Motivated by lack of consensus on the empirical validity of the Mundell-Fleming trilemma and its development effects, this paper examines the relationship between the trilemma indexes (monetary autonomy, exchange rate stability and capital mobility) and structural reforms with a focus on manufacturing and service value added in Nigeria. The ADRL was applied in addition to other econometrics tools in analyzing the data sourced from various documentary sources. The ARDL bounds test results revealed that the variables are cointegrated. This necessitated the rejection of the null hypothesis of no long run relationship. The short run result shows that lag two of monetary autonomy and contemporaneous value of exchange rate stability have significant positive relationship with manufacturing value added. Manufacturing value added increases by 7.289 percent following a unit increase in monetary autonomy index. Similarly, a unit increase in exchange rate stability triggers 1.372 percent in manufacturing value added in the short run. The long run result revealed that monetary independence exerts significant positive influence on manufacturing whereas capital mobility is negatively related to manufacturing valued added in the long run. The result further indicates the long term effects of the trilemma indexes are statistically insignificant while that of foreign reserve accumulation is found to exert significant positive impact on service value added in the long run. This is a pointer that the policy makers in Nigeria have leveraged on external reserve build-up to buffer shocks in the service sector. On the basis of the findings, it is concluded that the manufacturing sector is the channel through which the policy trilemma drives the process of structural reforms in the Nigeria. Thus, policy makers in Nigeria should allow for more managed floating exchange rate regime and ensure appreciable independence in the monetary policy operation with a view to fostering the process of structural reforms in Nigeria.
Size and Growth of Public Investment in Nigeria: Implications for Real Sector Development (Published)
This paper offers empirical evidence linking public investment to real sector development in Nigeria during 1981-2017. It specifically employed autoregressive distributed lag (ARDL) model to analyze the impacts of public investment in economic, social and community services and gross public investment as a ratio of GDP on agricultural and manufacturing value added. . The short run result showed that public investment in economic, social and community services impact positively on agricultural value added in the short run. The positive impact of investment in social and community services economic services was greater than that of economic services by a margin of 0.027 percent. This suggests that investment in human capital formation such as education and healthcare delivery seems to provide greater opportunity for agricultural development. Additionally, public investment in economic services also exerts significant positive impact on manufacturing value added. The result further showed that gross capital expenditure as a ratio of GDP impact positively on agricultural and manufacturing value added in the short run. It was evidence from the result that its impact on agricultural value added was stronger in the long run. Accordingly, it is recommended that policy makers should step up investment in social and community services in order to improve human capital required for real sector development in Nigeria.