Fiscal policy, interest rate and the manufacturing sector performance in Nigeria
1 Department of Economics, University of Uyo, P.M.B. 1017, Uyo, Akwa Ibom State, Nigeria.
2 Department of Business Administration and Management, Akwa Ibom State Polytechnic, Ikot Osurua, Ikot Ekpene.
3 Department of Economics, University of Nigeria, Nsukka, Nigeria.
World Journal of Advanced Research and Reviews, 2024, 21(03), 2514–2533
Publication history:
Received on 20 February 2024; revised on 28 March 2024; accepted on 31 March 2024
Abstract:
In this paper, the influence of fiscal policy (government expenditure and taxation) and interest rate on the manufacturing sector of the Nigerian economy was explored for the period 1981 to 2021. The study utilized the autoregressive distributed lag (ARDL) model approach since some of our variables were integrated at level and others at first difference, and the bounds test reporting the existence of long run relationship in the model. Findings of the study indicated that in the short run, government expenditure and its one-period lag exerted a negative and significant influence on manufacturing sector performance; value added tax exerted a positive and significant effect on manufacturing sector performance while its one-period lag exerted a negative and significant effect; and interest rate exerted a positive and significant effect on manufacturing sector performance. In the long run, government expenditure put forth a negative but insignificant effect on manufacturing sector performance; while value added tax and interest rate exert positive and significant effect. In the disaggregated model, recurrent expenditure exerts a negative and significant effect; capital expenditure exerted a positive and significant effect; value added tax exerted a negative and significant effect; and interest rate put forth a positive and significant influence on manufacturing sector performance. The study recommended that there is need for a reduction in the cost of governance as a huge proportion of public spending is used in running the government other than being utilized in stirring critical sectors that could stir manufacturing sector performance.
Keywords:
Government Expenditure; Tax; Interest Rate; Industrialization; Manufacturing
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