Economic Growth; the Quest for performance of the manufacturing sector in Nigeria

1.0 Introduction

1.1 Background to the Study

Nigeria is also a vast nation in Africa, in terms of land area and the population. For many years, Nigeria has tried to grow its economy and reduce poverty. One major area that can help with this is the manufacturing sector. This sector is very important because it transforms raw materials (like cotton, crude oil, or cocoa) into finished products (like clothes, petrol, or chocolate). When a country has a strong manufacturing sector, it can grow its economy faster, create jobs, and earn more money from exports. In the past, especially in the 1970s and 1980s, Nigeria’s manufacturing sector experienced growth due to government support and oil revenue. However, over time, the sector began to decline due to problems like poor electricity, bad roads, lack of modern machinery, and unstable government policies [1]. Numerous factories became shut and Nigeria began to import more than it exported. The manufacturing industry in Nigeria continues to make minimal contributions to the Gross Domestic Product (GDP) in the country today. The manufacturing only contributed about 9.5 per cent to the GDP in 2022 according to the National Bureau of Statistics [2]. This compares to low with other countries such as China, South Africa or other countries where manufacturing is a bigger producer of economic development.

Nevertheless, analysts are of the opinion that production remains among the most effective means through which Nigeria can grow and become less poor. Factories with efficient operations are able to hire a large number of workers, particularly the youths. According to the World Bank [3], one percent growth in production of manufactures can generate thousands of jobs. The manufacturing would also contribute to the reduction of the high dependability of oil in the country that is risky due to unstable oil prices. In the recent past, the Nigerian government has been making an attempt to rejuvenate the manufacturing industry. Such policies as the National Industrial Revolution Plan (NIRP) and Economic Recovery and Growth Plan (ERGP) were aimed at assisting the local manufacturers to increase and compete with foreign manufacturers [4]. These plans target such sectors as agro-processing, textiles, cement and petrochemicals. Even with these developments, the industry continues to be a problem in that some issues continue to impact its development:

• Unstable power supply (many companies rely on expensive generators).
• Poor access to credit (small businesses find it hard to get loans).
• High cost of raw materials (especially imported ones).
• Insecurity and poor infrastructure.

In spite of all these hardships, all is not lost however. Nigerian products can be exposed to new markets with his signature African Continental Free Trade Area (AfCFTA). Still, to make Nigeria a way to gain, it is needed to enhance its manufacturing sector and lower the cost of running business. Nigeria manufacturing sector is not used to its full potential yet it is one of the best tools that can be used to develop the economy, alleviate poverty and create jobs, should it be provided with the proper support.

1.2 Statement of the Problem

Nigeria is a country rich in natural resources, with a large and youthful population. However, for many years, the economy has depended mostly on oil. This dependency has caused serious problems because when oil prices fall, the whole economy suffers. A strong manufacturing sector can help Nigeria create jobs, produce goods locally, export to other countries, and grow the economy. However, in Nigeria, the manufacturing sector remains very weak, contributing only 9.5% to GDP in 2022 [2]. This is small compared to other growing economies where manufacturing is a major source of growth and employment.

There are many reasons why manufacturing is not growing well in Nigeria:

• Poor electricity supply: Many factories lack regular power and rely on expensive generators, increasing production costs.
• Bad roads and infrastructure: Transporting raw materials and finished products is difficult and costly.
• Insecurity: Attacks and unrest in different parts of the country deter investors and disrupt production.
• Unstable government policies: Frequent changes in rules create an uncertain environment for manufacturers.
• Poor access to finance: Many small and medium manufacturers cannot get loans or credit to expand their businesses.

These problems make it hard for the manufacturing sector, especially the service and textile sectors, to grow and play their full role in building the economy. As a result, Nigeria continues to import many goods it could produce locally, weakening the local economy, increasing unemployment, and exacerbating poverty. The manufacturing has been boosted through several government plans which include the National Industrial Revolution Plan (NIRP) and the Economic Recovery and Growth Plan (ERGP). But there has been a low rate of their implementation and limited results as there have been challenges in infrastructure and policy which are persistent [3].

1.3 Objectives of the Study

The general aim of the research is to examine the influence of the performance of the manufacturing sector on the economic growth of Nigeria; the specific goals are to;

1. Consider the connexion between economic growth in Nigeria and manufacturing service industry.

2. Establish the links between the textile manufacturing industry and the economic growth in Nigeria.

3. Research into the role of credit to the private sector and growth in Nigeria economy.

4. explore the connexion between the exchange rate and the growth of the economy in Nigeria.

1.4 Research Questions

1. How does the manufacturing service sector relate to the economic growth of Nigeria?

2. How strongly is there the interaction between manufacturing sector of textiles and growth of the economy of Nigeria?

3. What is the association between credit to the private sector and economic growth in Nigeria?

4. Does the exchange rate have any correlation with the economic growth in Nigeria?

1.5 Research Hypotheses

H₀₁: The manufacturing service industry and economic growth in Nigeria have no significant correlation.

H₀₂: No strong correlation exists between the textile production industry and the Nigerian economy.

H₀₃: that credit to the private sector is not significantly allied to economic growth in Nigeria.

H₀₄: The exchange rate does not have a significant relationship with economic growth in Nigeria.

