Empirical analysis of the impact of service sector on economic growth in Nigeria

Abstract

In recent times, technological advancement in the manufacturing sector has adversely reduced potentials to employ large amounts of unskilled and semi-skilled labour especially in developing countries. Consequently, job and productivity growth have declined greatly. Reacting to this, some developing countries have sort alternative avenues to boost job and productivity growth. This paper argues that the service sector is a veritable alternative. To substantiate this claim, the study examine how Real Estate (RE), Professional, Scientific and Technological Services (PST), Public Administration (PA), Accommodation and Food Services (AFS), Arts, Entertainment and Recreation (AER), as well as Financial and Insurance (FI) subservice sectors impact on Nigeria’s economic growth. The Augmented Dickey-Fuller unit root test, Johansen Cointegration test and Error Correction Mechanism technique were used to estimate the data set obtained from the CBN Statistical Bulletin for the period 1990-2021. Findings from the ADF test revealed that the variables became stationary after first difference, while the Cointegration test indicates that there are five cointegrating equations. It was also discovered that RE, PA and FI have positive and significant long run impact on economic growth in Nigeria. AFS and AER both have positive, but insignificant impact, while PST has a negative and insignificant impact on economic growth in Nigeria. The study thus, recommends amongst others that more investments in Real Estate should be encouraged, expansion of public administration should be upheld by government, and also, more appropriate financial reforms are required to boost the Nigeria financial sector in order to enhance its performance.