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  1 CHAPTER ONE INTRODUCTION 1.1 Background of the Study In almost all economies of the world, government intervenes in undertaking fundamental roles of allocations, stabilization, distribution and regulation, especially when market proves inefficient. Government particularly pursues key macro-economic objectives such as economic growth and development, full employment, price stability and poverty reduction (Usman, 2011). Government expenditure plays an important role in the aggregate economy in multiple dimensions. Usually, it is used to produce various public goods and services, to build and upgrade various types of infrastructure, the benefits of which are derived over subsequent years. (Njoku, Ugwu & Chigbu, 2014). However, government expenditure is of two types viz; Capital expenditure and recurrent expenditure. Capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or  buildings, while the recurrent expenditure refers to an amount spent on the day-to day running of the state and on the payment of salaries within a period of 12 months or a financial year. (Chikelu and Okoro, 2016). However, for the purpose of this research, emphasis will be on the capital expenditure. This is because the benefit of expenditure on capital projects are more durable and impactful compared to those of recurrent projects which basically refers to expenses on the day to day activities of the government, wages and salaries, maintenance of social service, etc. Manufacturing sector refers to an agglomeration of industries which are involved in the manufacturing and processing of and indulge in either the creation of new commodities or in value addition (Adebayo, 2011). According to Dickson (2010), manufacturing sector accounts for a significant share of the industrial sector in developing countries. The final  2  product can either serve as finished goods for sale to customers or as intermediate goods used in the production process. Thus, the manufacturing sector plays key role in an economy and motivates conversion of raw materials into finished goods. Charles (2012) posits that the manufacturing industries create employment which helps to boost agriculture and diversify the economy and in the process of helping the nation to increase its foreign exchange earnings. These activities contribute to the economy as a whole in terms of output of goods and services; provide a means of reducing income disparities; develop a pool of skilled and semi-skilled labor for the future industrial growth; improve forward and backward linkages within the value chain and between socially and geographically diverse sectors of the country; offer an excellent breeding ground for entrepreneurial and managerial talent and serve as a source of foreign exchange for the economy (Imoughele and Ismaila, 2014). Apart from laying solid foundation for the economy, it also serves as the import substituting industry, provides ready market for intermediate goods and contributes significantly to government revenue generation through tax (Aderibigbe, 2004). In the Nigerian experience, the downturn of the global oil market as frequently observed with its attendant and the sharp decline in foreign exchange earnings have adversely affected macroeconomic performance in the economy coupled with the global financial crisis that occurred within the past decade. Nigeria’s economy has consistently faced the problems of balance of payment deficit as a result of excessive dependence on imports for consumption and capital goods, dysfunctional social and economic infrastructure, unprecedented fall in capacity utilization rate in industry and neglect of the agriculture sector, among others. These have resulted in fallen incomes and devalued standards of living (Anyanwu, 2004).  3 The manufacturing sector in Nigeria consists of large, medium, small and micro scale enterprises. On attainment of independence, the government embarked on transforming the country from its predominantly agrarian nature, into an industrialized economy through various policies and programmes as encapsulated in the development plans. The share of the industrial sector averaged 22.32 per cent in 2017, with its sectorial contribution declining from 35.4 per cent in 1999 to 19.3 per cent in 2011. The decline in the sectorial contribution of the industrial sector to GDP is attributed to various factors including policy inconsistencies and reversals, as well as infrastructural bottlenecks. The share of manufacturing sector averaged 4.0 per cent during the period of analysis. The declining share of the industrial sector, especially manufacturing sector is worrisome as this has exacerbated the unemployment situation in the country (CBN, 2013). Some studies have argued that increase in government spending can be an effective tool to stimulate aggregate demand for a stagnant economy and to bring crowd-in effects on  private sector. According to this view, government could reverse economic downturns by  borrowing from the private sector and then returning the fund to the private sector through various spending programs. High levels of government consumption are also likely to increase employment, profitability and investment via multiplier effect on aggregate demand (Chude and Chude, 2013). Thus, government expenditure even of a recurrent nature can contribute positively to economic growth. Government expenditure has a direct and indirect impact on the Gross Domestic Product (GDP) of a nation. The direct impacts include that; it encourages the performance of the manufacturing sector by means of grants and subsidies to the sector. The indirect impact comes through the provision of Infrastructural facilities such as construction of roads, railway, power project. Such projects create enabling environment for operators in the manufacturing sector thereby enhancing their productivity.  4 Following the promising nature of the influence of government expenditure on every sector of the economy, it cannot be overemphasized what capital expenditure can do to the manufacturing sector because of its huge potential of bridging the gap between the potential and actual manufacturing output, as well as encouraging manufacturing growth, due to its ability to deal with the obstacles confronting the sector. 1.2 Statement of the Problem Despite the government’s huge and incr  easing expenditure on the Nigeria economy, a lot of challenges appear to have persisted. Among these challenges are ineffective economic  policies, misappropriation and ineffective implementation of polices (Anyawu, 2007), lack of integration of macroeconomic plans and absence of harmonization and co-ordination of government capital expenditure, gross mismanagement and misappropriations of public funds (Okemini and Uranta , 2008). Despite the emphasis placed on government capital expenditure in the management of the economy, the Nigerian economy is yet to come to the  path of sustainable growth and development and this situation has largely been attributed to the poor capacity or output of the manufacturing sector of the economy. Currently, Nigeria’s manufact uring sectors share in the Gross Domestic Product (GDP) remains minuscule contributing about 10.23% in the third quarter of 2017 to the Gross Domestic Product (CBN, 2017). Compare that to the strong manufacturing sectors in other emerging economies, where structural change has already occurred and where millions have  been lifted out of poverty as a result: manufacturing contributes 20 percent of GDP in Brazil, 34 percent in China, 30 percent in Malaysia, 35 percent in Thailand and 28 percent in Indonesia (Ogbu, 2012). The more recent experiences of the East and Southeast Asian economic transformation demonstrate that diversification into manufacturing and industrial  production facilitated by what Arthur Lewis calls the “intelligent governments” are critical  to  5  poverty reduction. However, Nigeria has no effective industrial policy that promotes manufacturing; at least not in the sense of policy which provides practical solutions to the difficulties encountered by incipient entrepreneurs or emerging manufacturing firms. It is in the light of the foregoing that this study seeks to evaluate the impact of government expenditure on the manufacturing sector in Nigeria economy. 1.3 Research Questions  i.   What is the impact of government expenditure on manufacturing sector in Nigeria? ii.   What are the factors militating against the performance of the manufacturing sector in  Nigeria? iii.   What is the impact of government loans on manufacturing sector output 1.4   Objectives of the Study The broad objective of this study is to examine the impact of government expenditure on the Manufacturing sector output in Nigeria. However, this objective shall be broken down into the following specific objectives. i.   To investigate the impact of government expenditure on the manufacturing sector in  Nigeria. ii.   To investigate the factors militating against the performance of the manufacturing sector in Nigeria. iii.   To investigate the impact of government loans on manufacturing sector output. 1.5 Research Hypothesis   Ho: Government expenditure has no significant impact on the manufacturing sector growth in Nigeria. 1.6 Significance of the study The crucial needs for up-to-date knowledge on the impact of government expenditure on manufacturing sector output as well as their relationship in Nigeria necessitate this study.
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