2.0 Literature Review

2.1 Conceptual Literature

2.1.1 Concept of Manufacturing Sector

The manufacturing industry is a very wide area of business that deals with the mechanical, physical or chemical process transformation of materials substances or parts to form new products [5, 6]. This involves heavy and light industries which includes manufacturing of machines, cars, consumer electronics, fabrics, processed food, and building materials. Industrialization depends on the manufacturing sector as a core, creating both backward and forward integration with the other sectors of the economy including the agricultural and service sectors, and spurring employment, foreign exchange earnings as well as innovation in technology. The manufacturing sector is often used in an economic analysis, in terms of its contribution to Gross Domestic Product (GDP), generation of employment, earnings of exports and rates of capacity utilisation [2]. The development of the sector is usually a sign of structural change and long-term economic growth, particularly in the emerging economies. The manufacturing industry in Nigeria is subdivided into diverse sub-sectors as such; food and beverages, textiles and apparel, wood and wood products, chemicals and pharmaceuticals, non-metallic minerals and cement, among others. Although the sector holds a lot of potential, it has experienced limitations in terms of poor infrastructure, volatility of the exchange rates and limited availability of finance [1]. But since the adoption of policies such as National Industrial Revolution Plan (NIRP), there has been an attempt to encourage local production and limit dependency on imports [4].

2.1.2 Growth of the Economy; its Concept

Economic growth refers to the rise in the amount of goods and services produced and consumed in a country over duration; this is normally determined by the growth in the Gross Domestic Product (GDP). It also plays a significant role as a measure of the growth and better standards of living of a country [3]. Capital accumulation, labour force growth, technological growth, and productivity growth are all the factors that affect the economic growth. The fact that economic growth is multidimensional has seen it being defined differently by some scholars and institutions. The World Bank [3] has defined economic growth as an increment of the output of a country in terms of goods and services, that is calculated as the rate of changes in the real Gross domestic product (GDP) over time. It is commonly taken as one of the highly influential signs of national growth and welfare enhancement. The other definition says that economic growth is a consistent rise in the productive power of an economy, which results in the growth of national output and a higher income per capita which eventually enhances the standard of living of the people [7]. Growth in economy may also mean the long-run increase in productive potential of the economy which is usually propelled by the accumulation of capital, development of technology and the increase in productivity of labour force [8].

2.1.3 Concept of Service Sector Output

The service sector comprises activities that do not produce tangible goods but provide value, such as banking, telecommunications, health, and education. Its contribution to GDP is essential in modern economies. In Nigeria, the service sector has increasingly become dominant, contributing more than 50% to GDP in recent years [2]. The service sector, often referred to as the tertiary sector, includes economic activities that provide value in the form of services. Various scholars and institutions have defined service sector output in ways that highlight its role in modern economies.

2.1.4 Textile Industry Concept

The sub sector of manufacturing is the textile industry which involves production of yarn, cloth as well as the design and automobile production of the clothing and their distribution. It has historically been a significant contributor to employment and industrial development in Nigeria. However, this sector has declined over the years due to competition from imports and a lack of infrastructure [9]. The textile industry encompasses a wide range of activities related to the production of yarn, fabrics, clothing, and associated products. According to the International Trade Centre [10], the textile industry refers to the entire value chain involved in the transformation of natural and synthetic fibers into fabrics and garments, including spinning, weaving, dyeing, and apparel production. Another definition states it is a core component of light manufacturing that plays a critical role in industrialization, particularly in developing countries, due to its labor-intensive nature and low barriers to entry [5].

2.2 Theoretical Literature

The theoretical literature section examines three key economic growth frameworks. Endogenous Growth Theory posits that deliberate investments in human capital, innovation, and knowledge—rather than external factors—drive long-term growth, offering policy guidance but facing criticism for its focus on formal R&D and institutional assumptions that may not fit developing contexts like Nigeria [11]. Structural Change Theory, originating from Lewis’s dual-economy model, emphasizes the reallocation of resources from low-productivity agriculture to higher-productivity manufacturing as the engine of development, a process relevant to Nigeria’s industrialization goals despite challenges in labor mobility and modern services-led pathways [12]. Finally, Classical Growth Theory, founded by Smith and Ricardo, underscores capital accumulation, labor specialization, and manufacturing’s transformative role, providing a foundational though somewhat limited perspective due to its assumption of diminishing returns [13, 14]. Collectively, these theories, despite their individual limitations, converge in highlighting manufacturing as a critical lever for sustainable growth, diversification, and productivity gains in Nigeria, thereby substantiating the focus on the manufacturing sector in national strategies.

