits with the results of other countries. Thus, his study revealed that government expenditure has shown many considerable structural shifts over the review period and that the ratio of government expenditure to GNP has been rising and corresponds with the rising share hypothesis.

Oyakhilomen Oyinboin his study, in trying to analyze the relationship between fiscal policy and agricultural development using government expenditure as the major tool posited that any reduction in capital expenditure would have negative repercussions on economic growth in Nigeria.

Through an augmented Solow model, Usman et al. Maku discovered that both government expenditure and private investment have no significant influence on economic growth in Nigeria, and that the rate of government expenditure to real GDP has been rising since the enactment of the Structural Adjustment Programme SAP without contributing significantly to economic growth in Nigeria.

Loto investigated the growth effect of sectoral expenditures on economic growth and discovered that expenditures 20 on national security, transportation, and communication were positively related to economic growth, but were not statistically impact of monetary and fiscal policies on manufacturing sector of the nigeria economic.

  1. Neoclassical school of thought challenged the position of Keynesian school of thought on the ground that the manner in which fiscal deficits are financed is 27 capable of influencing the level of consumption, investment and economic growth.
  2. These are also seen as the tools of fiscal policy.
  3. To determine the impact of taxation on the real sector in Nigeria. The work will be reviewed empirically from the period between and , though works before this time shall also be reflected on in other to enhance our knowledge.

Meanwhile, expenditure on education, though negative, was not significant; expenditure on agriculture was negatively related to economic growth; and expenditure on health was positively related to economic growth. ONAKOYA, Adegbemi Babatunde and SOMOYE, Russell Olukayode Christopher in their study on capital expenditure and economic growth found that public capital expenditure at sectoral level promotes the output of oil and infrastructure and government involvement is directly deleterious to the output of manufacturing and agriculture but positively insignificant to the services sector.

They further indicated that public capital spending indirectly enhances economic growth by encouraging private sector investments to the facilitating role of government in the provision of public goods. With clear distinction, Dar Atui and Amirkhalkhali conducted investigation on the endogenous growth model of fiscal policy and concluded that in the endogenous growth model of fiscal 21 policy government expenditure and income that is tax is very crucial in predicting future economic growth.

Abduliah analyzed the relationship between government expenditure and economic growth and found that the size of government expenditure is very important in determining the performance of the economy.