Munich Personal RePEc Archive

Impact of Capital Expenditure on the Manufacturing Sector of the Nigerian Economy

Chikelu, James Chukwubudom and Okoro, Valentine Chukwuemeka (2016): Impact of Capital Expenditure on the Manufacturing Sector of the Nigerian Economy.

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Abstract

The importance of capital expenditure in an economy cannot be overemphasized. In Nigeria, capital expenditure has been given meager allocation, and the manufacturing sector has been experiencing poor growth. To this end, this study examines whether the low manufacturing sector’s growth in Nigeria is as a result of the poor allocation to capital expenditure, also whether there is any causal relationship between capital expenditure and manufacturing sector’s growth. In executing this study, the Error Correction Mechanism (ECM) is employed after Augmented Dickey Fuller (ADF) unit root test as well as Johansen Co-integration analysis have been applied to the variables in our model- Manufacturing Output in Nigeria; Capital Expenditure; Foreign Direct Investment; Interest Rate; and Exchange Rate. Granger causality test is employed to determine whether there is any causal relationship between capital expenditure and manufacturing sector’s growth. The study finds that capital expenditure has significant impact on manufacturing sector’s growth. It also finds that capital expenditure Granger causes manufacturing sector’s growth in Nigeria. The study recommended imperative policy options which we believe that if implemented; there will be tremendous improvements in the manufacturing sector’s growth in Nigeria.

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