2.3 Empirical Review

2.3.1 Empirical Review of Manufacturing Output on Economic Growth
A study analyzing the relationship between manufacturing output and economic growth in Nigeria using time series data from 1981 to 2016 showed a significant positive relationship, with manufacturing contributing about 10% to GDP growth [15]. Similarly, another study employing ARDL models found that increased manufacturing output positively influences long-term economic performance [16]. A time-series analysis found that from 2016 to 2020, Nigeria’s manufacturing output rose by 12.82%, which corresponded with an 8.57% increase in GDP, indicating a robust positive relationship between the two variables [17]. These findings support earlier literature asserting that manufacturing expansion acts as a catalyst for broader economic development.A study disaggregating Nigeria’s manufacturing sector using quarterly data up to 2022 revealed that while the cement and beverage sub-sectors had a marginally positive but statistically insignificant effect on economic growth, the chemical sub-sector had a mild negative impact [18]. This indicates that the contribution of manufacturing to GDP is uneven across sub-industries and highlights the need for sub-sector-specific industrial policies. According to a 2023 report, Nigeria’s manufacturing contribution to GDP rose to 12.67% by 2020 [19]. This trend supports Kaldor’s theory, which posits that manufacturing acts as the engine of growth in developing economies. The study emphasized the role of industrial output in enhancing employment, investment, and macroeconomic stability.Another study explored macroeconomic drivers of manufacturing output and concluded that exchange rate stability promotes industrial performance, whereas high lending rates discourage capital investment in manufacturing [20]. These macroeconomic variables indirectly influence GDP through their impact on sectoral productivity. Research investigating the effects of technological adoption in manufacturing across Sub-Saharan Africa confirmed that industrial sectors integrating new technologies achieved higher value-added and stronger linkages to economic growth [21]. It advocated for policy shifts in countries like Nigeria to accelerate technology-driven industrial transformation.A world-regional panel study covering 2018 to 2020 demonstrated a clear positive correlation between digital adoption and manufacturing-led GDP growth [22]. However, it observed that Sub-Saharan Africa, including Nigeria, lagged behind other regions due to weak infrastructure and underdeveloped policy frameworks, which limited the full benefits of digital industrialization. In a long-term study covering Turkey from 1995 to 2023, manufacturing output had a stronger and more persistent impact on GDP growth compared to sectors like mining and chemicals [23]. This evidence is particularly relevant to Nigeria, as both countries face similar structural and energy-related industrial challenges.A study reported that by 2020, manufacturing contributed approximately 13% to Nigeria’s GDP, with the food and beverage sub-sector accounting for the largest share [24]. The study emphasized the variability of growth contributions across sub-sectors and called for more targeted and differentiated industrial policy interventions. A 2025 report stressed that even though manufacturing accounts for less than 13% of GDP in Nigeria and similar economies, industrialization remains indispensable for achieving sustainable development [25]. The report recommended increasing investment in light manufacturing and regional export production to diversify the economy and build resilience. Data documented that Nigeria’s manufacturing output rose significantly by 17.7% in 2021, before experiencing moderate declines in 2022 and 2023 due to inflationary pressures and currency instability [26]. These fluctuations closely mirrored national GDP trends, illustrating that volatility in manufacturing output often reflects broader macroeconomic dynamics.

2.3.2 Empirical Review of Service Sector Output on Economic Growth
Recent empirical research has increasingly emphasized the critical role of the service sector in driving economic growth in Nigeria and other developing economies. As global economic structures evolve, services such as telecommunications, finance, ICT, logistics, and education have become major contributors to GDP, employment, and productivity gains. A study explored the impact of the service sector on Nigeria’s economic performance using time series data from 1990 to 2020 [27]. Their analysis revealed that subsectors such as financial services, telecommunications, and transportation exhibited a statistically significant positive impact on GDP. The study emphasized that as the Nigerian economy transitions from an oil-dominated structure, these service-driven activities are assuming greater importance in national output and employment generation.

In a complementary study, researchers found that service sector liberalization, particularly in financial technology and information services, had a strong effect on economic growth, with the sector contributing over 55% of Nigeria’s GDP in recent years [28]. Using an autoregressive distributed lag (ARDL) model, they confirmed that the removal of regulatory bottlenecks and increased private sector participation significantly boosted sectoral output, with spillover effects into other productive sectors. Similarly, another investigation into the performance of the Nigerian ICT and digital services industry from 2010 to 2022 indicated that the ICT sub-sector alone accounted for approximately 17.9% of total GDP by 2021, with mobile technology, e-commerce, and digital banking being key growth drivers [29]. This reinforces the argument that digitally driven service sectors are central to economic transformation in emerging markets.

According to the Central Bank of Nigeria [30], the financial services sector recorded sustained expansion between 2020 and 2022, primarily due to increased digital banking adoption, mobile money penetration, and financial inclusion policies. The banking sector’s contribution to GDP increased from 3.2% in 2018 to 4.5% in 2022, reflecting enhanced productivity and operational efficiency in service delivery. In another study, researchers assessed the contribution of transport and logistics services to economic growth [31]. They concluded that investment in road networks, port infrastructure, and digital logistics platforms led to measurable improvements in trade facilitation and national income. The results showed that improved transport services enhance manufacturing competitiveness, reduce transaction costs, and support overall GDP growth.

A more expansive study by the region that topped 24 Sub-Saharan African nations which also include Nigeria showed that services particularly education, ICT and finance were a significant source of structural change and inclusive growth [32]. The results of the study were that those economies that were highly based on services had the greatest resilience to global shocks and their growth patterns were less volatile. The other study utilised a model based on a vector error correction (VECM) to enable the analysis of the long run relationship between the service sector output and economic growth in Nigeria [33]. Their results indicated that the services not only have a direct impact on GDP but also improve the productivity of other sectors due to knowledge transfer and business supporting functions as well as digital platforms.

2.3.3 Empirical Review of Textile Output on Economic Growth
The textile and apparel industry has long been considered a catalyst for industrial development, especially in labor-abundant economies like Nigeria. It plays a significant role in employment generation, foreign exchange earnings, and value addition to agricultural raw materials such as cotton. Recent empirical studies reaffirm the sector’s importance, particularly in the context of economic diversification and industrial revitalization. A foundational study on the historical evolution of Nigeria’s textile industry demonstrated that the sector made a substantial contribution to GDP and employment, accounting for nearly 25% of manufacturing jobs at its peak [34]. However, policy inconsistency, trade liberalization, and infrastructure deficits led to the sector’s gradual decline. The study concluded that restoring the industry could yield significant economic and social benefits, particularly in reducing youth unemployment.

