CHAPTER ONE
INTRODUCTION
- BACKGROUD TO THE STUDY
Although inflation is a household word in many market-oriented studies on the over arching problem of inflation, yet only selected few seem to know about the determinants, mechanics and the real impact of inflation on manufacturing output in Nigeria.
Inflation has remained a chronic problem for Nigeria economy for some time now. Inflation is not a new word in the world economy and not out rightly bad, but the case of Nigeria is severe and it will destabilize the entire economic framework if it is not properly checked. This problem has brought about reduction of purchasing power, discouragement of real investment, balance of payment, disequilibrium and unemployment.
Inflation in Nigeria can be said to be a direct result of the policies of the country’s government to stimulate a fast rate of economic growth and development since 1951 when it was introduced. Inflationary trend since independence shows two distinctive period. Until 1968, we had a single digit inflation and even a negative growth rate in 1963, 1967 and 1968. The year 1975, recorded 33.7 percent indicating the effect of the 1974 Udoji salary Awards.
The Nigeria economy seems to have experienced moderate inflation prior to the advent of the Structural Adjustment Programme (SAP) in 1986. Inflation on its own is not bad as studies have shown that there exists a positive relationship between inflation and growth. But the problem lies on a country continuously having high inflation rates. It has also been revealed that a close relationship exists between rising inflation and diminishing growth rates across a variety of inflation ranges. Average growth rates falls slightly as inflation rate moves towards 20 – 25 percent. The growth rate decline more steeply as inflation rates approach 25 -30 percent, and growth rates become increasingly negative at higher rate of inflation.
Manufacturing, involves the conversion of raw materials into finished consumer goods or intermediate or producer goods. Manufacturing creates avenues for employment, helps to boost agriculture, helps to diversify the economy, while helping the nation to increase its foreign exchange earnings, and enables Local labour to acquire skills.
The manufacturing sector in Nigeria has passed through four clear stages of development.
The first was the pre-independence era, when manufacturing was limited to primary processing of simple consumer items by foreign multinational corporations.
The second was the immediate past – colonial era of the 1960s characterized by more vigorous import substitution and the beginning of decline for the export oriented processing of raw materials.
The third stage is the decade of the 2970s. this was remarkable because of advent of oil and the enormous resources it provided for direct government to investment in manufacturing made the government to exercise almost a complete monopoly in the following sub-sector: basic steel production, petroleum refining, petrochemicals, liquefied natural gas, edible salt, machine, tools, years, alcohol, fertilizers etc. the period was marked by the initiation of the indigenization program and hence intense economic activity but poor results since government’s attempts at diversification into non traditional products such as steels, petrochemical, fertilizers and vehicle assembly yielded little success.
The last phase was the decade of the 1980s. Here government revenue fall because of serious decline of oil prices in the world market. The led to the adoption of export promotion strategy and the SAP era beginning from July 1986 has even emphasized this strategy especially as it relates to non –oil exports, hence, the extension of export promotion incentives of various descriptions.
1.2 STATEMENT OF PROBLEM
Inflation worsens the balance of payment positions. Inflation has helped force up interest rates, thus determining investment and by so doing, reduces the real values of aggregate consumer wealth such as government debt and money. It is has inhibited and distorted consumer spending by rising domestic prices relative to foreign prices, the currency inflation inhibits exports and simulates imports thus, depleting the nations scarce foreign resources.
Due to the inflationary situation, savers find out that the value of their savings is eroded hence they are forced to add their current consumption thus hindering capital formation and the nations economic growth. Inflation militates against long term savings plan of consumer and hence becomes a function in improving a suboptimal life time consumption pattern upon the consumer.
Current inflation rates in Nigeria have tremendously complicated and continue to complicate the task for makers of government fiscal and monetary policies. Even when they believe that rate of inflation are really high, the public does not. Thus inflation not only makes it harder for policy makers to diagnose the factors affecting aggregate demand. The manufacturing sector of every economy is its pillar so; this study is concerned with impact of inflation on manufacturing sector of the Nigeria economy.
1.3 OBJECTIVE OF STUDY
The major objective of this study is to determine empirically the impact of inflation on the manufacturing sector of the Nigeria economy.
The Specific Objectives are to:
- Investigate the relationship between inflation and the manufacturing sector.
- Determine the nature of the relationship between interest rate and the manufacturing sector of the Nigeria economy.
- Review the past and present anti – inflationary policies of the Nigeria government.
- Identify the factors influencing manufacturing output in Nigeria.
1.4 RESEARCH QUESTIONS
The questions we wish to provide answers to are:
- What significance does inflation have on the manufacturing sector of the Nigerian economy?
- Is there any relationship between interest rate and the manufacturing sector of the Nigeria economy?
- What is the anti-inflationary policies pursued at present and in the past by Nigeria government?
- What factors influence manufacturing output in Nigeria?
1.5 RESEARCH HYPOTHESIS
- Ho: Inflation does not have any significant impact on the
Manufacturing output of the Nigeria economy.
- Ho: Interest rate does not have any significant impact on the
manufacturing output of the Nigeria economy.
Ho: Exchange rate does not have a positive influence on the manufacturing output in Nigeria
Ho: Inflation rate, interest rate, and exchanging rate do not have any significance impact on manufacturing output in Nigeria.
1.6 SIGNIFICANCE OF STUDY
This research will enable us to understand the factors responsible for the persistent rise in the price of goods and services produced in the economy by the manufacturing sector. It will provide appropriate recommendation on the ways of eliminating inflation or reducing it, so as to empower the economy for self sustained development capable of enhancing the economic well being of a greater number of populations. It will also equip the policy makers with adequate tools in formulating the right policy.
1.7 SCOPE/DELIMITATION OF STUDY
The study covers a period sparing from 1987 to 2015. The period was chosen in order to have serious investigation into the activities of the manufacturing sector.
1.8 LIMITATION OF STUDY
In carrying out the investigation, sources of data posed a problem of its own. It is difficult to lay hands on up-to-date statistical data for empirical analysis, especially in developing countries such as Nigeria. In any case one has to make the best use of what is available.
Resulting from the short time limit the financial constrain, the researcher is limited to primary and secondary sources within Owerri, Imo State capital. Generally the research suffers frustration owing to administrative logistics. Below are some of the identifiable limitations.
- Unpublished data were rarely made available to researcher by government officers who avoid violation of the official secretary act.
- Secondary data on the subject was stale scanty in most of the libraries visited including the state library.
- Often times, only time was granted the researcher to read materials and collect data, photocopying was either not available or allowed.
1.9 DEFINITION OF TERMS
INFLATION: It is a persistent tendency for prices and money wages to increase. The Dictionary of Economics said “inflation is measured by the proportional changes overtime in some appropriate price index, commonly a consumer price index or a GDP deflector”
Inflation occurs “when the general level of prices is rising” (Samuelson and Nordhaus 1948).
MANUFACTURING SECTOR: is a sub-set of the industrial sector) Manufacturing involves the conversation of raw materials into finished consumer goods or intermediate or producer goods.
CHAPTER TWO
LITERATURE REVIEW
2.1 THEORETICAL LITERATURE
Manufacturing is defined as the “production of goods by industrial processes” raw (2004). Though Nigeria is blessed with abundant raw materials still Nigeria is nowhere in world market in terms of manufacturing products. While some industrialized countries that are poorly endowed with natural resources have become affluent societies through the execution of sound manufacturing production development through the application of science and technology.
