Manufacturing as an Engine of Growth: A Test of Kaldor’s Law in Nigeria

The study examined the role of manufacturing as an engine of growth in Nigeria using the framework of Kaldor’s Laws. It specifically examines the relationship between manufacturing output growth and GDP growth (Kaldor’s First Law); assesses the impact of manufacturing output growth on productivity within the sector (Kaldor’s Second Law); and evaluates the extent to which growth in manufacturing stimulates output in non-manufacturing sectors (Kaldor’s Third Law). The study adopts the Autoregressive Distributed Lag (ARDL) model and the Error Correction Mechanism (ECM) as the analytical techniques. Three models were constructed, with GDP growth rate, manufacturing productivity and non-manufacturing sector output growth as the dependent variables. These models capture the dynamic short-run and long-run relationships between manufacturing output growth and key indicators of economic performance. The ARDL results reveal the existence of both short-run and long-run relationships between manufacturing output growth and the dependent variables across the models. The ECM coefficients are negative and statistically significant at the 1% level, indicating that short-run disequilibrium adjusts toward long-run equilibrium. Overall, the findings show that manufacturing output growth has a positive and significant effect on GDP growth, and stimulates productivity in Nigeria’s non-manufacturing sectors. Based on these findings, the study recommends that the government implement comprehensive industrial policies that strengthen manufacturing capacity through improved infrastructure, affordable financial credit, and targeted financial incentives for local producers; the study also recommends capacity expansion programmes, while also imploring that the government promote stronger inter-sectoral linkages by developing integrated industrial value chains.