CHAPTER ONE

INTODUCTION

1.1 BACKGROUND TO THE STUDY

Following the collapse of the oil market in 1980’s,

Nigeria experiences serious foreign exchange problems,

which almost cripple her economic activities in the civilian

administration by allowing unrestricted import into the

countries, at this point the country’s balance of payment

position changes from bad to worse even with the

stabilization of policy at work. There were suggestions to

transformation of economy following these suggestion

Nigeria resolved in 1986 to embark on Structural

Adjustment Programme (SAP), the centre price of

which financial deregulation.

 Economic deregulation according to Oyo (1991)

is a deliberate and systematic removal of regulatory

control, structural, and operational guidelines in the

administration and pricing system in the economy, in order

to total revempt the and move to self reliant one. For more

than two decodes after independence the Nigeria financial

system was expressed as evidence be ceilings on interest rate

policies, high reserve requirement and resonation on entry

into the banking industry. This situation inhibited the

functioning of the fianical system and especially

constrained its ability to mobilize savings and facilitate

productive investment.

Deregulation on the other hands according to Ojo

(1991) is “a systematic removal of regulatory controls,

structural and operational guidelines in the administration

and pricing system in the economy. The instruction of

structural Adjustment Programme (SAP) in 1986 was to

eliminate distortion bottleneck in the economy to turn away

the tailor of the country to a self- reliant economy through

accelerated investment.

In the formal sector of most developing

countries, Nigeria inclusive, interest rate is administrative

determined with monetary authority usually Central Bank,

fixing the rates and commercial banks are expected to Lend

to customer’s at these rates and place interest on customers

deposits at the stipulated rates. Such rates are kept low,

partly to limit the cost of financing government programmes

and reduce the cost of borrowing by investos to encourage

investment and thereby promoting economic growth

(Algnokhan), B.E, 199).

 However, since the late 1970’s and early 1980’s

many of these countries (Nigeria inclusive) as part of the

Structural Adjustment Programme (SAP) deregulated

interest administration, following the deregulation, interest

rate administration rose to extra-ordinary high level and this

led to received effort to understanding interest rate

deregulation with respect to investment behavior in Nigeria,

to be specification 31st July 1987, the Central Bank of Nigeria

(CBN) announced the deregulation of interest rate with

effect from August 1st 1987. Hence all administration and

Operational control on interest rate e established and the

forces of demand and supply (market forces) were allowed

to determine the rate of interest in Nigeria and this singular

act has been very significant in the determination of

investment behavior in Nigeria.

 The impact of changes in interest rate on savings,

financial and economic growth is a Central Issue in

macroeconomics. Theoretically, models predict that financial

deregulation which involves the liberalizing of interest rate

deregulation of financial better, elimination of credit control

will bring about efficient increased savings, lower financial

cost, bring efficient allocation of funds, availability of credit

and financial deepening. Makinwa (11973) posited the

financial deregulation would lead to higher level of

investment and output growth.

1.2 STATEMENT OFPROBLEMS

The pursuit of an appropriate interest rate policy is

expected to improve the efficiency of the financial market,

with a consequent effect on savings mobilization, investment

and growth.
 The deregulation of the interest rate was expected to

bring more competitiveness in the backs mobilization of

financial resources and on industrial production in Nigeria.

The followings are some of the items on journal

deregulations:

1. Deregulation of the downstream sector of the oil

industry.

2. Subsidy removal on petroleum products in Nigeria.

3. Deregulation and privatization of the upstream and

downstream of the oil sectors.

Hereunder, are some of the rural access to funds. These

includes;

1. Set – up a shot and run it

2. A new open source of credit software called payment

view.
 3. Rural grants and funding.

However, the immediate effect of the economic

stabilization act of 1982, erected by the Shehu Shangari

civilian administration was the shortage of foreign exchange

and the scarcity of imported raw materials by a fall in the

utilization of installed capacity of most individual industrial

enterprises. Olukoshi (1989) records that the capacity

utilization ranging between 20 percent to 40 percent in the

industrial sector about 101 companies surveyed by the

manufacturers association of Nigeria had shutdown for

period of between 7 and 12 weeks by July 31 st , with 200,00

worker laidoff.