Despite the various national development plans put in place in Nigeria to enhance industrialization the country still remain a mono-resource (crude oil) based economy. Growth in manufacturing sector is also in a down ward trend and industrial capacity utilization is below 37%. The poor performance of the sector has been attributed to a number of the factors which include amongst others: inflation high cost of production due to high exchange rate
and the epileptically nature of power weak demand for manufactures (products) due to declining purchases power of the populace high expenditure on spare parts repairs/maintenance legal and illegal influx of cheap imported goods (globalization of trade) and political instability, especially during the military regimes (Burda 1997). For the country to improve its manufacturing sector to evolve to a manufacturing based economy and be relevant in the globalization of production and trade, it should pursue a combination of those approaches and moves be able to monitor and manage its inflationary trend well, generation and application of science and technology knowledge relevant to manufacturing through in country research and development science and technology and innovation efforts encouragement of foreign direct investment adoption of continuous improvements and innovations programmes and a better and steadier power supply. This is only possible in a national innovation system with the following enabling environments: a well founded education system good and well maintained physical infrastructural; favorable environment for research and development and innovations and stable and favorable economic, legal and political conditions.
2.2 CONCEPTUAL LITERATURE
In economics “inflation is a rise in the general level , of prices of goods and services in an economy over a period of time” (Blanchard 2000). Inflation means a sharp upward movement in the price level. Inflation means “too much money chansing too few goods”. Keynes says “any rise in the price level after the level of full employment has been achieved”. When output is unresponsive to change in money supply then we know that inflation has set in inflation generally \associated with the abnormal increase in the quality of money resulting in the abnormal rise in the prices.
Other Concepts Relating To Inflation
2.2.1 DEFLATION
In economics deflation is a decrease in the general price level of goods and services. We could .say that deflation is just the opposite of inflation. It is said to exist when there is persistent downward movement in the price level. Deflation occurs when the annual inflation rate falls below zero percent (a negative inflation rate) resulting in an increase in the real value of money allowing one to buy more goods with this same amount of money. Deflation increases the real value of money. The functional currency (And monetary unit of account) in a national or regional economy).
Deflation is a problem to the modern economy because it is linked with recession and with the great depression as banks defaulted on depositors. Additionally deflation also prevents monetary policy from stabilizing the economy because of liquidity trap. However historically not all episodes of deflation correspond with period of poor economic growth. During deflation, economic activities investment falls to its lowest levels bringing about reductions in aggregate demand. In modern economics deflation is caused by a collapse in demand 9usually brought about by high interest rates) and its association with recession and long term economic depression.
2.2.2 REFLATION
Reflation is the moderate degree of controlled inflation. It is the act of stimulating the economy by increasing the money supply or by reducing taxes. It is the opposite of disinflation. It can refer to an economic policy whereby a government uses fiscal or monetary stimulus in order to expand a country’s output. This can possibly be achieved by methods that include tax, charging the money supply or even adjusting interest rates, just as disinflation considered an acceptable antidote to high inflation. Originally it was used to describe a recovery of price to an previous desirable level after a fall caused by a recession today it also describes the first phase in the recovery of an economy which is beginning to experience increasing prices at the end of a slump. With rising prices employment output and income also increase till the economy reaches the level of full employment.
2.2.3 STAGFLATION
Stagflation is derived from two words; stagnant and inflation. Stagflation occurs when a country’s inflation rate is high and unemployment rate is high. It is an economic condition in which inflation and economic stagnation are occurring simultaneously and have remained unchecked for a significant period of time. Blanchard (2000).
Economist offers two principal explanations for why stagflation occurs. First stagflation can result when an economy is showed by an unfavourable supply shock such as an increase in the price of oil in an oil importing country which trends to rise prices at the same time that it shows the economy by making off production less profitable. Burda and Wyplosz (1997). This type of stagflation presents a policy dilemma because actions that are meant to assist with fighting inflation might worsen economic stagnation and vice versa. Second both stagnation and inflation can result from inappropriate macroeconomic policies. For example central banks can cause inflation by “permitting excessive growth of the money supply (Blandchard 2000) and the government can cause stagnation by excessive regulation of goods markets and labour markets.
2.2.4 AGFLATION
Agflation is a term coined in the late 2000, describes generalized inflation led by rises in Agricultural commodity prices. The term describes a situation in which “external” (i.e. Agricultural) price rises drive up core inflation rates.
It has been claimed that the term was invented by analyst at Merrill lyrich in early 2007.
2.2.5 DISINFLATION
Disinflation is a decrease in the rate of inflation a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic products over time. It is the opposite of deflation. If the inflation rate is not very high to start with, disinflation can lead to deflation for example if the annual inflation rate lone month is 5% and it is 4% the following month prices dis-inflated by 1% but are still increasing at a 4% annual rate. If the current rate is 1% and it is 2% the following month, prices disinflated by 3% and are decreasing at 2% annual rate.
2.2.6 TYPES OF INFLATION
There are three major types of inflation as part of what Robert J. Gordon calls the ‘triangle model. These types are classified based on their causes;
Demand pull inflation: Inflation caused by increase in aggregate demand due to increased private and government spending etc. demand inflation is constructive to a faster rate of economic growth since the excess demand and favourable market conditions will stimulate investment and expansion. The failing value of money however, may encourage spending rather than saving and so reduce the funds available for investment.
Cast-push inflation: presently termed “supply shock inflation” caused by drops in aggregate supply due to increased prices of inputs for example. Take for instance a sudden decrease in the supply of oil which would increase oil prices production for which oil is a part of their costs could then pass this on to consumers in the form of increased prices.
Built-in inflation: Induced by adaptive expectations often linked to the “price/wage spiral because it involves workers trying to keep their wages up (gross wage have to increase above the CPI rate to net CPI after tax) with prices and then employers passing higher cost on to consumers as higher prices as part of a “vicious cycle” built –in inflation reflects events in the past and so might be seen as hangover inflation.
A major demand-pull theory centers on the supply of money. Inflation may be caused by an increase in the quantity of money in circulation relative to the ability of the economy to supply (its potential output). This is most obvious when government finance spending in a crises such as civil war by printing money excessively often leading to hyper inflation a conduction where prices can double in a month or less. Another cause can be a rapid decline in the demand for money. As happened in Europe during the black plague.
We have some other types of inflation which are classified based on their behaviour.
Hyper inflation: Hyper-inflation is also known as runaway inflation or galloping inflation. This can usually lead to the complete breakdown of a country’s monetary system. However, this type of inflation is short lived. In 1923, in Germany, inflation rate touched approximately 32 percent per month with October being the month of height inflation (Blanchard 2000).
Creeping inflation: This is the type of inflation that proceeds for a long time at a moderate and fairly steady rate of price. It can be explained as slow but unalterable continuing inflation that, however it appears tolerable in the short run, never the less leads to important long-run cost increases.
Sectoral inflation: The sectoral inflation takes place when there is an increase in the price of goods and services produced by a certain sector of the industry usually primary goods or services. For instance an increase in the cost of crude oil would directly affect all other sectors which are directly related to the oil industry. Thus the ever increasing price of fuel has become an important issue related to the economy all over the world.
Take the example of aviation industry. When the price of oil increase the flight ticket fares would also go up. This would lead to a wide spread inflation throughout the economy even through it had originated in one basic sector of this situation occurs when there is a recession in the offs and it would adversely affect the work force and the entire economy (Pillai 2002).
2.2.7 DETERMINANTS OF INFLATION
In this sector we look at some of the causes of inflation and consider how it may be looked to other economic variables. The theories considered are:
- Cost of inflation who pays?