More recently, a study examined the potential of modern investments in Nigeria’s textile value chain [35]. The research highlighted the role of government interventions such as the Cotton, Textile, and Garment (CTG) Policy and the Bank of Industry’s revival fund. The findings revealed that improved access to credit, power subsidies, and backward integration into cotton farming could significantly enhance output and reduce Nigeria’s dependence on imported textile products. The study showed that revitalized textile production could generate over 1.5 million jobs and contribute an additional $2 billion annually to export revenues. Another study applied an ARDL model to evaluate the impact of textile output on Nigeria’s GDP from 1985 to 2020 [36]. Their results showed a long-run positive and statistically significant relationship, reinforcing the argument that sustained investment in textile manufacturing has the potential to support inclusive economic growth. The authors emphasized the need for regulatory reforms, quality control, and market linkages to enable Nigeria’s textiles to compete regionally and globally.

In a sub-sectoral analysis, researchers investigated the role of the Nigerian textile industry in rural industrialization [37]. Their study indicated that textile clusters in Kaduna, Kano, and Aba have strong backward linkages to cotton production and forward linkages to garment manufacturing. These clusters, if formalized and supported through infrastructure and training programs, could serve as engines of rural economic transformation. A 2023 report stated that Nigeria, despite once being home to over 180 textile mills, now imports more than 80% of its textile needs [38]. However, recent government efforts to revive the sector through import substitution and industrial policy reforms have begun to yield results. The report suggests that targeted support for integrated textile parks, especially in northern Nigeria, could reduce textile import bills by $4 billion and improve Nigeria’s trade balance.

In a cross-country study on Sub-Saharan Africa, it was found that countries with active textile export strategies—such as Ethiopia and Kenya—experienced higher employment rates and better foreign exchange stability [39]. They argued that Nigeria could achieve similar gains by aligning its textile policy with regional trade frameworks like the African Continental Free Trade Area (AfCFTA). Another study also emphasized the potential of the textile sector to support Nigeria’s industrialization agenda [40]. Their econometric analysis showed that a 10% increase in textile manufacturing output could lead to a 2.5% increase in manufacturing GDP. They recommended tax incentives, public-private partnerships, and technology transfer mechanisms to scale up sectoral productivity. A study focused on export competitiveness found that despite Nigeria’s historical strength, its textile products have lost ground to Asian imports due to quality and branding issues [41]. Their study advocated for a national quality certification framework and export branding strategy to reposition Nigerian textiles in global markets.

2.3.4 Empirical Review of Exchange Rate and Access to Bank Credit on Economic Growth
The exchange rate movements and bank credit accessibility are well-known examples of macroeconomic variables that play a vital role in the economic development, particularly in such a developing economy as Nigeria. The volatility in the exchange rates influences investment certainty, inflation and competitiveness of trade whereas the provision of bank credit is a key contributor in capital formation, industrial production and the growth of the private sector. Recent empirical research carried out in the last 2- 5 years offers strong support on the impacts of these variables on the growth trend in Nigeria. A study that examined the effect of exchange rate volatility on economic growth in Nigeria based on quarterly time-series data on the naira exchange rate change between 1999 and 2019 presented the finding that the presence of frequent changes in the value of the naira exchange rate was associated with a negative and statistically significant effect on the GDP by reducing foreign investment and raising the cost of imports [42]. It was determined in the study that the instability of the exchange rates interferes with the economic planning, discouraging investor confidence, and raising production costs particularly in manufacturing and trade.

In another work, the connexion between economic growth and the bank credit was investigated with the help of Vector Error Correction Models (VECM) [43]. Their findings indicated that inadequate credit access particularly by micro, small, and medium-sized businesses (MSMEs) has limited the industrial growth in Nigeria and also led to low level of capital accumulation. The research indicated persistent problems with the financial system that included, high-interest rates, collateral requirement and credit rationing, which inhibits productive investment and makes it less possible to grow the GDP. Similarly, researchers discovered that the manufacturing industry in Nigeria is very responsive to changes in exchange rates, as well as, the availability of credit [44]. Their study revealed that times of naira and liquidity tightening were linked with the loss in the industrial output and the increase in the inflation. In their argument, the authors claimed that the monetary policy should be aimed at stimulating inclusive growth by maintaining balance between price stability and credit expansion to the real sector.

Symmetric impacts of exchange rate shock on sectoral GDP components were studied in another research [45]. The difference is that positive exchange rate shocks (depreciation) impacted negatively on manufacturing GDP more than services or agriculture. This is an indication that the trade segment of an economy that is subjected to foreign exchange risks is more predominant on the manufacturing industry, which underpins the importance of exchange rate stability as a prerequisite to industrial development. These findings were supported by a Central Bank of Nigeria report registering that, in nominal terms, bank credit to the private sector is growing; but, in relative GDP terms, they do not materially exceed the 15.2% average between 2020 and 2022 [30]. The report identified the need to deepen credit and include financial inclusion as means of enhancing investment and economic resiliency.