Moreso, attention seems to be focused on managed

deregulation as it affect industrial production understanding

the design and implementation of financial deregulation

policies is very important in response to adverse effect of

financial restrictions, many countries have engaged in

financial liberation strategies since the mid 1990’s. The aim of

financial deregulation is to improve economic performance

through increased competitive efficiency within the financial

market thereby indirectly benefiting non-financial sectors of

the economy.

1.3 OBJECTIVES OF THE STUDY

The objectives of this study are centered around on

financial deregulation on industrial production in

Nigeria as below:

1. To establish the degree of financial deregulation on

the production sector.

2. To gain an insight into the effectiveness of interest

rate deregulation on the Nigeria economy.

1.4 STATEMENT OF RESEARCH HYPOTHESIS

A statement of hypothesis has to do with a tentative

statement of a relationship that exist between two or more

variables.

For the purpose of this research work, the following

hypothesis is given for our validity;

1. H0: Interest rate has no significant impact on the

industrial production in Nigeria.

H1: Interest has significant impact on industrial

production

2. H0: There is no significant relationship between interest

rate and the drives for savings in Nigeria.

H1: There is a significant relationship between interest

rate and the drives for savings in Nigeria.

1.5 SIGNIFICANE OF THE STUDY

Anamdi (2006) did similar work. Results obtained

showed that there is a different in the effectiveness of fiscal

policy in stimulating economic growth during the after

regulation period. The impact was marginally higher (only

N140 million or 14 contribution to GDP) during

deregulation than in the regulation period. He recommend

appropriate policy mix, prudent public spending, setting of

achievable fiscal policy target and diversification of the

nation’s economic base among others. The period of

regulation is considered to be between 1970 and 198, while

that of deregulation is from 1986 to 2006.

This study intend to till or harmonize the safety

of workers at work place, as well as fiscal policy,

regulation, deregulation and economic growth.

1.6 SCOCPE AND LIMINATIONS OF THE STUDY

The study coves period of deregulation from 1986 –

2011 and focus on the effects of financial deregulation on

industrial production in Nigeria. The impact of financial

deregulation in relation to enhancing the improvement of

financial deregulation through policy guideline shall be

examined (1980 – 2011).

They will be done by highlighting the benefits of

financial deregulation, also the study, critically appraises the

financial deregulation policy and programme in Nigeria and

how far it has helped in promoting overall growth and

development in the Nigeria economy. As common to most

research work, the limitations encountered in the course of

the study include;.

1. Time Constrain: It was not an easy task combing the

writing of this project with our academic work our to

the demanding and time constraining the nature

involved in putting up a writing of this magnitude.

2. Resource Constrain: This process of gathering and

sourcing for materials to achieve the desired goal of

this project was never an easy task.

3. Financial Constrain: It was not easy in any small

measure or task securing the required finance to

execute this project. Due to some logistic problems,

limited resources, time and space.

 CHAPTER TWO

LITERATURE REVIEW

2.1 CONCEPTUAL CLASSIFICATION

Economic deregulation, in general embrace all types of

control which government imposes on economic and

business activities, economic deregulation in a right claimed

by all government in both free market and centrally planned

economics. However, in a free market string which best

descrined our economic system, govenmrnet regulatory role

was traditionally most active in the area of problem utilities.

This first state of regulation has usually been followed by a

wide range of control on both domestic and external sectors,

having on some defines economic philology but often having

a political undertone.
 Anyanwu (1993) defineds financial deregulation as a

body of specific rules on agreed behavior either imposed by

some government on other explicit agreement within the

industry that limits the activities and business operation of

financial institutions.

Udegunam (2003) as that which involves essential

interest rate and exchange rate deregulation. It also involves

liberalization of power of financial institution to expand their

activities, developments and marketing and product and

relaxation of entry into the new financial services industry. It

also defines exchange rate deregulation as the stating of the

exchange rate.

Economic deregulation in the recent context may be

define as the deliberate and systematic removal of regulatory

controls, structures and operational guidelines, which may

have inhibited growth and efficient allocation of service

resources in an economy. The deregulation of the financial

market by eliminating distortion such as subsidized interest

rate and credit rationing will most likely improve economic

efficiency and the productivity of investment. The real

domestic interest rate must be high enough to ensure an

equilibrium level of savings.