- Demand-pull inflation – demanding inflation
- Cost-push inflation; what pushes inflation up?
- Philips curve – is unemployment inflation?
- Inflation and money – the role of money supply
- Cost of inflation
Inflation will not only affect individuals but will also cause problems for the whole economy. The cost of inflation includes:
- Uncertainty: If inflation keeps varying then firms may be reluctant to invest in new plant and equipment as they may be unsure of what the government will do in future. People may also be uncertain and reluctant to spend. Both of these factors could reduce the long term level of economic growth.
- Income distribution: Many people have to live off fixed income particularly those on pension. The higher the level of inflation the less their income will be worth. This effect can also happen among people who are working as their incomes go up either faster or slower than inflation. These effects can arbitrarily redistributive income.
iii. Menu costs: This is a general term for all the inconvenient cost that business and individuals face. As prices increase they have re-do their price list, change prices, labels reprint menus and so on. If inflation is constant these cost can mount up.
- Competitiveness: if our prices are increasing faster than those in other countries then our goods will be less competitive and less in demand. This will have a negative effect on the balance of payments.
- Demand pull inflation
One of the principal causes of inflation is excessive demand, too much money chasing few goods, if demand is growing faster than the level of supply then prices will increase. Output will increase as well as there is a shift along the aggregate supply curve but because supply cannot keep up with demand prices go up as well. This is shown in the diagram below.
P | AS |
Price level
Fig 1.1
P_{1} | ||
AD_{2} | ||
P_{2} | ||
AD_{1} | Out Put | |
Q_{2} Q_{1} | ||
Aggregate demand curve (output)
Demand – pull inflation will therefore usually occur along with a booming economy. To avoid demand-pill inflation you need to try to keep the economy growing at a steady but not excessive rate.
- Cost-push – what pushes inflation up?
Cost-push inflation happens when firm’s cost go up. To maintain their project margins firms then need to put their prices up. In other words costs increases have pushed inflation up. Cost-push inflation may arise from various sources.
- Wages increase: Wage is a major proportion of costs for many firms and so if wages are increasing this may cause cost-push inflation.
- Government: if the government changes trances this may push up firm’s costs. This fuel and oil changes in interest rates can also affect firms costs if they borrowed significant amount.
iii. Abroad: Exchange rate changes can affect firms cost particularly if they import many of their raw materials. Exchange rate depreciation will increase import prices and may therefore increase firms’ cost. The effect of cost increases is to shift the aggregate supply to the left. As we can see the diagram this pushes up prices. Boarmol N.J (1970)
p
Price level
AS_{1} | |
P_{1} | AS_{2} |
P_{2}
AD
Out Put
^{Q}1 Q_{2}
Aggregate supply curve (output)
- Philips Curve – Is unemployment inflation?
The Philips curve is a relationship between unemployment and inflation discovered by Professor A.N Philips. The relationship was based on observation he made of unemployment and changes in wages level from 1861 to 1967. He found out that there was a trade off between unemployment and inflation, so that any attempt by government to reduce unemployment was likely to lead
to increased inflation. The relationship was seen by Keynesians as a justification of their policies.
The curve sloped from left to right and seemed to offer policy makers a simple choice you have to accept inflation or unemployment
Price level
Philip’s Curve
µ output
However in the 1970’s the curve began to breakdown as the economy suffered from unemployment and inflation rising together (stagflation). This caused the government many problems and economists struggled to explain the situation. One of the most convincing explanations came from Milton Friedman a monetarist economist. He developed a variation on the original Philips curve. He incorporated peoples price expectations and said that there would be a number of short run Philips curve one for each level of price expectations. However in the long there would be trade off between unemployment and inflation and any attempt to reduce unemployment to below its natural rate would be simply be inflationary (Robert 1994).
- Inflation and money – the role of the money supply
Many economist argue that one of the main causes of inflation is excessive money supply growth. The origins of this theory lie with monetarist economist. Perhaps the best known monetarist is Milton Friedman and much research on this theory was done by him at Chicago University.
This theory of inflation draws on the quantity theory of money to suggest that if the economy grows faster than the growth in the level of potential output, then this will feed through prices. In other words of the money supply grows too fast there will be inflation.
2.3 EMPIRICAL REVIEW
DETERMINANTS OF INFALTION IN NIGERIA
This empirical was carried out in Nigeria between 1981 and 2003. The Nigerian economy had faced inflationary trends over the years and the various government policies to deal with its eluded long term solution needed to bring out increased living standard of the Nigerian citizenry. Hence the need for an investigation into the multi-dimensional and dynamic factors that affect inflation with the view to make appropriate recommendations to curbing it Mashal L.(1986).
In an inflationary economy it is difficult for the national currency to act as medium of exchange and a store of value without having and adverse effect on income distribution, output and employment Ogwuma P.A.(1999). Inflation is characterized by a fall in the value of the country’s currency and a rise in her exchange rate with other nation’s currencies. This is quite obvious in the case of the value of naira (N) which was N1 to $1 (one Dollar) on 1981, average of N100 to $1 in year 2000 and over N128 to $1 in 2003. This decline in the value of the Naira coincides with the period of inflationary growth in Nigeria and is an unwholesome development that has led to a drastic decline in the living standard of the average Nigerian Jhingan M.L.(1997). Existence of excess aggregate demand can cause inflation (demand pull inflation). Cost-push inflation arises from upward pressure of production costs, while structural inflation arises from constraints such as inefficient production marketing and distribution system in the productivities sectors of the economy Suleiman,N. (1998), inflation has been apparent in Nigeria from the outset of our national life. This was propelled in the 1960’s through the “cheap money policy” adopted by the government to stimulate development after independence. Interest rate was lowered and targeted the preferred sectors of the economy and was meant to facilitate the implementation of the first nation’s development plan and subsequently the prosecution of the civil war Okigbo P.N. (1983). This led to rapid monetary expansion with the narrow and broad measures of money stock rising at annual rates.
The oil boom era of the 1979s was also characterized by fiscal dominance and severe macroeconomic misbalances as the period witnessed a sharp increase of government revenue in foreign exchange from oil exports. In 1971, the revenue rose from six hundred and three million naira (603.0m ) to ten million, four hundred and thirty three million, one hundred thousand naira (10,433.1m) with a share in the total revenue of 52.46% (1971 and 88.89%) Anyanwu,J.C.(1998). Reluctantly the government infected massive private and public expenditure into the economy through the post war reconstruction of the early 1970s and expenditure on the gigantic capital embarked upon by all the government under the third national development plan Sulieman,N. (1998). This increased the entire currency in circulation with businessmen calling and withdrawing money from the bank. As a result the annual growth rate in money supply escalated from 56.6% to 91.3% in January and April 1975. Okafor,C.C. (1978).
2.3.1 TRADE OPENNESS AND MANUFACCTURING SECTOR GROWTH
This studies the impact of trade openness on manufacturing sector performance using a time series data from 1975 to 2010. The effects of stochastic shocks of each of the endogenous variables are explored using error correction model (ECM). The analysis shows that trade openness has a positive impact on the manufacturing sector performance while exchange rate inflation rate have a negative impact on the sector performance. The error correction coefficient also indicates rate of adjustment for disequilibrium of the variables shows that growth in the manufacturing sector adjust slowly in the economy. Raw,M.(2004)
Trade of a country is a key determinant for the improvement of a country’s industrialization. Moreover development experienced by a country .brings some changes in trade structure on the basis of endowments and comparative advantage. Trade is considered an integral part of Nigerian’s economic condition of Nigeria has advanced over the years as a result of the rapid pace
of industrialization. Adejugbe,O.(1980). The economy of Nigeria has also improved tremendously with foreign investment aided by high quality research and development Nigeria was under the British colonial rule for a considerable period of time.Ezekwe,S.N (1996).