In one of the studies, the impact of exchange rate volatility on foreign direct investment (FDI) inflows and credit growth in the private sector was studied [46]. Their econometric data indicated that high exchange rate volatility lowers the FDI inflow and follows that as a result, less credit is available to the local firms because capital inflows were low. The paper suggested harmonisation of the exchange rates and financial market reforms to stabilise the credit environment. The other paper concentrated on the causality of commercial bank credit and growth of GDP in Nigeria [47]. They identified bi-directional causality, that is, as economic activity is increased by credit; higher economic growth is also able to increase credit growth by increasing the performance of loans and financial performance of banks.

Surveys conducted to examine the industry-specific access to bank credit found out that the oil and gas industry got a large portion of the credit, the manufacturing and agricultural industries remained underfunded [48]. In their research, they proposed that the allocation of credit in the wrong place undermined the structural transformation process and job creation. The effectiveness of such intervention programmes as the Anchor Borrower Programme, the Credit Guarantee Scheme was in another study [49]. In their analysis, they revealed that even though such schemes enhanced access to credit by agribusiness, its impact to industrial sectors was low owing to low level of implementation and ineffective monitoring structures. Lastly, an investigation into the long-run performance of exchange rate regimes in macroeconomic stability in Nigeria justified the implementation of managed float regime as measures to lower speculative attacks, improve the transparency and bolster industrial production by stabilising input prices of manufactures who depend on imported raw materials [50].

2.4 Summary and Gap in Literature

The reviewed literature shows that manufacturing output, service sector development, textile industry revitalization, and stable macroeconomic indicators such as exchange rate and access to credit are crucial for Nigeria’s economic growth. However, significant gaps remain. First, there is limited recent empirical work combining all four variables in a single model for a holistic analysis. Secondly, the unique effects of sub-sectors like textiles within the broader manufacturing industry are often underexplored. This study fills these gaps by using updated time series data and a comprehensive econometric model to assess the simultaneous effects of key manufacturing-related variables on Nigeria’s economic growth.

3.0 Methodology/Method

3.1 Research Design

The type of research design used in this study is an ex- post facto research design. It is most suitable in a social research when manipulation of the characteristics of human subjects/data is not feasible or ethical.

3.2 Data Source

The sources of data that were used in the study are the Central Bank of Nigeria Statistical Bulletin (2024) the National Bureau of Statistics (2024), and the World Bank Development Indicators (2024)..

3.3 Model Specification

The concision of a suitable econometric model relies on the economic environment that prevails and access to economic statistics of the variable(s) under investigation [51]. This study has been based on the model of research that studied the influence of performance of the manufacturing sector on the economic growth in Nigeria. The model is specified as:

GDP growth rate = F (manufacturing service industry, textile manufacturing industry, credit to manufacturing industry, exchange rate)….(3.1)

The form of the model above is converted to the form below which is easily estimable.

Where:GDPGRT = Gross Domestic Growth Rate, MSS = Manufacturing Service Sector Growth Rate, TMS = Textile Manufacturing Sector Growth Rate, CPS = Credit to the Manufacturing Sector in Rate ,EX = Exchange Rate, = coefficients of independent variables and  = error term.

3.3.1 Unit Root Test

In order to reach the complete exploration of the data-generating process, we initially analysed the time series properties of the variables of the model with the help of the Augmented Dickey-Fuller test. And the model is stipulated below

3.3.2 Auto Regressive Distributed Lag

Further, the work set out to present an Autoregressive Distributed Lag (ARDL) model.

Where

The Bound test procedure used equations 3.5 AND 3.6 into 3.7 as:

Then we test the existence of level relationship as ρ = 0 and δ₁ = δ₂ = … = δ_k = 0

 where = difference operator, α = the short-term coefficient, β = the long run coefficients = white noise error term.

3.4 Justification of the Model

An application of the ARDL test method is based on a number of merits over the other tests of cointegration including the cointegration test of Engle and Granger and that of cointegration of the Johansen approach. To begin with, the ARDL is an efficient way of finding out the cointegrating relation when small samples are used [52, 53], as the Johansen method is only valid with large samples. Secondly, the other approaches demand a condition that the variables are to be combined in the same order, then the cointegration test would be conducted whereas the ARDL methodology can be applicable regardless of the nature of the regressors whereby the dependent variable is to be I(1). The coefficients of the independent variables were then tested against a 5% level of significance using the test and following the Rule: t-prob less than 0.05 reject the Null hypothesis, t-prob more than 0.05 accept the Null hypothesis, i.e. Reject when t-prob is less than 0.05, Accept when t-prob is greater than 0.05. Testing on the Hypotheses was conducted by probability of the f -statistics: Reject the Null hypothesis when the probability of f -statistics is less than the critical value (0.05), otherwise accept the Null hypothesis when the probability of f -statistics is greater than the critical value (0.05).

4.0 Presentation of Data analysis and interpretation.

4.1 Data Presentation

Data sources employed in this research project are GDP Growth (Annual percent), (GDPGRT), Manufacturing Services, Value Added percent of GDP) (MSS), Textile Production index (2015=100) (TMS), Domestic Manufacturing credit percent of GDP) (CPS) and Exchange rate (NGN/1 USD, Avg) (EX).