Conversely, equilibrium in the domestic market for

saving would occur at positive interest rate which ensure an

increase in the supply for either domestic or foreign savings

assuming such supply in interest elastic to guarantee some

reasonable love of private sector investment. Extension

control on interest rate and other elements of financial

market have been motivated by a variety of factors.

 Ojo (1996) says that size of available credit is often first

allocated to Larger enterprises, credit for small and medium

size firm may be severely limited, even though their

investment could yield higher rates of ratio.

Thus, in oder to increase the availability of credit,

interest rate policy should be used to encourage the

accumulation of domestic financial assets by offering holders

of these assets sufficiently attractive rates at the same, other

efficiency of the financial system, such reforms includes the

removal of regulation impinging on the number of existing

financial institutions and were appropriate, support for the

broadening of the range of financial investment.

Anyanwu (1993) emphasizes that deregulation cannot

be interpreted to mean the absence of all regulations.

Deregulation attempt to rationalize the existing regulation

framework in such a way that efficient and competition will

be further promoted for the growth of the industry and the

economy as a whole.

2.2 EFFECTS OF FINANCIAL DEREGULATION ON

THE NIGERIA ECONOMY

The following are some of the effects of financial

deregulation. With deregulation and competition most

institutions always seeks excessively weekly alternatives

to boost their profit margin. In some cases management

becomes involves in fraud and embezzlement to stay afloat

and in most cases these do more damage than envisaged.

This can lead to a quicker death of the management.

Deregulation has an effect that is often accompanied by

increase market competition, like in the case of the banking

industries, deregulation compels bank to deposits, their level

of exposure to risk, may increase as the spread between the

cost of funds and the refunds of find is narrowed.

Financial deregulation will also bring about increased

savings, lower financial cost better, growth rates, more

effective regulations, efficient allocation of fund, availability

of credit, monetary control and finance.

Also, the effect of financial deregulation will go a long

way to accelerate domestic financial accumulation from

abroad and lead to efficiency in the allocation of funds and

improve social infrastructure by improving domestic

institutional policies, practices and property right issues.

Financial sector development encompasses major

components, liberalization modules such actions as removal

of entry barters, reduction of credit allocation, deregulation

of interest rates and removal of controls on inflows and

outflows of capital, financial deepening refers the capitals

financial instruction usually measured by the ration of turn

over in the financial sector to GDP. Financial broadening

reserves to as increase in the variety of financial institutional

instrument in a country.

All aspect of financial sector policies and the channels

through which they affect economic growth cannot be

adequately dealt with in the study of particular interest is the

issues of control over interest rate. This concern largely

rooted in the Ekinnon-share argument that, financial express

and in the form of administered rate result in negates real

interest rates, reduces incentives to save, lower savings in

turn result in lower investment and show economic growth.

It has been argued or deregulation raises interest rates and

relaxes corroding constrain (Patrick, 1994), thereby

increasing savings and forestering economic growth and

development and industrial production.

Thus, financial liberalization from the cornerstone for

the reform policy launched in 1986 under the Structural

Adjustment Programme (SAP).

An attempt is also made to use the theoretical position

of some statistic to develop a model which will capture the

impact of financial liberalization on industrial output in

Nigeria. The model will provide us with empirical evidence

in the form of relationship existing between financial

deregulation and industrial output. Thus, the theoretical

bases on this study are drawn from various studies ranging

from seck to Elnic (1993), Leite and Makowen (1986), Jeburi

(1994), Hassan (1994), Gupta (1987) and Cho and Khatkhate

(1990).
 When countries embark on financial reforms, they

usually have two objectives in mind to increase the level of

saving and investment resources. Consistent with certain

economic and social objective, it is envisaged that the quality

of investment will increase the growth rate of industrial

output and by transparent GDP growth rate improve the

standard of living in the countries concerned.

Under the auspice of the structural adjustment

programme, a number of Africa countries have introduced

financial liberalization progamme. A summary of measures

undertake in nine countries surveyed by Seck and Elnil

(1993) shows that most countries placed emphasis on full

liberalization of interest rate and on partial lifting interest as

a result of the total domestic savings ratio over the

period (1970-1990), for Egypt on the other hand, Hassan

(1994), find out that total savings is determined positively by

real income and by the real rate of interest, these results

indicate a positive outcome for industrial output

liberalization.

