Role of Government in Promoting Real Sector Development in Sub-Saharan Africa: The Nigerian Experience

Abstract

This paper investigated the role of government in promoting real sector development in sub-Saharan Africa with a focus on the Nigerian economy. The government’s role was measured using fiscal and monetary policy variables such as total government expenditure, broad money supply and interest rate, while the ratio of manufacturing value added to GDP formed the basis for measuring real sector development. Time series data on the variables were sourced from the Central Bank of Nigeria Statistical Bulletin and analysed using econometrics tools of error correction mechanism (ECM) and Granger causality test. The unit root test results revealed that all the variables are first difference stationary. It was also found from the cointegration test that variables have a long-run relationship. It was found from the parsimonious ECM that broad money supply and rate of interest are statistically insignificant in influencing manufacturing output. The results further reveal that the second and third leg of the government expenditure ratio to GDP significantly impacts manufacturing output. 1 percent increase in the first leg of government expenditure increases manufacturing output by 5.962 percent. Similarly, with a percentage in the second lag of government expenditure, manufacturing output increases by 3.182 percent. Additionally, the pairwise Granger causality test results reveal that unidirectional causality flows from the ratio of government expenditure to manufacturing output. Overall, the results indicate that fiscal policy, especially government expenditure, can be relied upon in predicting changes in manufacturing output. Thus, it is recommended for proper monitoring of fiscal policy measures, especially public expenditures, to ensure they are accounted for holistically and effectively utilised in fostering real sector development.