The impact of trade liberalization on the output growth of domestic firms in an economy. One can argue that there would be a negative relationship between import penetration and manufacturing sector performance as foreign competition should restrain the exercise of market power by domestic firms in the domestic.
In conclusion the study has been preoccupied with the impact of trade liberalization on the manufacturing sector of the Nigerian economy. The development of manufacturing sector and effective promotion have not been approached seriously in Nigerian; hence the lack of serious in economy important findings were discovered during the course of this research one is the relatively low productivity in the Nigerian manufacturing sector. Ukpong (2003)
This could be attributed to a plethora of factors, including a weak technology base and low level of capacity utilization. Also another major finding from this study is that there are significant pay offs from the policy of trade liberalization. The current policy of trade liberalization which emphasizes lower tariffs and increasing openness of the economy was found to be growth enhancing. The manufacturing sector as a very important sector in the economy requiring efficient and effective management to increase the level of growth and development it is therefore important to consider conditions that would ensure sustained growth in this sector. Okeke D.C (1991)
2.7 GLOBAL ECONOMIC DOWNTURN AND THE MANUFACTURING SECTOR PERFORMANCE ON THE NIGERIAN ECONONMY
This research analysis the position of the manufacturing sector of the Nigerian economy both the descriptively and empirically before the global met down and during the period of the global melt down. It was discovered that before the melt down, all indicators of performance used shows a down reward trend. The period during the melt down shows some little insignificant improvement on some of the performance indicators such as manufacturing GPP, Capacity authorization. Epko,A.H (2009).
Generally speaking, the manufacturing sector plays a catalytic role in a modern economy and has many dynamic benefits crucial for economic transformation. In any advanced economy or even growing economy the manufacturing sector as a leading sector in many respect. It is an avenue for increasing productivity in relation to import replacement and export expansion, creating foreign exchange earning capacity rising employment and per capital income, which causes unique consumption patterns. Furthermore it creates investment capital at a faster rate than any other sector of the economy while promoting wider and more effective linkages among different sectors Ogwuma (1986). Early efforts in the manufacturing sector were oriented towards the adoption of an import substitution strategy in which light industry are assemble related manufacturing as ventures were embarked upon by the formal trading companies. Up to about 1970s to prime mover of the manufacturing activities was the private sector which establish some agro-based light manufacturing units such as vegetable oil extraction plants tobacco etc. the import dependent industrialization strategy virtually came to a halt in the late 1970s and early 1980s when liberal importation policy expanded the import of finished goods to the detriment of the domestic production. This led to relative decline in manufacturing production of exportable and thus little diversification in production and products processes was achieved.
The world global melt down affected the world economy. The degree of the of the impact varied form economy. This impact depends on the movement of what incomes, prices inflation and the terms of trade. The global economy without any doubt experience serious turmoil especially in the year 2007, 2008, 2009 and even now. World inflation rates was on the increase caused by the surge in food and fuel prices. Global decline in 2008 while the foreign exchange market experience instability as major currencies experienced weakness (Ogwuma 1986).
2.8 THE DYNAMICS OF MONEY SUPPLY AND NFLATION IN NIGERIA
The result carried out from the research carried out, that increase in the money supply will lead to increase in inflation rate in short run but a insignificant effect in the short run. Therefore it implies that monetary expansion has remained the main causal factor of the persistent increase in price level in Nigeria. Ajakaiye,D.(2002).
There is controversy on whether inflation in developing countries like Nigeria could be explained from monetarist perspective in view of the enormous bottle neck in the supply chain in food and material resources flow in Nigeria. The excessive monetary expansion in Nigeria where endemic corruption and conspicuous spending is a general trait of government makes the monetary argument more potent the supply side argument where inflation is seemed to be caused by supply rigidity. Therefore to tame inflationary pressure in Nigerian, the excessive fiscal has to be curtailed the banks credit approach lead tailored in line with monetary objective, of the government. Okigbo (2003). Since the bank on their the liquidity of the economy through their money creation capacity, then banks must be involved articulating and implementing monetary policy. The era where the monetary policy guidelines where just passed down to financial should be a thing of the past. To probably and effectively curtail inflation in Nigeria, all stalk holders must be made impute into monetary policy and be convince about the sincerity ,of the government. The evidence from the study that exchange rate does not significantly influence inflation may explain the current observation in Nigeria were exchange rate is appreciating both imported and domestically produced goods continue price in prices. It means that exchange rate fluctuation have little or no influence on the inflationary pressure in Nigeria foreign price seems not to be crucial factor on inflation dynamism while real output growth seems to play more or less a little role in price fluctuation in Nigerian. Ajakaiye (1994)
CHAPTER THREE
RESEARCH METHODOLOGY
This chapter is saddle with the responsibility of carrying out of scientific or better put empirical investigation of the impact of inflation on manufacturing output in Nigeria, over the period 1981-2015. The chapter therefore shall emphasize econometric methods and statistical tools of measurement, research design, data processing and estimation of parameters. Moreso, it goes into model specification and method of estimates
- Research Design
Research design is a scientific procedure of investigation of issues. Time series econometrics approach was employed to examine the impact of inflation on manufacturing output in Nigeria, over the period 1981-2015.
3.2 Sources of Data
Using annual time series data, this study runs from 1985-2015, covering a period of thirty (30) years. The period marked a phase of high level of manufacturing output through the introduction of third nation development plan which laid more emphasis on the manufacturing sector in Nigeria as the centre stage for commencement of the increased industrial output in Nigeria. Data were sourced from the Central bank of Nigeria (CBN), Statistical Bulletin, and Annual Report and statement of Account of various Years
3.3 MODEL SPECIFICATION
Our model is a linear one of the form:
MANOT = (Xi)………………………………………(1)
Where; MANOT = Manufacturing Output
Xi = set of chosen explanatory variables.
The chosen variables are reflected in the model as
MANOT = F (RER, INT, INF)………………………(2)
Where,
MANOT = Manufacturing Output
RER = Real Exchange Rate
INT = Interest rate
INF = Inflation Rate
However, a log- linear form is more likely to find evidence of a deterrent effect than a linear form, we therefore log-linearized equation as:
lnMANOT = β_{0} + β_{1 }lnRER + β_{2 }lnINT + β_{3 }lnINF µ…………………………(5)
ln = natural log of their respective variables.
3.4 A Priori Expectation
A priori tests is a sign test, that measures ex-ante literature presentation of the contribution of the economic variables to the study the sign has to be in tandem to the positions of economic theories concerning each variable.
The a priori expectations are presented below;
- RER > 0; b1 > 0
- INT < 0; b2 < 0
- INF > O; b3 > 0
3.5 Techniques of Data Analysis
With the foregoing, we employed a multiple linear regression model in the analyses of the economic variables which determine economic growth of Nigeria. The ordinary least square (OLS) was employed in the interpretation of the results which has been transformed into long from. E- View statistical software version 3.1 was also employed along other econometric techniques as highlighted below;
3.5.1 UNIT ROOT TEST
To fully explore the data generating process, we first examined the time series properties of model variables using the Augmented Dickey- Fuller test.
