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1.1 Background of the study

Recession has remained a chronic problem for Nigerian economy for some time. Recession is not a new word in the world economy and not out rightly bad, but the case of Nigeria is severe because it has destabilize the entire economic frame work ever since it sets in. This problem has brought about reduction of purchasing power discouragement of real investment balance of payment disequilibrium and unemployment.
Recession in Nigeria can be said to be a direct result of the policies of the country’s government to stimulate a fast rate of economic growth and development since 1951 when it was introduced. Inflation trend since independence shows to distinctive period. Until 1969 we had a single digit inflation and even a negative growth rate in 1963, 1967 and 1968. The year 1975, recorded 33-7 percent indicating the effect of 1974 Udojji salary Awards (Adigun, M.S 1985 “Reviving the Nigeria economy”)
The Nigerian economy seemed to have experience moderate inflation prior to the advent of the structural Adjustment programme (SAP) in 1986. Recession on its own is not bad as studies have shown that there exists a positive relationship between inflation and growth. But the problem lies on a country continuously having high inflation rates. It has been revealed that a close relationship exists between recession and diminishing growth rate across a variety of recession ranges. Average growth rates falls slightly as inflation rate across a variety rates more towards 20-25 percent. The growth rate declined more steeply as recession rates approaches 25-30 percent and growth rates became increasingly negative at a higher rate of inflation (Ogwuma, P.A. 1986; Gains and pains of inflation in the manufacturing sector of the Nigerian economy”
Manufacturing involves the conversion of law materials into finished consumer goods or intermediate or producers goods manufacturing creates avenues for employment, helps to boost agriculture, helps to diversify the economy while helping the nation to increase its foreign exchange earnings and enables local labour to acquire skills. The manufacturing sector in Nigeria has passed through four clear stages of development.
The first was the pre-independence era, when manufacturing was limited to primary processing of simple consumer items by foreign multinational corporations.
The second was the immediate past colonial era of the 1960’s characterized by more vigorous import substitution and the beginning of decline for the export oriented processing of raw materials.
The third stage was the decade of the 1970’s. This was remarkable because of advent of oil and enormous resources it provided for fierce government to investment in manufacturing. This made the government to exercise almost a complete monopoly in the following sub-sectors basic steel production petroleum refining, petrochemicals, liquefied natural gas edible salt machine tools yeast alcohol, fertilizers etc. the period was marked by initiation of the indigenization programme and hence intense economic activity but poor results since governments attempt at diversification into non-traditional products such as steels, petrochemicals, fertilizers and vehicle assembly yielded little success.
The last phase was the decade of the 1980’s here government revenue fall because of serious decline of oil prices in the world market. This led to the adoption of export promotion strategy and the SAP era beginning from July 1986 has even emphasized this strategy especially as it relates to non-oil exports hence the extension of export promotion incentives of various descriptions (Enu, 1993: the Nigeria economy after structural adjustment programme “problems and prospects”)


Recession worsens the balance of payment positions. Recession has helped forced up interest rates thus determining investment and so by doing reduces the real values of aggregate consumer wealth such as government debt and money. It has inhibited and distorted consumer spending by rising domestic prices relative to foreign prices, the currency inflation inhibits exports and stimulates imports thus, depleting the nations scarce foreign resources. Due to the inflationary situation savers find out that the value of their savings is eroded hence they are forced to add their current consumption thus hindering capital formation and the nation’s economic growth. Recession militates against long term savings plan of the consumer and hence becomes a function in improving a sub optimal lifetime consumption pattern upon the consumer. Current recession rates in Nigeria have tremendously complicated and continued to complicate the task for makers of government fiscal and monetary policies. Even when they believe that rate of inflation is really the public does not. This recession not only makes it harder for policy makers to diagnose the factors affecting aggregate demand.


The major objective of this study is to determine empirically the impact of inflation on the manufacturing sector of the Nigerian economy.
The specific objectives includes

i) To investigate empirically the relationship between inflation and the manufacturing sector.

ii) To assess the impact of government expenditure on the manufacturing sector
iii) To determine the nature of the relationship between interest rate and manufacturing sector of the Nigerian economy.
iv) To review the past and present anti-inflationary policies of the Nigerian government


The questions we are investigating here are:
1. What significance does recession have on the manufacturing sector of the Nigerian economy?

2. What is the effect or impact of recession on the money sector of the Nigerian economy?

3. Does government expenditure have positive effect on the manufacturing sector of the Nigerian?

4. Is there any relationship between interest rate and the manufacturing sector of the Nigerian economy?

5. What is anti-inflationary policies pursued at present and in the past by Nigerian government?


H0: recession does not have any significant impact on the manufacturing sector of the Nigerian economy

H1: recession has a significant impact on the manufacturing sector of the Nigerian economy.

H0: interest rate does not have any significant impact on the manufacturing sector of the Nigerian economy.

H2: interest rate has a significant impact on the manufacturing sector of the Nigerian economy.


This research will enable us to understand the factors responsible for the persistent rise in the price of goods and services produced in the economy by the manufacturing sector. It will provide appropriate recommendation on the ways, of eliminating inflation or reducing it, so as to empower the economy for self-sustained development capable of enhancing the economic wellbeing of a greater number of populations. It will also equip the policy makers with adequate tools in formulating the right policy.


The study covers a period oaring from 1981-2016. The period was chosen in order to have serious investigation into the activities of the manufacturing sector. The multiple regression models will be employed in determining the functional relationship between inflation and the research variables.
In carrying out the investigation sources of data posed a problem of its own. It is difficult to lay hands on up to data statistical data for empirical analysis especially in developing countries such as Nigeria. In any case one had to mean the best use of what was available. Resulting from the short time limit couple with the financial constraints, the researcher was limited to primary and secondary sources. Generally the researcher suffers frustration owing to administrative logistics. Below are some of the identifiable limitations.

1. Unpublished data were rarely made available to researcher by government officers who avoid violation of the official secrecy act.
2. Secondary data on the subject was stale and scanty in most of the libraries visited including the state library.


Recession: In economics, a recession is a business cycle contraction which results in a general slowdown in economic activity.

Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters

INFLATION: It is a persist tendency for prices and money wages to increase. The dictionary of economics said “inflation is measured by the proportional changes over time in some appropriate price index, commonly a consumer price index or a GDP deflator” inflation occurs when the general price level is rising.

MANUFACTURING SECTOR: Is s sub-set of the industrial sector (others being processing draft and mixing sub-set) Manufacturing involves the conversion of raw materials into finished consumer goods or intermediate or producer goods.

Manufacturing sector: Agglomeration of industries engaged in chemical, mechanical, or physical transformation of materials, substances, or components into consumer or industrial goods.

Economy: An economy is an area of the productiondistribution, or trade, and consumption of goods and services by different agents in a given geographical location in various countries. Understood in its broadest sense, 'The economy is defined as a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources.


This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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