The Role of Financial Sector in Enhancing Performance in the Manufacturing Sector in Nigeria
Author: Joy Itoya, PhD
Abstract: The study examined the effect of financial sector development on manufacturing sector performance in Nigeria, using the firms’ manufacturing capacity utilization as a proxy for manufacturing sector performance. The contribution of the manufacturing sector to the GDP in Nigeria in recent years is less than 10 percent and it has been a source of concern to the government and other key players in the economy. The literature of the study was partitioned into four main sections and they include conceptual review, theoretical framework, research construct, and empirical review. The study employed a cointegration and error correlation model in the empirical analysis of the time series data which spanned 1985 to 2017. The choice of the method draws from the need to identify the short-run and long-run effects of the relationship, the data were sourced from the statistical bulletin of the CBN, various issues, and the World Development Indicators, a publication of the World Bank. The analysis was done through the aid of E-View 10. The normalized cointegrating coefficients were significant at a 5 percent level of significance. Specific findings suggest that money supply, credit to the private sector, and exchange rate have a positive and significant effect on manufacturing capacity utilization while interest rate and inflation rate which though are significant; have a negative effect on MCU and consequently output. The value of the error correction term shows that 51.32 percent of the discrepancies between the actual equilibrium and manufacturing capacity utilization is corrected in each period (annually). The study concludes that a well-structured and improved financial system will enhance the capacity utilization for the realization of improved output levels in the sector. The study recommends among others that it is necessary to increase manufacturers’ access to credit by keeping the cost of capital reasonably low so that capacity utilization of firms may increase and higher output level achieved in the sector.