Infrastructural Investment and Industrial growth: A Private Investment Led Approach

Abstract

Industrial development has been upheld as a catalyst for quick recovery of lost fortune
in a relegated economy. Spurring industrial development is a function of wide range
of actions and activities that must be coordinated within the socio-political and
economic enclaves towards the achievement of effective industrialization of the
system. Part of the activities required spurring industrialization and economic
recovery include conscious investment in infrastructural development. This study
examines the impact of infrastructural investment on industrial growth in Nigeria,
using the annual time series data sourced from the Central Bank of Nigeria’s (CBN)
statistical bulletin between 1960 and 2015. The study adopts Autoregressive
Distributed Lag (ARDL) bound testing approach developed by Pesaran, Shin and
Smith (2001) in estimating the relevant relationships. The result of the long run
estimates indicates that the variables are mutually co-integarted, suggesting that a long
run relationship exists. The result of the short run dynamics shows that changes in the
previous one lag period of infrastructural growth, industrial growth, labor growth, will
trigger a 1% increase in the current industrial output growth. The lag of the error
Correction Term which indicates the speed of adjustment of these variables to
equilibrium was found to be statistically significant at 1% with the coefficient value (-
0.3902). This implies that 39% of the distortion in the short run is correct on yearly
basis. We therefore submit that infrastructural investment in the industrial sector is a
necessary but not sufficient condition for economic recovery if structural
transformation does not consider the interlink among other important sectors of the
economy that would facilitate growth recovery and speed up the rate of
industrialization in Nigeria.