Effect of Manufacturing Capacity Utilization on Economic Growth: An Empirical Evidence of Nigeria.

International Journal of Research and Scientific Innovation (IJRSI) | Volume VIII, Issue V, May 2021 | ISSN 2321–2705

Effect of Manufacturing Capacity Utilization on Economic Growth: An Empirical Evidence of Nigeria.

Oniyide F. V. and Ogunjinmi O.O.
Economics Department, Lead City University, Ibadan, Nigeria

Abstract
This study examines the effect of manufacturing capacity utilization on economic growth in Nigeria given the decadence that has been experienced in the manufacturing sector using annual data from 1980 to 2018 sourced from World Development Indicators (WDI) and Central Bank of Nigeria Statistical Bulletin. The study employs Johansen and the Canonical cointegration technique and impulse response function in order to investigate the response of manufacturing capacity utilization to a shock in gross domestic product proxy for economic growth. The Johansen cointegration result reveals a long run relationship among the variables. The empirical result reveals that manufacturing capacity utilization insignificantly decreases gross domestic product in the first model while across the second and third model, manufacturing capacity utilization significantly increases gross domestic product in Nigeria in the long run. Therefore, the study concludes and recommends that government should set up institutional framework that will revamp the moribund manufacturing sector thereby harnessing its full potential in order to contribute to economic growth and development.

Keywords: Manufacturing Sector, Capacity Utilization, Economic Growth, Canonical Co-integration Technique.
JEL Classification: L60, O40.

I. INTRODUCTION
The manufacturing sector is often viewed as the engine of growth and wheel of economic progress of developed and less developed countries as this sector contributes immensely to wealth creation and serve as a panacea to the malady of unemployment. In Nigeria, economic growth was negatively affected by long standing economic recession originating from the collapse of crude oil in the international market in the early 1980s and the accompanying sharp decline in foreign exchange earnings. The excessive reliance on importation of consumer and capital goods, dysfunctional social and economic infrastructure, unprecedented fall in capacity utilization rate in the manufacturing sector and neglect of the agricultural sector, were other important maladies that bedeviled the Nigerian economy which

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