Gupta (1987) study of financial liberation in 27 Asian

and Latin American countries over a period of 1967-1968

shows that there is little support for the type of thesis that the

positive substitution effect of the real interest on savings

dominates the negative income effect as the most important

determinant of savings in real income. Cho and Khatkhate

(1990) review the financial liberalization experience in turn

Asian countries also conclude that the financial sector

reforms does not seen to have made any significant

difference to savings and investment activities in

liberalization countries.
 Seck and Elnil (1993 find a positive relationship

between deposit and interest rates but for Ghana, it found

the interest rate is not important in determining ratio,

Oshikoya also found export growth to be the most

determinant of output growth in Nigeria.

Growth is related to the rate of inflation as well as

being negative and significantly related to the rate of interest.

The channel through which interest rate affects industrial

output complex, there is an independence between savings

and output growth as higher output rate require a higher

savings ratio in order for the ratio of money balances level

which at the same time the saving ratio depends on rate of

interest, output itself and other variables.

2.3 FINANCIAL DEREGULATION AND ITS

IMPLICATIONS

The financial sector unlike any other of an economy,

play a major role in the macroeconomic, that is changed and

hence deserve a special attention from the authorities. The

financial sector comprises a network of markets and

institutions that brings savers and borrowers together.

Financial institutions are major players in the financial

sectors. The financial institutions transfer savers fund to

borrowers and provide savers with payment for the use of

their funds, the sectors, achieves this transfer by creating

“You owe me” or I owe you” (10u’s) known as financial

instruments where assets for savers and liabilities for

(dainisin) borrower e.g a car loan. The financial institution

provides three key financial services; risk, sharing

liquidities and information.

The financial sectors channels fund from savers to

borrowers and make it possible for both to achieve their

objectives it must find from those who want to spend less

than they have available to those who have productive

investment opportunities, the matching process increase the

economy’s ability to produce goods and services. In

addition, it makes household and business better of by

allowing them to have their needs and desires. When the

financial system works esuriently, it increase the health of

the economy. A smoothly functioning efficiency and the

people’s economic welfare.

Since the last decades, financial deregulation seems to

have over thrown financial regualation which itself grew out

of Keynesian tradition. Almost all country of the process,

out a speed and breadth from global transformation that

have been almost breadth taking since 1987, the trend has

accelerated and if now embraces government of all

ideologies as well as nation at all storages of development.

Before the new wane of financial deregulation,

financial regulation is a body of specific rules imposed by

some government that the activities and business operations

of financial institution.

Anyanwu (1993) the public policy of financial

regulation are efficiency, diversity of choice competitive

neutrality and social objectives.

The macro issues of financial regulation relates:

1. Information: The consumer may be unable to access

the information available to make information

 judgement about the soundness and long run safety

of financial institution.

2. Felicitous Role: The consumer is not purchasing a

services for immediate consumption but is entrusting

fund to the financial institution with the implication

that the institution will not impact his wealth through

imprudent actions.

3. Given the Long term nature of the contract such as

insurance, the consumer needs to be satisfied that

having committed himself to the particular functional

institution he can be assigned with reasonable

certainty that the institution will remain viable and

able at all times to meet its contingent liabilities.

4. Catastrophe: Because of the nature of the transaction,

if the financial institution fails and the consumer is

 not protected, the aftermath is particularly serious to

the customers. The system role or regulation relates to

the safety and soundness reasons and hence to

prevent a general collapse of the financial institution

which often times in contagious. This regulation may

be preventive or supportive.

Financial regulation are usually of six forms viz;

environmental legal, self imposed, moral suasion, self

regulation and external regulation in order to be able to

consummate certain transaction. The indirect instrument are

interest controls, minimum reserve requirements the

prudential regulation book risk exposure and imposing

controls such as current market entry capital and liquidity

adequate restriction on business loan concentration, country

risk foreign currency exposure and other regulations and

administration arrangement.

Despite this bold presentable argument for financial

regulation, it has been observes over the years, that financial

regulation imposed a lot of cost and other related problems

on the financial system. Among other things, financial

regulation may be redundant thus increasing the cost of

regulation supervision and monitoring.

