INDUSTRIAL OUTPUT VOLATILITY IN NIGERIA: Causes and Consequences

Author: Ebi, Bassey Okon & Lionel Effiom
Volume: 61 Issue No:1 Year:2019

Abstract: Empirical studies in Europe, America and Asia have shown overwhelming evidence in support of the view that more volatile financial development raises industrial output volatility. The pertinent question is, does this evidence hold in the context of a mono economy such as Nigeria, driven by exogenous oil prices and high macroeconomic policy volatility? Accordingly, this paper investigates whether industrial growth volatility is principally caused by volatility of financial sector development in Nigeria. Total industrial output volatility was decomposed into the effects of financial development volatility, fiscal volatility, trade openness volatility, and oil price volatility using the vector auto-regressive (VAR) mechanism. All volatility measures are standard deviations of the various variables. Results suggest that about 24 per cent of the variations in industrial output volatility are caused by industrial output volatility itself, about 5 per cent and 38 per cent by financial institutions and financial markets volatilities respectively, representing a sum of 43 per cent attributed to financial sector development volatility, while 28 per cent are caused by volatility in openness to international trade, 2 per cent by fiscal policy (government expenditure) volatility and about 4 per cent by oil price volatility. The estimates also suggest that, on the whole, about 32 per cent of volatility in Nigeriaâ€™s industrial sector was associated with exposure to external shocks while 68 per cent was attributed to domestic factors (especially domestic capital market development). The implication of these results is that industrial output instability is relatively determined more by volatility in the domestic financial sector, and less by oil price and other external related volatility. Hence, volatility in the domestic capital market raised a major concern. The consequence of high output volatility is underdevelopment, as evident in low investment and widespread poverty in Nigeria.

JEL classification: C23; E32, G2; O43

2024-03-01
Visits : 118

The Nigerian Journal of Economic and Social Studies (NJESS) is a general-interest economics and social studies journal. The NJESS is the nation's oldest and most respected international scholarly journal in the economics profession and is celebrating over 50 years of publishing.

64thANNUAL CONFERENCE ANNOUNCEMENT Date: 10th-12th October, 2023 Venue: TBA, Abuja Conference Theme: Building Resilience for Transformational Recovery. CALL FOR ABSTRACTS

Membership of the Society is open to any graduate of economics or allied subjects (Nigerians and non-Nigerians), or anyone adjudged to be sufficiently knowledgeable in Economics or allied subjects by the National Executive Council is eligible for admission into the Society on application.