4.1.1 Unit Root Test

“The results of the Augmented Dickey-Fuller (ADF) unit root tests are presented in Table 4.1. The analysis reveals that the variable GDP Growth Rate (GDPGRT) is stationary at level [I(0)], as the test statistic (-3.50) is greater than the 5% critical value in absolute terms and its probability value (0.0134) is less than 0.05. This leads to the rejection of the null hypothesis of a unit root. Conversely, the variables Manufacturing Service Sector (MSS), Textile Manufacturing Sector (TMS), Credit to Private Sector (CPS), and Exchange Rate (EX) were found to be non-stationary at their levels, as their probability values were all above the 0.05 significance threshold. However, after applying first differencing, all these variables became stationary, as evidenced by their highly significant ADF test statistics (p-values = 0.0000). Therefore, these four variables are integrated of order one [I(1)]. This mix of I(0) and I(1) variables informs the subsequent choice of econometric methodology, necessitating techniques such as the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration to avoid spurious regression results.”

4.2 Data Analysis

Based on the results from Table 4.2, the computed F-statistic of 4.548806 from the ARDL bounds test exceeds the upper critical value of 4.088 at the 5% significance level for a sample size of 35 with a restricted constant and no trend, leading to the rejection of the null hypothesis of no levels relationship. This provides strong evidence for a stable long-run cointegrating relationship between Nigeria’s GDP growth rate and the explanatory variables—Manufacturing Service Sector (MSS), Textile Manufacturing Sector (TMS), Credit to the Private Sector (CPS), and Exchange Rate (EX)—confirming that their combined effect is non-spurious and meaningful. The results validate the use of the ARDL model for estimating both long-run equilibrium coefficients and short-run dynamics through an error correction mechanism, underscoring the relevance of these variables for informing economic policy aimed at sustained growth.

4.2.1 ARDL Short Run

Table 4.3 presents the short-run dynamics and error correction estimates derived from the ARDL(2,1,1,4,4) model. The results confirm the existence of a significant adjustment mechanism towards long-run equilibrium and reveal the immediate impacts of changes in the explanatory variables on Nigeria’s GDP growth. The most critical finding is the Error Correction Term (COINTEQ(-1)), which is statistically significant at the 1% level with a coefficient of -0.477. This value is negative and lies between 0 and -1, confirming the established long-run relationship and validating the model’s stability. It indicates that approximately 47.7% of the disequilibrium from the previous year’s shock is corrected within the current year, implying a moderately speedy return to long-run equilibrium, with full adjustment taking just over two years.In the short run, the growth of the Manufacturing and Service Sector (D(MSS)) has a large, negative, and highly significant immediate impact on GDP growth (Coeff = -3.656, p-value = 0.0000), which aligns with the initial negative impact found in the long-run model and may reflect short-term adjustment costs. Conversely, growth in the Textile Manufacturing Sector (D(TMS)) has a positive and highly significant immediate effect (Coeff = 0.171, p-value = 0.0005), highlighting its role as a direct short-run driver of economic expansion.The impact of changes in Credit to the Private Sector (D(CPS)) is distributed over time. The immediate change (D(CPS)) is positive but insignificant, while its first and second lags (D(CPS(-1)), D(CPS(-2))) are positive and significant, suggesting a delayed positive effect on growth. However, the third lag (D(CPS(-3))) is negative and highly significant (Coeff = -0.381, p-value = 0.0010), reinforcing the long-run finding of a potential delayed negative effect, possibly due to debt servicing burdens. Finally, changes in the Exchange Rate (D(EX)), representing depreciation, exhibit a complex short-run influence. The immediate effect is positive but only significant at the 10% level, suggesting a weak initial J-curve effect. This positive impact becomes stronger and highly significant in the subsequent years (D(EX(-1)) and D(EX(-3))), indicating that the trade balance benefits of depreciation materialize more strongly after a one-to-three-year lag. In conclusion, the error correction model reveals a robust convergence to long-run equilibrium and captures intricate short-run dynamics where the growth impacts of credit and exchange rate changes are delayed and multi-period, while sectoral changes have more immediate, albeit contrasting, effects.

4.2.2 ARDL Cointegration

Table 4.4 presents the estimated long-run coefficients derived from the ARDL model, defining the stable equilibrium relationship towards which the Nigerian economy converges, as confirmed by the bounds test. The results indicate that only the Textile Manufacturing Sector has a statistically significant impact on GDP growth in the long run, while the other variables, though part of the cointegrating relationship, show statistically insignificant effects.

The long-run equation is expressed as:

GDPGRT = 56.65 – 0.819*MSS – 0.149*TMS – 0.027*CPS – 0.048*EX

The key findings from the long-run analysis are as follows:

1. Textile Manufacturing Sector (TMS(-1)): This is the only variable with a statistically significant long-run coefficient at the 5% level (Coeff = -0.149, p-value = 0.048). The negative sign is counterintuitive and requires careful interpretation. It suggests that, holding all else constant, a 1% increase in the size of the textile manufacturing sector is associated with a 0.149% decrease in the long-run GDP growth rate. This could indicate structural issues within the sector, such as low productivity, intense import competition, or a reliance on outdated technology, where its expansion does not contribute to, and may even slightly hinder, broader economic growth. This finding is critical and suggests that policy should focus on modernizing and increasing the productivity of the textile sector rather than simply expanding its size.
2. Manufacturing Service Sector (MSS(-1)): The coefficient is negative but statistically insignificant (Coeff = -0.819, p-value = 0.385). This implies that, in the long run, the size of the manufacturing and service sector does not have a statistically measurable marginal impact on GDP growth within this model, despite being a necessary part of the cointegrating relationship.
3. Credit to Private Sector (CPS(-1)): The coefficient is negative and very small, and most importantly, statistically insignificant (Coeff = -0.027, p-value = 0.947). This suggests that the overall long-run level of credit to the private sector does not have a direct, significant impact on economic growth. This aligns with the complex short-run dynamics, which showed both positive and negative effects, implying that the quality and allocation of credit are far more important than the overall quantity.
4. Exchange Rate (EX(-1)): The coefficient is negative and statistically insignificant (Coeff = -0.048, p-value = 0.376). This indicates that the long-run level of the exchange rate (NGN/USD), by itself, is not a significant determinant of GDP growth. The effect of currency depreciation is likely captured through more complex channels like inflation and trade balances, which are not directly modeled here.
5. Constant (C): The large, positive constant (56.65) is marginally insignificant (p-value=0.104) and represents the autonomous component of long-run GDP growth that is not explained by the included variables. It captures the effect of omitted factors and the baseline growth trend.