The ADF test regression equations with constant are:
where Δ is the first difference operator ε_{T} is random error term that is iid k = no of lagged differences Y = the variable. The unit root test is then carried out under the null hypothesis α = 0 against the alternative hypothesis of α < 0. Once a value for the test statistics is computed we shall compare it with the relevant critical value for the Dickey-Fuller Test. If the test statistic is greater (in absolute value) than the critical value at 5% or 1% level of significance, then the null hypothesis of α = 0 is rejected and no unit root is present.
- Joint Test
- Analysis of variance otherwise known as (Anova) text is used to test variables jointly, the regressor and regressand that is dependent and independent explanatory variables. The independent variables of X_{1}, X_{2}, X_{3}, are represented by trade liberalization, import rate, and real exchange rate respectively, while the dependent variable is export rate.
Joint text hypothesis;
Ho: a_{1 }= a_{2 }= a_{3} = 0
Ha: a_{1} = a_{2} = a_{3 }= 0
Test Statistic
Fc calculated = TRMS
EMS
Where; TRMS = treatment regression mean square
EMS = error mean square
Fc = f = distribution
F critical = Fa (k-1) (n-K)
Where; a = level of significance
(k-i) = degree of freedom for regression
(n-k) = degree of freedom for error
Decision Rule: if F calculated is greater than F critical/ tabulated (Fcal>Ftab) we reject the null hypothesis and accept the alternative. But if F calculated is less than F critical (Fcal<F tab) we accept the null hypothesis and reject the null hypothesis.
- Student Test (Individual Test)
Another vital estimation is the performance of individual variables to the model; the hypotheses model is specific below
Ho: a_{1} = 0
Ha: a_{1 }= 0
Test Statistic
T calculated = a_{1}
Se (a_{1})
Where; a_{1} = represent the unknown parameters to be estimated
Se (a_{i}) = standard error of the unknown parameters to be estimated
The level of significance chosen is usually on 5% and 1% as the case may be, some can select 10% etc
T critical = Ta (n-k)
2
Where; a/2 = level of significance is non direction that is why it has to be divided by two (n-k) = the degree of freedom
Decision Rule: if the T calculated is less than T tab calculated; we accept null hypothesis (Ho) and reject alternative hypothesis (Ha) otherwise. If T calculated is greater that T-critical (Tcal>Ttab) we reject the null hypothesis (Ho) and accept alternative hypothesis (Ha)
- Test for Goodness of Fit (R^{2})
The test verifies coefficient of determination which measures the level of description of the independent variables in explaining the dependent variable. To an extent it variables the sagacity of the model specification. A high R^{2} 70% up, shows good fitness while 50% below is a low fitness or level of statistical fitness
R^{2} = RSS x 100%
TSS
Where; RSS = treatment regression sum of square
TSS = total sum of square
- Autocorrelation Test
Durbin Watson statistic will be employed to test for autocorrelation in the model. Autocorrelation exist in a model when the error term (ue) of the observation affects the error term (u) of another observation in the same model for instance E (ui, ui_=o where l = j
Decision Rule
When the value of Durbin Watson statistic is around the value of “2” it connotes absence of autocollinearity. But if it is significantly greater than; 2, or less than “2”, it shows the existence of autocorrelation.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Data Presentation and Result Interpretation
4.1 Data Presentation
This chapter attempts to present the data and result interpretation. In the proceeding chapter, the models for the study and variables employed were stated categorically and defined so as to enable us accomplish the impact of inflation on manufacturing output in Nigeria, over the period 1981-2015.
The platform of this study which centers on review made us to employ only secondary data in carrying out the actual estimation of the models. This data set was sourced via the Central Bank of Nigeria (CBN) publications (statistically bulletin) for the various years.
Table I: Manufacturing Output, Real Exchange Rate, Interest Rate, Inflation Rate N (million) from 1981 – 2015
YEAR | MANOT(NM) | RER( N|$) | INT(%) | INF(%) |
1981 | 20174.7 | 0.5464 | 6.5 | 21.4 |
1982 | 15802.6 | 0.61 | 8 | 7.2 |
1983 | 14424.7 | 0.6729 | 8 | 23.2 |
1984 | 13596.8 | 0.7241 | 10 | 40.7 |
1985 | 14470.8 | 0.7649 | 10 | 4.7 |
1986 | 18226.4 | 0.8938 | 10 | 5.4 |
1987 | 16392.9 | 2.0206 | 15.8 | 10.2 |
1988 | 34477.3 | 4.0179 | 14.3 | 56 |
1989 | 41200.3 | 4.5367 | 21.2 | 50.5 |
1990 | 89596.7 | 7.3916 | 23 | 7.5 |
1991 | 105219.6 | 8.0378 | 20.1 | 12.7 |
1992 | 109886.1 | 9.9095 | 20.5 | 44.8 |
1993 | 121535.4 | 17.2984 | 28.02 | 57.2 |
1994 | 132897.1 | 22.0511 | 15 | 57 |
1995 | 144107 | 21.8861 | 14.27 | 72.8 |
1996 | 1411496 | 21.8861 | 13.55 | 29.3 |
1997 | 150946.5 | 21.8861 | 7.43 | 10.7 |
1998 | 168037 | 21.8861 | 10.09 | 7.9 |
1999 | 199079.3 | 21.886 | 14.3 | 6.6 |
2000 | 218770.1 | 92.3428 | 10.44 | 6.9 |
2001 | 236825.5 | 100.8016 | 10.09 | 18.9 |
2002 | 1874083 | 111.701 | 15.57 | 12.9 |
2003 | 2042716 | 126.2577 | 11.88 | 14 |
2004 | 3037706 | 134.0378 | 12.21 | 15 |
2005 | 4610084 | 132.3704 | 8.68 | 17.8 |
2006 | 60948913 | 130.6016 | 8.26 | 8.2 |
2007 | 7488744 | 128.2796 | 9.49 | 5.4 |
2008 | 8085380 | 125.88103 | 11.95 | 11.6 |
2009 | 9719514 | 118.86055 | 12.63 | 12.4 |
2010 | 7972490 | 148.9017 | 7.19 | 12.5 |
2011 | 8846002 | 133.88113 | 6.3 | 12.4 |
2012 | 89653446 | 141.3914 | 7.63 | 12.5 |
2013 | 99955454 | 137.63625 | 6.72 | 12.4 |
2014 | 99967598 | 160.56 | 9.89 | 8 |
2015 | 104000000 | 165.33 | 8.26 | 9 |
Source: CBN Statistical Bulletin, vol. 25 December, 2015.
4.2 DATA ANALYSIS AND INTERPRETATION
Diagnostic test of the model were carried out using the coefficient of multiple determination, Analysis of variance and Durbin Watson statistics. The relevant results are stated in Table 4.1 below
TABLE 4.1: DIAGNOSTIC TEST RESULTS FOR HYPOTHESIS ONE
TEST STATISTIC | VALUE |
R^{2}
Adjust R^{2} F- statistics Prob(F Statistic) D.W |
0.820880
0.803546 47.35622 0.000000 0.929279 |
SOURCE: REGRESSION RESULT (SEE APPENDIX)
R^{2}, the coefficient of multiple determinations was used to test the explanatory power of the model and the goodness of fit. From the result R^{2} adjusted for degree of freedom is 0.803546 (Table 4.1). This indicates that 80% of systematic variations in the dependent variable are explained by changes in the independent variables in the model. This level of explanatory power was considered satisfactory.
