The Impact of Fiscal Policy on the Manufacturing Sector of the Nigerian Economy

ABSTRACTThis research work examines the impact of fiscal policy on the Nigerian manufacturing sectors between the period of 1980-2023. The study makes use of government expenditure, government revenue, inflation and manufacturing sector output and these variables were regressed on the output of manufacturing sector which is the dependent variable.The study adopts a quantitative research design, utilizing secondary data from sources such as the Central Bank of Nigeria (CBN) Statistical Bulletin and World Development Indicators. An Autoregressive Distributed Lag (ARDL) model is employed to assess the short-run and long-run relationships between fiscal policy variables and manufacturing sector performance. The unit root test confirms stationarity of the data, while the co-integration test establishes the existence of a long-run relationship between fiscal policy and industrial output.Empirical findings reveal that government expenditure on infrastructure and education positively influences manufacturing sector growth, whereas high taxation and fiscal deficits negatively impact industrial productivity. The results also indicate that inconsistent fiscal policies and macroeconomic instability hinder long-term manufacturing development in Nigeria. In the short run, government spending has an immediate but unsustainable effect, while in the long run, sustained fiscal discipline and investment in infrastructure prove to be more effective.Based on these findings, the study recommends that the Nigerian government implement fiscal policies that prioritize capital investment in infrastructure, provide tax incentives for manufacturers, and ensure stable macroeconomic policies. Additionally, strengthening public-private partnerships and enhancing access to credit facilities for industrial firms can boost sectoral growth. Future research should explore the interaction between fiscal and monetary policies and their combined effects on the manufacturing industry.This research contributes to policy discussions by providing empirical evidence on the role of fiscal policy in shaping the manufacturing sector’s trajectory. The findings underscore the importance of sound economic policies in fostering industrial expansion and sustainable economic growth in Nigeria.