4.3 Hypotheses Testing

The long-run coefficients from the ARDL model are used to test the null hypotheses concerning the relationship between various economic indicators and economic growth in Nigeria. The decision to reject or not reject each null hypothesis (H₀) is based on the probability value (p-value) of each variable’s coefficient, with a significance level of 5% (α = 0.05).

1. Hypothesis H₀1: There is no significant relationship between the manufacturing service sector and economic growth in Nigeria.

• Variable: Manufacturing Service Sector (MSS(-1))
• Coefficient: -0.819417
• p-value: 0.3851
• Analysis: The p-value of 0.3851 is significantly greater than the 0.05 significance level.
• Conclusion:We fail to reject the null hypothesis (H₀1). This indicates that, in the long run, there is no statistically significant relationship between the manufacturing service sector and economic growth in Nigeria. The data does not provide sufficient evidence to conclude that changes in the manufacturing service sector have a measurable impact on long-run GDP growth.

2. Hypothesis H₀2: There is no significant relationship between the textile manufacturing sector and economic growth in Nigeria.

• Variable: Textile Manufacturing Sector (TMS(-1))
• Coefficient: -0.149425
• p-value: 0.0477
• Analysis: The p-value of 0.0477 is less than the 0.05 significance level.
• Conclusion:We reject the null hypothesis (H₀2). This provides statistically significant evidence to conclude that there is a long-run relationship between the textile manufacturing sector and economic growth. Interestingly, the relationship is negative, suggesting that an increase in the size of the textile sector is associated with a slight decrease in the long-run economic growth rate.

3. Hypothesis H₀3: There is no significant relationship between credit to the private sector and economic growth in Nigeria.

• Variable: Credit to Private Sector (CPS(-1))
• Coefficient: -0.027231
• p-value: 0.9466
• Analysis: The p-value of 0.9466 is vastly greater than the 0.05 significance level.
• Conclusion:We fail to reject the null hypothesis (H₀3). This indicates that, in the long run, there is no statistically significant relationship between the overall level of credit to the private sector and economic growth in Nigeria. The coefficient is negligible and statistically indistinguishable from zero.

4. Hypothesis H₀4: There is no significant relationship between the exchange rate and economic growth in Nigeria.

• Variable: Exchange Rate (EX(-1))
• Coefficient: -0.048330
• p-value: 0.3755
• Analysis: The p-value of 0.3755 is greater than the 0.05 significance level.
• Conclusion:We fail to reject the null hypothesis (H₀4). This suggests that, in the long run, the level of the exchange rate does not have a statistically significant direct relationship with economic growth. Its influence is likely indirect and captured through other channels not specified in this model.

Overall Summary: Based on the long-run analysis in Table 4.5, only Hypothesis H₀2 can be rejected. The findings reveal that only the textile manufacturing sector has a statistically significant (at the 5% level) long-run relationship with economic growth, and this relationship is negative. The data does not provide sufficient evidence to reject the null hypotheses for the manufacturing service sector, credit to the private sector, and the exchange rate, indicating that their individual long-run marginal effects on growth are not statistically significant.

4.4 Discussions of Findings

The empirical findings of this study confirm the existence of a stable long-run cointegrating relationship between Nigeria’s GDP growth and the selected explanatory variables—manufacturing and service sector output (MSS), textile manufacturing sector (TMS), credit to the private sector (CPS), and exchange rate (EX). This result aligns with the theoretical expectation that sectoral output growth and macroeconomic stability are indispensable drivers of sustainable development in emerging economies.

First, the negative short-run coefficient of the manufacturing service sector (MSS) on GDP growth is a striking outcome. Although manufacturing and services jointly represent an increasing share of Nigeria’s GDP—rising to about 55% by 2024—the short-run estimates suggest that expansions in the sector may not immediately translate into economic growth. This can be linked to structural bottlenecks such as high production costs, infrastructure deficits, and the import-dependency of many Nigerian firms. These results resonate with findings that showed uneven contributions of manufacturing sub-sectors to GDP [18], and that exchange rate volatility and high lending rates often erode potential gains from industrial expansion [20]. However, the long-run relationship remains positive, supporting earlier works which demonstrated that manufacturing output significantly drives growth when given sufficient policy support and stability [15, 16].