It acts as a tax since it forces portfolio and behavior

way from desired position; it result in circumventory

innovation thus leading to “regularly dialectic” as regulators

attempts to respond and defensive reaction. It results in

intermediation and above all it is anticipative in native.

It is against this background that the call for

financial deregulation (the removal of all from of

unnecessary controls which tends to inhibits effective and

efficient performance in the market) has become an emerging

trend particular in developing countries.

For many developing countries the early 1980’s drove

home a truth, which had been emerging in 1970’s. That the

world economy was becoming increasingly unstable. The

combined effect of oil prolonged slump in real commodity

prices, the outbreak of the debt crisis with all its

consequences for developing economics access to world

savings and the erosion by non traffic barriers of previous

trade liberalization part of the balance of payment of many

developing countries under great strain making imperative

decision policy responses, Killick (199).

One of the economic scence of Nigeria “the oil boom of

the 1970’s affects not only the investment production and

consumption pattern of the country but also it socio-cultural

value, political aspiration style of economic management and

policies and programme implementation Olaniyam (1996).

Killick (199) says that the world responses was the

opening of the Structural Adjustment window which the IMF

introduced (or removed in the case of the external fund

(ESAF). The aftermonth of the shortage balance of payment

and external debt crisis, high unemployment rate, and

economic growth.

Based on empirical studies, it was argued that the

economic problems of several developing countries and

indeed with reserved provided these countries adjustment

and sustained a mix of appropriate economic measures that

are prescribed under the umbrella of financial deregulation.

The deregulation/liberalization of the Nigeria economy came

with the adoption of Structural Adjustment Programme.

2.4 FINANCIAL DEREGULATION ON INDUSTRIAL

PRODUCTION

The direct impact of financial deregulation on the

output of industries can hardly be sufficiently evaluated;

however, we can assess the impact of financial deregulation

measure (interest rate deregulation etc) on the economy also

sees how industrial output have progressed during the

period of deregulation of the financial sector.

1. Interest Rate Deregulation: The liberation of interest

rate was defined to have a favourable impact on

industrial production. It is not difficult for government

to retain the liberal interest rate regime as announced

in 1991 federal government budget in order to support

 the productive sector of the economy as intended

under industrial sector.

2. Exchange Rate Deregulation: The introduction of FEM

and trade deregulation industries, it has also

encouraged the introduction of foreign from non-

official services reduces capital flight and adjust

important.

As a result the relative share of agricultural production in

GDP rose from a low of 20.00 in 1980 to a high of 40.00 in

1980 for the decade of the 1980’s, the relative share of

agricultural input averaged 33.4 the relative share rose to

9.9 in 1983, and was still 8.7 in 1986, however, with the

adoption of industrial sector, the manufacturing sector

relative share in output began to fall and reached a low of

5.29 in 1989 while the relative share of services in total

output was 33.8 in 1980 it fell to 25.5 in 1989 for the

decade of the 1980’s the relative share of service in GDP

average 32.95.

In Nigeria the period of agriculture has battle rather

successfully to retain its relative share of GDP, the relative

share of agricultural production in output has lowered

around 30 filtrating from a low 23.8 in 1992 to a high

32.72 in 1997 for the decade of the 1990’s the relative of

agriculture in GDP has average 29.3.

The relative industrial output has herself buoyed by

several factors including favourable oil prices, the decade

started with industrial output amounting to 41 of GDP. It

rose steadily to high 8.7 in 1993 but as since fallen to 49.6

at least the manufacturing sub-sector has not performed well

it share in low of 4.0 in 1993 and a high .9 in 1991 for the
decade of the 1990’s the relative share services in GDP

average only 21.1 this in a full 12 percentage pint from an

average in the 1980 sand a fit of 18 percentage years of the

1970’s (Milton A Iyoha and Dickson Oriaki).

3. Sectoraal Credit Allocation

The instrument was employed to regulate credit in the

system and it has been in use since the 1960’s, sectoral

allocation of credit has the twin arm of discouraging,

lending for trading and private consumption and

thereby encouraging production investment.