4.2.1 OVERALL SIGNIFICANCE OF THE MODEL
To test the overall significance of the regression, analysis of variance (ANOVA) is 47.35622 and prob (F-Statistic) is 0.000000. Testing the null hypothesis that the coefficients are equal to zero at 5% level of significance, we reject the null hypothesis since the probability f-statistics is less than 0.05 in each case. We therefore conclude that the independent variables have significant impact on the dependent variable in the model.
4.2.2 AUTO CORRELATION
The Durbin Watson (DW) Statistic was used to test the first order auto-regressive scheme. From the result (Table 4.1) D.W is 0.929279. Testing the null hypothesis that the residuals are not auto-correlated with a first order scheme, we reject the null hypothesis of no autocorrelation in the models.
- DIAGNOSTIC TEST: CONCLUSION
We conclude that the model developed for this study was adequate for the purpose judging by the overall significance of regressions.
- ANSWERING OF RESEARCH QUESTIONS
The research questions were answered using the coefficients of the independent variables. The regression results are displayed in Table 4.2
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
C | 14.00950 | 1.575927 | 8.889686 | 0.0000 |
LOG(RER) | 1.244846 | 0.114708 | 10.85228 | 0.0000 |
LOG(INT) | -1.690167 | 0.645936 | -2.616615 | 0.0136 |
LOG(INF) | -0.165264 | 0.323763 | -0.510447 | 0.6134 |
SOURCE: AUTHOR’S ANALYSIS (SEE APPENDIX)
The result of the regression can be summarized in equation from as follows:
MANOT = 14.00950 + 1.244846InRER – 1.690167InINT – 0.165264InINF
S.E = (1.575927) (0.114708) (0.645936) (0.323763)
t = (8.889686) (10.85228) (-2.616615) (-0.510447)
Do real exchange rate, inflation rate and interest rate have any impact on manufacturing output in Nigeria?
From the regression result stated above (Table 4.2) real exchange rate economic has a positive impact on manufacturing output in Nigeria. This is shown by the positive coefficient of RER. In addition, for each unit percentage change in RER (1.244846), of such change is transmitted to manufacturing output in the Country. However, interest rate and inflation rate has a negative impact, all these is seen in the coefficient of the variables in table 4.2.
- HYPOTHESES TESTING
- H_{0}: inflation rate have no impact on manufacturing output in Nigeria.
H_{1}: inflation rate have an impact on manufacturing output in Nigeria.
- H_{0}: interest rate has no impact on manufacturing output in Nigeria.
H_{1}: interest rate has an impact on manufacturing output in Nigeria.
- H_{0}: real exchange rate has no impact on manufacturing output in Nigeria.
H_{1}: real exchange rate has an impact on manufacturing output in Nigeria
To test the hypothesis, the f-statistics were used. However, from the result, the f-cal is greater than the f-tabulated i.e 47.35622 > 2.89 and we conclude that inflation rate, interest rate and real exchange rate has a significant impact on the manufacturing output in Nigeria.
- TEST OF SIGNIFICANCE
The significance was tested for the significance of the independent variables at 5% level using t-prob, t-statistic and the coefficients of the independent variables. The rule applied was: if significant probability is greater than the prescribed level of 5% or 0.05 we accept the null hypothesis otherwise we reject the null hypothesis when significant probability is less than 0.05. The regression results are shown in the Table below.
TABLE 4.3: REGRESSION
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
C | 14.00950 | 1.575927 | 8.889686 | 0.0000 |
LOG(RER) | 1.244846 | 0.114708 | 10.85228 | 0.0000 |
LOG(INT) | -1.690167 | 0.645936 | -2.616615 | 0.0136 |
LOG(INF) | -0.165264 | 0.323763 | -0.510447 | 0.6134 |
SOURCE: AUTHOR’S ANALYSIS
To test the significant, the significant probability of RER, from the regression result (Table 4.3) significant probability is (0.0000). Following the rule we reject the null hypothesis since significant probability is less than 0.05, and conclude that real exchange rate has a significant impact on the manufacturing output in Nigeria. However, interest rate also has a significant impact on the manufacturing output, while inflation rate shows no significant impact on the manufacturing output as seen in the t-probability of the variables in table 4.3.
4.4.1 UNIT ROOT TEST
UNIT ROOT / STATIONARITY
The Unit Root test is conducted to ascertain the level of stationarity of the variables under consideration. It is conducted based on the following decision rule: If the absolute value of the Augmented Dickey Fuller (ADF) test is greater than the critical value, either at the 1%, 5% 0r 10% level of significant at the order zero, one or two, we conclude that the variables under consideration are stationary, otherwise they are not. For the variable under consideration the following values were obtained:
MANOT /-4.507791/ = 4.507791 (at first difference).
RER /-3.508292/ = 3.508292 (at first difference)
INT /-5.324954/ = 5.324954 (at first difference).
INF /-3.482959/ = 3.482959 (at level)
The critical value is calculated at the 5% level of significant. Decision: Since the absolute value of the variables under consideration is greater than the critical value of the 5% level of significant, we conclude that the variables under consideration are stationary.
4.4.2 MULTICOLINEARITY TEST
This is one of the assumptions that must hold before applying OLS estimation. The multicolinearity test is calculated to ascertain the degree of relationship that exists between the dependent and independent variables. The decision rule that guide the test is stated as follows: if the correlation matrix shows a variable that have above 0.8 then there is multicolinearity in the model. However, from the result in the appendix, it was discovered that there is evidence of multicolinearity in the model though not a severe problem.
4.4.3 NORMALITY TEST
The Normality test procedure is conducted to ascertain the normality distribution of the error term of the variables under consideration. The decision rule that guide the test is stated as follows: If the probability of Jarque-Bera is less than 0.05 you conclude that the variables are not normally distributed or otherwise. However, from the result in the appendix, it was discovered that the variables are normally distributed because the probability of Jarque-Bera is greater than 0.05 in the model, i.e 0.528391
4.4.4 HETROSCEDATICITY TEST
This is one of the assumptions of random variable (Ut). it is used to test if the error term is constant over time. The decision rule that guide the test is stated as follows:
If the probability of f-statistics is less than 0.05 we conclude that there is hetroscedaticity in the model inclining that the error term is not constant. if the probability of f-statistics is greater than 0.05 we conclude that there is homoscedaticity inclining that the error term is constant. However, from the result in the appendix, it was discovered that there is evidence of homoscedaticity inclining that the error term is constant in the model, i.e 0.124002
4.5 DISCUSSION OF FINDINGS
The regression result shows that real exchange rate, interest rate and inflation rate has a significant impact on the manufacturing output in Nigeria..
Exchange rate has a positive and a significant impact on manufacturing output in Nigeria. This is also in line with economic theory. Increase in exchange rate which implies depreciation in domestic currency relative to foreign currency will lead to increase in export which in turn will lead to firms’ sales and profit and hence increase in manufacturing growth. Specifically, depreciation in exchange rate will lead to about 1.244846 increase in manufacturing growth in Nigeria. This validates the flow oriented model by Dornbusch and Fisher (1980) of exchange rate determination which postulates that depreciation of exchange rate will affect international competitiveness and balance of trade positions, and consequently, the real output of the country, which in turn affects the current and future expected cash flows of the firms and their stock prices.
Interest rate has negative and significant impact on the manufacturing output. This is also in line with a priori expectation. An increase in interest rate will increase the opportunity cost of holding money and investors will substitute holding interest bearing securities for share hence falling stock market returns (Adam and Tweneboah 2008; Craigwell et al, 2009), While inflation rate has a negative and no significant impact on manufacturing output in Nigeria.
