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INFRASTRUCTURE DEVELOPMENT AND INDUSTRIAL OUTPUT IN NIGERIA: A Dynamic Model Approach

INFRASTRUCTURE DEVELOPMENT AND INDUSTRIAL OUTPUT IN NIGERIA: A Dynamic Model Approach

 

Abstract: This paper empirically examines the influence of infrastructure (proxied by telephone density, energy consumption and capital expenditure in transport and communication) on industrialization (measured by industrial output) in Nigeria from 1981 to 2015. It synthesizes the production function and growth approaches to estimate the industrial output elasticity of infrastructure development using the dynamic ordinary least squares (DOLS) estimation technique that accounts for present and past effects of infrastructural development on industrialization. The Toda-Yamamoto modified Wald (MWALD)-based causality test that arbitrage between the results with and without structural breaks was used to define the direction of causality between infrastructure and industrial output. The unit root tests that account for break and without break were employed to ascertain the stationarity of the data, while the residual-based cointegration test with a structural break was employed to determine the cointegrating relationship among the variables. Findings suggest that all proxy of infrastructure except telephone density impacted positively on industrial output when structural breaks were not accounted for. Telephone density and energy consumption impacted on industrial output in the presence of structural breaks, while capital expenditure in transport and communication did not impact on industrial output. This suggests that fluctuations in infrastructural development, to a large extent, affected the magnitude of the impact of infrastructure on industrialization in Nigeria. The study recommends that government needs to look for other stable sources of financing infrastructure because reliance on oil revenue has brought about fluctuations in infrastructural development, which has affected the industrial drive of the nation.

JEL classification: O1, H4, H54, L9

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