Does Commodity Price Boom Stunt Manufacturing Sector Growth? Evidence from Nigeria

Abstract

The literature on Dutch Disease and resource curse is built on the hypothesis that commodity dependent economies do find it difficult to expand their manufacturing sector during commodity price boom. This study examines this hypothesis using data for Nigeria, African biggest oil exporter. The study employed both ARDL approach and dynamic short-run Error Correction Model estimates to find the relationship between growth in manufacturing sector and a group of independent variables, which include, value of oil exports, growth rate of GDP, exchange rate, inflation and non-oil exports using annual data from 1981 to 2018. The results show that value of oil export has a positive but insignificant relationship with manufacturing sector growth, while the coefficient of growth rate of GDP is negative and insignificant, indicating that oil boom may have spurned state-led industrialisation in Nigeria, but this may not have led to sustained economic growth. Also, exchange rate and non-oil exports returned negative but insignificant coefficients in both estimates indicating that exports of non-oil raw materials and high cost of foreign inputs depress domestic manufacturing. These results indicate that policies that will promote private-sector led industrialisation should be encouraged to sustain the manufacturing sector and drive sustainable economic growth.