Interestingly, the overall regression is highly significant at 5% level of significance. This suggests that the joint effects of all the included variables are significant.
CHAPTER FIVE
SUMMARY RECOMMENDATION CONCLUSION
- SUMMARY OF FINDINGS
This research work investigated the impact of inflation on manufacturing output in Nigeria, between the period of 1981 and 2015 Ordinary Least Square (OLS) regression analysis was used. The variables were tested for stationarity , normality test, multicolinearity, hetroschedasticity analysis was also carried out using the E-view software. The result shows that
- inflation rate, real exchange rate and interest rate have a significant impact on the manufacturing output in Nigeria using the f-statistics test. The R^{2 }also indicates 80% of systematic variations in the dependent variable are explained by changes in the independent variables in the model. The level of explanatory power was considered satisfactory. However, the result showed that there is slight auto-correlation in the model; this was seen in the result of Durbin Watson statistics.
- The ANOVA revealed that the independent variables have significant impact on the dependent variables. From the result also, it was discovered that there is evidence of multicolinearity in the model though not a severe problem.
It was discovered that the variables are normally distributed because the probability of Jarque-Bera is less than 0.05 in the model. And finally, it was discovered that there is evidence of homoscedaticity inclining that the error term is constant in the model.
5.2 RECOMMENDATION
Based on the above results and findings above, the following recommendations were made:
- It therefore suggested that policy makers should not totally rely on this policy instrument to induced manufacturing sector performance, but should use it to complement other macro-economic policies.
More so, policies should be put in place to increase domestic manufacturing production of export commodities to enhance stability in Nigeria external reserves and contribute positively to the sector output and economic growth.
Furthermore, Monetary authority should create and implement monetary policies that favored efficient provider of more investment climate by facilitating the emergency of market based interest rate and exchange rate regimes that attract both domestic and foreign investment to the manufacturing industrial sector that are currently operating far below installed capacity.
- However, in order to maintain and exploit the current investment climate, the Central Bank of Nigeria should introduce more monetary instruments that are flexible enough to meet the demands of the manufacturing sector. This will allow for the existence of different measures that will deal with different situations.
The Central Bank should make more stringent punishment for non-compliance to the monetary policies by financial institutions mostly especially in the provision of credit facility to the manufacturing sector.
Expansionary policies on fiscal policy measures should be encouraged as they play vital role for the growth of the manufacturing sector output in Nigeria.
- There is need to redirect fiscal policy measures towards making Nigeria a producer nation through manufacturing sector which in turn would lead to economic growth and development.
Government economic policies should be on diversification of the economy to enhance the performance of manufacturing sector, so as to create more employment opportunities, because it may be a more effective way of reducing the level of unemployment and increasing the growth of the economy.
- Fiscal policy should be given more priority attention towards the manufacturing sector by increasing the level of budget implementation, which will enhance aggregate spending in the economy.
Consistent government implementation will contribute to the increase performance of manufacturing sector.
5.3 CONCLUSION
The study examines the impact of inflation on manufacturing output in Nigeria using ordinary least square (OLS) to analyze the data. The data was obtained from central bank of Nigeria statistical bulletin from the period of 1981-2015. The variables used in the analysis were manufacturing output, the dependent variable in the model, real exchange rate, interest rate and inflation rate, represent the independent variables. The analysis shows that Real exchange rate, have a positive and significant impact on the manufacturing output in Nigeria under the year reviewed.
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APPENDIX
UNIT ROOT TEST
TABLE 1
MANUFACTURING OUTPUT FIRST DIFFREENCE
ADF Test Statistic | -4.507791 | 1% Critical Value* | -3.6496 | |
5% Critical Value | -2.9558 | |||
10% Critical Value | -2.6164 | |||
*MacKinnon critical values for rejection of hypothesis of a unit root. | ||||
Augmented Dickey-Fuller Test Equation | ||||
Dependent Variable: D(MANOT,2) | ||||
Method: Least Squares | ||||
Date: 06/15/17 Time: 04:19 | ||||
Sample(adjusted): 1984 2015 | ||||
Included observations: 32 after adjusting endpoints | ||||
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
D(MANOT(-1)) | -1.287215 | 0.285553 | -4.507791 | 0.0001 |
D(MANOT(-1),2) | 0.079632 | 0.184993 | 0.430459 | 0.6700 |
C | 4146621. | 3680009. | 1.126796 | 0.2691 |
R-squared | 0.598927 | Mean dependent var | 126055.6 | |
Adjusted R-squared | 0.571267 | S.D. dependent var | 30845130 | |
S.E. of regression | 20196688 | Akaike info criterion | 36.56900 | |
Sum squared resid | 1.18E+16 | Schwarz criterion | 36.70641 | |
Log likelihood | -582.1039 | F-statistic | 21.65302 | |
Durbin-Watson stat | 2.001322 | Prob(F-statistic) | 0.000002 |
TABLE 2
REAL EXCHANGE RATE FIRST DIFFREENCE
ADF Test Statistic | -3.508292 | 1% Critical Value* | -3.6496 | |
5% Critical Value | -2.9558 | |||
10% Critical Value | -2.6164 | |||
*MacKinnon critical values for rejection of hypothesis of a unit root. | ||||
Augmented Dickey-Fuller Test Equation | ||||
Dependent Variable: D(RER,2) | ||||
Method: Least Squares | ||||
Date: 06/15/17 Time: 04:20 | ||||
Sample(adjusted): 1984 2015 | ||||
Included observations: 32 after adjusting endpoints | ||||
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
D(RER(-1)) | -0.963678 | 0.274686 | -3.508292 | 0.0015 |
D(RER(-1),2) | -0.114361 | 0.188732 | -0.605945 | 0.5493 |