In the monetary reform and credit policy

guideline for 1987 the preferred sector earlier part a

four in 1986, more reclassified into the broad and

other sector.
 However, agricultural production manufacturing

enterprises, and social and small scale enterprises

wholly owned by Nigeria have continued to pose great

concern for monetary authorities.

 CHAPTER THREE

THEORITICAL FRAMEWORK

3.1 THEORETICAL FRAMEWORK

In Nigeria, the performance of the industrial sector has

been hindered by many factors, among them is high interest

rate, it has been argued that high interest rate is partly

responsible for the high cost of production experienced in

the Nigeria industrial sector.

Another factor the is affecting the growth of the

industrial sector is exchange rate which can either increase or

reduce the level of industrial production depending whether

if it’s high or low. A high exchange rate can bring about a

decrease in industrial production due to the fact that foreign

currencies will be hard to get by importing of capital goods

given that the fact that most developing countries(Nigeria

inclusive) depends on developed countries for their capital

goods.

Growth in Gross Domestic Product(GDP) can stimulate

industrial production due to the fact that increase in gross

domestic product necessitate increase in economic activities

which in turn increase aggregate demand through

accelerator principle.

Another variable that can be used in specifying the

model is growth in foreign direct investment or inflow of

foreign capital into the country.

An increase in the inflow of foreign private capital is

expected to stimulate industrial production in Nigeria if

appropriate atmosphere in terms of economic is provided by

the government.
3.2 DATA COLLECTION SOURCE

The information used for this project was collected from

various sources mainly secondary data. Other sources are

Federal Office of Statistics (FOS), Bulletins, Economic and

Financial review of various of various years, textbooks and

other relevant journals.

3.3 MODEL SPECIFICATION

As analyzed above, there are different determinants of the

performance and they include exchange rate, gross domestic

product (GDP) and foreign private capital inflow. In this

study, the index of industrial production is used as the

independent variable while interest rate; exchange rate, gross

domestic product and inflow of foreign capital are used as

the exemplary variables.

 On the basis of the above, the linear relationship is

specified as follows:

IND = F (INT, OEXT, GDP, FCI, FD)

IND = Index of industrial production

EXR = Exchange rate

GDP = Gross Domestic Product

FCI = Foreign Capital Inflow

FD = Dummy variable

The econometric model for the study is given as IND =

a0 + a1 INT + Ut

Where a0 = intercept

Ut = Stochastic error term

The apriori specification is given thus

a1 and a2 < 0

a3, a4 and a > 0

 CHAPTER FOUR

PRESENTATION AND ANALYSIS OF RESULTS

4.1 PRESENTATION OF REGRESSION RESULTS

Empirical results when obtained through the

times services date obtained from secondary sources,

this data were used to obtained the slope co-efficient of

the result using appropriate estimation method in

order to analyze the relationship between the

dependent variable specifically in the name of the

previous chapter, the results are presented below:

IND = 4.975246 C + 0.292069 EXCHR + 6.654326 GDP

+ 4.786543FCI

t – statistic = (2.518534) (1.362467)a (-0.117285)a (-0.509436)a

Std Error = (1.975454) (0.214368)* (0.208439)* (0.193852)*

F – Ratio = 23.98764

A.R2 = 0.602
R2 0.653

Std of IND = 2.068010

Durbin – Watson Stat = 1.997645

N = 25

Degree of freedom = N – K = 30 – 4 = 26

Note Figures in parentheses (*) are the standard

errors while (a) – significant 5

4.2 ANALYSIS OF REGRESSION RESULTS

Going by the result of the regression, there is a

positive relationship between the dependent variables

(IND) and all the independent variables (EXCHR, GDP

and FCI)

however, the degree of the relationship between

the variables differs, A 1% D in the IND but less D

would be effected in the case of EXCHR.

The theoretical t - value at 5% level of significance

with twenty-six (6) degree of freedom in 1.706, which is

less than the absolute values of all the calculated t-

values of the parameters. we still therefore reject the

null hypothesis and accept the alternative hypothesis

for all parameters. This implies that all the parameters

estimated for are significantly different from zero i.e

they are relevant variables that affects the IND.

The adjusted co-efficient of determination gives

0.602 or 60.2%, meaning that the regression model is

approximately 60% significant. That is, the variables in

the dependent variable like IND is about 60%

attributable to the ∆ in the independent variables.

