Economic Environment and Industrial Growth in Nigeria 1980-2025

Abstract

This study examined the effect of economic environment on industrial growth in Nigeria from 1980 to 2025. Specifically, the study investigated the effects of interest rate, exchange rate and tax rate on industrial growth. An ex-post facto research design was adopted using annual secondary time-series data. The study employed the Autoregressive Distributed Lag (ARDL) bounds-testing technique to examine the short-run and long-run relationships among the variables. empirical results indicate that the variables are integrated at a combination of levels I(0) and first difference I(1), making the ARDL approach appropriate. The bounds test produced an F-statistic of 6.842, exceeding the 5% upper critical bound and confirming a long-run relationship among the variables. The long-run results indicate that interest rate, exchange rate and tax rate exert significant negative effects on industrial growth, with coefficients of -0.184, - 0.0034 and -0.417 respectively. In the short run, interest rate and exchange rate exert significant negative effects, while tax rate is negative but statistically insignificant. The error-correction coefficient of -0.621 indicates that approximately 62.1% of disequilibrium is corrected within one year. The study concludes that monetary conditions, exchange-rate stability and taxation constitute important dimensions of the economic environment affecting industrial growth in Nigeria. The study recommends affordable financing for productive enterprises, improved exchange-rate stability, rationalisation of the tax burden, stronger investment incentives, improved infrastructure and greater coordination between monetary and fiscal policies.