C | 5.045676 | 2.911751 | 1.732867 | 0.0937 |
R-squared | 0.550429 | Mean dependent var | 0.147097 | |
Adjusted R-squared | 0.519424 | S.D. dependent var | 21.35779 | |
S.E. of regression | 14.80598 | Akaike info criterion | 8.316999 | |
Sum squared resid | 6357.293 | Schwarz criterion | 8.454412 | |
Log likelihood | -130.0720 | F-statistic | 17.75299 | |
Durbin-Watson stat | 2.001354 | Prob(F-statistic) | 0.000009 |
TABLE 3
INT FIRST DIFFREENCE
ADF Test Statistic | -5.324954 | 1% Critical Value* | -3.6496 | |
5% Critical Value | -2.9558 | |||
10% Critical Value | -2.6164 | |||
*MacKinnon critical values for rejection of hypothesis of a unit root. | ||||
Augmented Dickey-Fuller Test Equation | ||||
Dependent Variable: D(INT,2) | ||||
Method: Least Squares | ||||
Date: 05/30/17 Time: 08:34 | ||||
Sample(adjusted): 1984 2015 | ||||
Included observations: 32 after adjusting endpoints | ||||
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
D(INT(-1)) | -1.546583 | 0.290441 | -5.324954 | 0.0000 |
D(INT(-1),2) | 0.212658 | 0.182997 | 1.162086 | 0.2547 |
C | 0.029309 | 0.699108 | 0.041924 | 0.9668 |
R-squared | 0.653362 | Mean dependent var | -0.050938 | |
Adjusted R-squared | 0.629456 | S.D. dependent var | 6.495969 | |
S.E. of regression | 3.954250 | Akaike info criterion | 5.676519 | |
Sum squared resid | 453.4467 | Schwarz criterion | 5.813932 | |
Log likelihood | -87.82430 | F-statistic | 27.33034 | |
Durbin-Watson stat | 1.874090 | Prob(F-statistic) | 0.000000 |
TABLE 4
INF AT LEVEL
ADF Test Statistic | -3.482959 | 1% Critical Value* | -3.6422 | |
5% Critical Value | -2.9527 | |||
10% Critical Value | -2.6148 | |||
*MacKinnon critical values for rejection of hypothesis of a unit root. | ||||
Augmented Dickey-Fuller Test Equation | ||||
Dependent Variable: D(INF) | ||||
Method: Least Squares | ||||
Date: 05/30/17 Time: 08:36 | ||||
Sample(adjusted): 1983 2015 | ||||
Included observations: 33 after adjusting endpoints | ||||
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
INF(-1) | -0.571383 | 0.164051 | -3.482959 | 0.0015 |
D(INF(-1)) | 0.293561 | 0.173869 | 1.688400 | 0.1017 |
C | 12.03946 | 4.355984 | 2.763890 | 0.0097 |
R-squared | 0.287942 | Mean dependent var | 0.054545 | |
Adjusted R-squared | 0.240472 | S.D. dependent var | 17.60400 | |
S.E. of regression | 15.34204 | Akaike info criterion | 8.385579 | |
Sum squared resid | 7061.348 | Schwarz criterion | 8.521625 | |
Log likelihood | -135.3621 | F-statistic | 6.065711 | |
Durbin-Watson stat | 1.808835 | Prob(F-statistic) | 0.006134 |
MULTICOLINEARITY TEST
TABLE 5
MANOT | RER | INT | INF | |
MANOT | 1 | 0.602298865098 | -0.344295691567 | -0.254022391992 |
RER | 0.602298865098 | 1 | -0.430656430728 | -0.403828582656 |
INT | -0.344295691567 | -0.430656430728 | 1 | 0.482656945841 |
INF | -0.254022391992 | -0.403828582656 | 0.482656945841 | 1 |
REGRESSION RESULT
TABLE 6
Dependent Variable: LOG(MANOT) | ||||
Method: Least Squares | ||||
Date: 06/15/17 Time: 04:25 | ||||
Sample: 1981 2015 | ||||
Included observations: 35 | ||||
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
C | 14.00950 | 1.575927 | 8.889686 | 0.0000 |
LOG(RER) | 1.244846 | 0.114708 | 10.85228 | 0.0000 |
LOG(INT) | -1.690167 | 0.645936 | -2.616615 | 0.0136 |
LOG(INF) | -0.165264 | 0.323763 | -0.510447 | 0.6134 |
R-squared | 0.820880 | Mean dependent var | 13.26523 | |
Adjusted R-squared | 0.803546 | S.D. dependent var | 2.974323 | |
S.E. of regression | 1.318312 | Akaike info criterion | 3.497793 | |
Sum squared resid | 53.87638 | Schwarz criterion | 3.675547 | |
Log likelihood | -57.21137 | F-statistic | 47.35622 | |
Durbin-Watson stat | 0.929279 | Prob(F-statistic) | 0.000000 |
NORMALITY TEST
TABLE 7
HETROSCEDATICITY TEST
TABLE 8
White Heteroskedasticity Test: | ||||
F-statistic | 1.856848 | Probability | 0.124002 | |
Obs*R-squared | 9.962372 | Probability | 0.126246 | |
Test Equation: | ||||
Dependent Variable: RESID^2 | ||||
Method: Least Squares | ||||
Date: 06/15/17 Time: 04:28 | ||||
Sample: 1981 2015 | ||||
Included observations: 35 | ||||
Variable | Coefficient | Std. Error | t-Statistic | Prob. |
C | 0.016849 | 17.84024 | 0.000944 | 0.9993 |
LOG(RER) | 1.584044 | 0.923855 | 1.714603 | 0.0975 |
(LOG(RER))^2 | -0.239642 | 0.194854 | -1.229854 | 0.2290 |
LOG(INT) | 3.026794 | 12.48658 | 0.242404 | 0.8102 |
(LOG(INT))^2 | -1.120936 | 2.476908 | -0.452554 | 0.6544 |
LOG(INF) | -0.202897 | 4.598915 | -0.044118 | 0.9651 |
(LOG(INF))^2 | -0.023213 | 0.795194 | -0.029191 | 0.9769 |
R-squared | 0.284639 | Mean dependent var | 1.539325 | |
Adjusted R-squared | 0.131348 | S.D. dependent var | 2.434823 | |
S.E. of regression | 2.269292 | Akaike info criterion | 4.653669 | |
Sum squared resid | 144.1912 | Schwarz criterion | 4.964739 | |
Log likelihood | -74.43921 | F-statistic | 1.856848 | |
Durbin-Watson stat | 1.272477 | Prob(F-statistic) | 0.124002 |
DATA USED
YEAR | MANOT | RER | INT | INF |
1981 | 20174.7 | 0.5464 | 6.5 | 21.4 |
1982 | 15802.6 | 0.61 | 8 | 7.2 |
1983 | 14424.7 | 0.6729 | 8 | 23.2 |
1984 | 13596.8 | 0.7241 | 10 | 40.7 |
1985 | 14470.8 | 0.7649 | 10 | 4.7 |
1986 | 18226.4 | 0.8938 | 10 | 5.4 |
1987 | 16392.9 | 2.0206 | 15.8 | 10.2 |
1988 | 34477.3 | 4.0179 | 14.3 | 56 |
1989 | 41200.3 | 4.5367 | 21.2 | 50.5 |
1990 | 89596.7 | 7.3916 | 23 | 7.5 |
1991 | 105219.6 | 8.0378 | 20.1 | 12.7 |
1992 | 109886.1 | 9.9095 | 20.5 | 44.8 |
1993 | 121535.4 | 17.2984 | 28.02 | 57.2 |
1994 | 132897.1 | 22.0511 | 15 | 57 |
1995 | 144107 | 21.8861 | 14.27 | 72.8 |
1996 | 1411496 | 21.8861 | 13.55 | 29.3 |
1997 | 150946.5 | 21.8861 | 7.43 | 10.7 |
1998 | 168037 | 21.8861 | 10.09 | 7.9 |
1999 | 199079.3 | 21.886 | 14.3 | 6.6 |
2000 | 218770.1 | 92.3428 | 10.44 | 6.9 |
2001 | 236825.5 | 100.8016 | 10.09 | 18.9 |
2002 | 1874083 | 111.701 | 15.57 | 12.9 |
2003 | 2042716 | 126.2577 | 11.88 | 14 |
2004 | 3037706 | 134.0378 | 12.21 | 15 |
2005 | 4610084 | 132.3704 | 8.68 | 17.8 |
2006 | 60948913 | 130.6016 | 8.26 | 8.2 |
2007 | 7488744 | 128.2796 | 9.49 | 5.4 |
2008 | 8085380 | 125.88103 | 11.95 | 11.6 |
2009 | 9719514 | 118.86055 | 12.63 | 12.4 |
2010 | 7972490 | 148.9017 | 7.19 | 12.5 |
2011 | 8846002 | 133.88113 | 6.3 | 12.4 |
2012 | 89653446 | 141.3914 | 7.63 | 12.5 |
2013 | 99955454 | 137.63625 | 6.72 | 12.4 |
2014 | 99967598 | 160.56 | 9.89 | 8 |
2015 | 104000000 | 165.33 | 8.26 | 9 |
Read Also : Economic Growth and Population in Nigeria