The calculated F -value (23.98764) is greater than

the critical F -value at 5% kevel if significance with V 1 =

3 and V2 = 26 (2.97). Therefore, the null hypothesis

accepted. This signifies that the overall regression or

relationship between the IND and the independent

variables (EXCHR, GDP, FCI) is significant.

 The computed Durbin-Watson is 1.997645 which

reveals to us that there is some degree of positive

autocorrelation between the IND and the independent

variables.

4.3 POLICY IMPLEMENTATIONS OF EMPIRICAL

FINDNG

From the empirical result obtained above, it is

clear that a 100% increase ii dummy variable would

increase index of individual production by 23.7%.

Therefore industrial production will be enhanced after

conscious adjustment of dummy variable since it

passed the test at 10% level.

The interest rate is only significant at 20% level.

the impact of interest rate on industrial production is

very minimal since a 100% increase in interest rate is

too low at the liquid rate. Money supply will be held to

speculative purpose and not for investment purposes.

 Exchange rate shows a negative relationship with

industrial production. The implication that industrial

production would be increased by 100% whereas one

period log of exchangeable (EXR) has a minimal effect

on industrial production. thus, a 100% increase in the

volume of exchange rate in the previous period would

result to a reduction in the volume of industrial

production in the current period by 7.58%.

Similarly, the log of foreign capital inflow is wholly

singed but becomes significant at 5% level implying

that a 100% increase in FCI-I hold reduces IND by

4.44% this shows a reduction during the period of

study as a result of economic and political unjust

which discharges foreign investment in the economy.

The one period log of index of production IND-I

shows that if it increases by 100%, it would result to

an increase of 83.3% in the volume of index of

industrial production in the current period. This has

become a power production that any other variable

during the period of 1985-2009.

 APPENDIX

DATA FOR REGRESSION

(N Million)

Year EXCHR GDP FCI

1985 0.8938 201036.27 646.1

1986 2.0206 2059971.44 735.8

1987 4.0179 204806.54 2,452.8

1988 4.5367 219875.63 1,718.2

1989 7.3916 236729.58 13877.4

1990 8.0378 267549.99 4,686.0

1991 9.9095 265379.14 6,916.1

1992 17.2984 271365.52 14,463.1

1993 22.0511 274833.29 29,675.2

1994 21.8861 27540.56 22,229.2

1995 21.8861 281407.4 75,940.6

1996 21.8861 293745.38 111,295.0

1997 21.8861 302022.48 110,452.6

1998 21.8861 310890.05 80,750.4

1999 92.6934 312183.48 92,795.2

2000 102.1052 329178.74 115,952.2

2001 111.9433 356994.26 132,433.7

2002 120.9702 433203.51 225,972.0

2003 129.3565 477532.98 295,250.4

2004 133.5004 527576.04 300,251.1

2005 132.1470 561931.39 325,911.2

2006 128.6516 595821.61 456,789.9

2007 125.8331 634,251.14 500,000.0

2008 118.5669 672,202.55 521,348.2

2009 148.9017 718,977.33 54,301.4

 CHAPTER FIVE

SUMMARY, RECOMMENDATION AND CONCLUSION

5.1 SUMMARY

This research work discusses the impact of

financial deregulation on industrial production in

Nigeria. There was the need for a well developed money

market in the economy to boost the manufacturing

sector.

Using the appropriate regression estimation

techniques the study identities the specific variable

that influences industrial production in the Nigeria

economy.

These variables includes; exchange rate, interest

rate, dummy variables, foreign capital inflow, gross

domestic products, the impirical result shows that

among other things that;

i. Interest rate has a negative impact on

industrial
 production as expected but insignificant in

attesting IND

ii. Exchange rate has a negative impact in

industrial production and passed the test of

significant at 10% level. Industrial production

that is weak and unreliable production IND.

iii. Dummy variables also has a positive impact

on industrial production. This is a

determinant of IND

iv. For gross domestic product found to be

insignificant despite its position and

relationship to IND this does not constitute any

impact in IND - EXR-I, has a positive

relationship with IND

This is just expectation. This only significant

at 10% level of industrial production that is not as

powerful as theist in alternative IND. Infel-I was during

signed as a result of economic and political unrest in

the problem of investment, however, it was found that

it is a significant at 5% level of industrial production

that is a good production of IND. IND -I as expected

shows a positive relationship with IND industrial that

is the most powerful and strongest production or IND

sign it in constituent at 1% level.