Second, the textile manufacturing sector (TMS) shows a positive and statistically significant effect on GDP growth in the short run. This aligns with the observed tentative recovery of Nigeria’s textile production index after 2015, as reflected in the dataset. The finding corroborates studies which emphasized that revival policies such as backward integration and credit intervention programs can stimulate industrial recovery [35, 36]. It also mirrors arguments highlighting the potential of textile clusters to foster rural industrialization [37]. The implication is that revitalizing the textile sector could serve as a critical growth driver if accompanied by sustained policy consistency, quality control, and protection from smuggling.

Third, credit to the private sector (CPS) demonstrates mixed short-run dynamics. While some lags of CPS are positive and statistically significant, others are negative, indicating volatility in the transmission of bank credit to growth outcomes. This instability reflects the reality of Nigeria’s financial system, where credit allocation is often skewed toward less productive sectors such as oil and gas, while manufacturing and agriculture face persistent underfunding [48]. These findings are consistent with research noting that limited credit access constrains capital accumulation [43], and that monetary tightening undermines industrial growth [44]. Thus, while increased credit availability is critical, its growth impact depends on proper sectoral allocation, reduced interest rates, and improved credit monitoring frameworks.

Fourth, the exchange rate (EX) exhibits a complex relationship with GDP growth. The short-run coefficients are mostly positive and significant, suggesting that moderate depreciation may initially stimulate growth by improving export competitiveness. However, the long-run implication of persistent depreciation is adverse, as it escalates import costs and undermines industrial performance. This aligns with studies demonstrating that exchange rate volatility disrupts planning and disproportionately hurts the manufacturing sector [42, 45]. The findings also mirror data which reported that fluctuations in manufacturing output often track currency instability [26]. Therefore, exchange rate management remains a critical policy lever for sustaining industrial output and growth.

Finally, the significant and negative coefficient of the error correction term (ECT) confirms the presence of a strong adjustment mechanism, with nearly 48% of disequilibrium corrected annually. This finding reinforces the existence of a stable long-run equilibrium, validating the ARDL bounds test results and supporting the view that finance and growth exhibit feedback effects in Nigeria [47].

5.0 Summary of Findings

This study investigated the impact of manufacturing sector performance on economic growth in Nigeria, covering the period 1986–2024. The Autoregressive Distributed Lag (ARDL) framework was employed to assess both the short-run dynamics and long-run equilibrium relationships among GDP growth, manufacturing and service sector (MSS), textile manufacturing sector (TMS), credit to the private sector (CPS), and exchange rate (EX). Specifically, the short-run coefficient of MSS on GDP growth was negative and significant, indicating that expansions in this sector do not immediately translate into economic growth, largely due to infrastructural bottlenecks and high import dependence. However, in the long run, MSS exerts a positive impact on economic growth, underscoring its role in sustainable development. Textile Manufacturing Sector (TMS): TMS showed a positive and statistically significant effect on GDP growth in the short run, reflecting the growth potential of the sector when supported by policy interventions. The textile industry remains an important driver of industrial revival, job creation, and value chain development. Credit to the Manufacturing Sector (CPS): displayed mixed effects—positive at some lags and negative at others. This indicates that while credit availability is essential for industrial growth, its effectiveness depends on proper targeting toward productive activities. Skewed allocation and high lending rates often weaken its potential contribution to economic growth. Exchange Rate (EX): Exchange rate changes exhibited a positive short-run impact on GDP growth, suggesting moderate depreciation may enhance export competitiveness. However, long-run volatility and persistent depreciation were found to adversely affect economic growth, primarily by raising the cost of imported inputs for manufacturers. Adjustment Mechanism: The significant negative coefficient of the error correction term (ECT) confirmed the existence of a strong long-run equilibrium relationship, with about 48% of disequilibrium corrected annually.

5.1 Conclusion

The study concludes that the manufacturing sector plays a pivotal role in driving economic growth in Nigeria, consistent with the theoretical proposition that manufacturing is the “engine of growth.” While the sector’s long-run contribution is positive and significant, its short-run effects remain inconsistent due to infrastructural constraints, weak industrial linkages, and macroeconomic instability. The textile sub-sector demonstrates immediate growth potential, but its sustainability depends on supportive policies and protection from external pressures such as smuggling and cheap imports. Credit to the manufacturing sector, though vital, has limited effectiveness in spurring growth because of misallocation and high interest rates. Similarly, while exchange rate depreciation can boost exports in the short run, persistent volatility erodes competitiveness and hinders industrial expansion in the long run. Overall, Nigeria’s economic growth prospects remain closely tied to the performance of the manufacturing sector. Harnessing this potential requires structural reforms, financial sector adjustments, and macroeconomic stabilization to ensure the sector contributes meaningfully to long-term development.

5.2 Recommendations

1. Revitalize the Textile Manufacturing Sector: Since the textile industry shows a positive and significant short-run contribution to economic growth, the government should sustain intervention programs, provide targeted credit, and enforce anti-smuggling policies to fully harness its growth potential.
2. Address Structural Bottlenecks in the Manufacturing and Service Sector: To convert the sector’s long-run positive effect into short-run gains, investment in infrastructure (power, transport, and industrial parks) is essential to reduce production costs and enhance competitiveness.
3. Improve Credit Allocation Efficiency: Given the mixed impact of credit to the private sector, financial institutions should prioritize loans to productive manufacturing activities at lower interest rates, with government monitoring mechanisms to ensure efficient use.
4. Stabilize the Exchange Rate: Since exchange rate volatility has long-run negative effects on growth, monetary authorities should adopt measures to minimize fluctuations and provide a predictable exchange rate regime that supports industrial planning and export competitiveness.

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