In Examining the Impact of Trade and Industrial Policies on Manufacturing Sector in Nigeria (1980-2020): Do African Continental Free Trade Matters?

Abstract

The Nigerian Manufacturing sector has been underplayed, despite trade and industrial policies put in place, it is possible  that the African continual free trade could be a springboard to enhance the subsector. This paper uses the  Structural Autoregressive model to examine the impact of trade and industrial policies on manufacturing sector in  Nigeria between the periods of 1980-2020, and the possible role of African continental free trade. Data were drawn from  secondary source. The variables used in this study include, exchange rate, tariffs, capital, labour and trade openness;  while manufacturing output (MO) is used to proxy the performance of manufacturing sector. After accounting for  structural breaks in the series and ensuring the stationarity properties of the series. From the short run result, the  current and past lagged tariff are not in line with theories, a 1% increase in tariff will leads to a proportionate increase in  manufacturing subsector by 0.88% and 0.19% concurrently. The result further revealed that past exchange rate has an  insignificant effect on manufacturing productivity, implying that a 1% rise in current and past exchange rate leads to a  fall in manufacturing output by 0.04 % and 0.05 %, concurrently. The result of the variance decomposition shows that  Shocks to tariff accounted for the second most significant variations in manufacturing productivity, with progressive  increase noticeable over time. The impact rose from 18.0 % in the first year to as high as 62% in the tenth year. The  result of impulse response function revealed that manufacturing productivity responding to its own shocks, tariff,  exchange rate and capital are positive. The expansionary effect of exchange rate and tariff devaluation on manufacturing productivity was established in Nigeria. The findings are suggestive of African continental free trade is  strong precursor to drive trade and industrial policies in Nigeria and enhance manufacturing output.