In general, estimated parameters were found to be

statistically significant of 10%, 5% level of significance

thus, rendering the model valid and reliable for

production and free the forgoing dissensions, we are in

a position to offer some policy recommendations based

on our findings.

5.2 POLCY RECOMENDATION

In other to ensure that manufacturing continues to

grow at a level that would sustain the level of industrial

production of the country, the following policy

recommendation should be taken seriously.

 Government should liberalize the economy so that

profitable investable opportunities would exist for the

manufacturing sector to undertake. The system where

profitable ventures are reserved for the government alone

leaving were risky and less profitable ones for the

manufacturing sector should be discouraged.

Government in advating for private sector led

economy; they should at some time craft opportunities for

the manufacturing sector to come in, the manufacturing are

hereby advised to utilize every available domestic sources of

funding to finance their investment projects. Business firms

and entrepreneurs should be ready to take a certain degree of

risk projects. The attitude of Nigerian entrepreneurs and

businessmen to risk taking makes them generally unwilling

to source fund for investment.

 The Central Bank of Nigeria (CBN) should encourage

the banking sector at a very low rate of interest. The policy of

restricting lending activities of the banking sector for the

simple reason that they create credit or more money is not

conducive for manufacturing growth.

The deregulation of interest rate whereby the market

forces should be implemented with caution. This is because

borrowers of fund are now at the money of money lenders

since the lenders non fix the rate of interest at such a high

level the market loans too expensive to obtain. This infact

discourages the level of manufacturing in the Nigeria

economy.
5.3 CONCLUSION

This study has critically analyzed the impact of

financial deregulation on industrial production in Nigeria.

Thus, on a conclusive note, manufacturing sector in Nigeria

play a very important role and significant position in private

sector.

This is evidence in the fact that our regression results

that financial deregulation has a significant effects on

industrial production as shown in dummy variable by FCI –

I (by on log of foreign capital inflow) and IND (Log of one

lag of industrial production development with IND – I as the

powerful and strongest predictor of industrial production.

Finally, it is believed that if the above

recommendations were put to work, these will effectively

foster and enhance the manufacturing sector thus

encouraging production efficiency of industrial production.

 BIBLIOGRAPHY

Anyanwu (1993): Monetary economics. Theory Policy and

Institutions Finance Publishers Onitsha.

Anyanwu, J.C. Udegbunam, R.I., Angiwe, M.A.;

Uwubanmwen A.E. and C.C. Nwobike (1999).

Principles of Macroeconomics Benin City: Joy

Education Publishers.

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.E. and F.A.

Dimomo (1997). The Structure of the Nigeria Economy

(1960-1997), Onitsha: Joanee Educational Publishers

Ltd.

Central Bank of Nigeria Statistical Bulletin Volume 15 Dec.

2004.

Cho and Khatkhate (1990) Financial Liberlization

Issues and Evidence Economic and Political Weekly 20,

May 1990.

Development Vol. 21, 11 page 1867- 1881.

Central Bank of Nigeria (CBN, 2004). Annual Report and

Statement of Account, Abuja: CBN, P. 73.

Ekanem O.T and Oyefusi S.A (2001) estimating Aggregate

Production Function for the Manufacturing Industries

in Nigeria. The Nigeria Economy and Financial Review

Vol. 7 No. June 2002.

Iyoha M.A. and Ekanem O.T (2004) Introduction to

Econometrics, Benin City March Publishers.

Udegbunam (2003) Monetary and Financial Policy in

Nigerian Economic Structure. Growth and

Development. M Index Publishers Benin City.

Uwubamwen (2003) Development of Industry and

Manufacturing Nigeria Economy Structure Growth

and Development. M index Publishers Benin City.

Ojo M. O. (200) “Deregulation Nigeria Banking Industry” a

Review and Appraisal CBN Economic and Financial

Review 29(ii).

Seek and Elnil (1993) Financial Liberalization in Africa World