DO FISCAL AND MONETARY POLICIES MATTER FOR INDUSTRIAL OUTPUT IN NIGERIA? EVIDENCE FROM ARDL MODELLING
Yaji, Williams Nyijime and Garba, Dauda
Volume 13 Issue 2
Abstract
This study examines the impact of fiscal and monetary policy on industrial output in Nigeria using annual time-series data from 1986 to 2021. Industrial output is measured by industrial value added, while fiscal policy is proxied by government final consumption expenditure. Monetary policy is captured through real interest rate and inflation rate, with private sector industrial investment included as a control for domestic investment dynamics. The empirical strategy employs the Autoregressive Distributed Lag (ARDL) bounds testing approach, supported by Augmented Dickey-Fuller unit root tests and Granger causality analysis. The results confirm a stable long-run relationship among the variables. The long-run estimates show that private sector industrial investment has a positive and statistically significant effect on industrial output, while inflation also reports a positive long-run association. Government expenditure and real interest rate are positive but statistically insignificant. In the short run, industrial output responds strongly to its own past dynamics and inflationary changes, while the error correction term is negative and statistically significant, confirming convergence to long-run equilibrium. The causality results indicate unidirectional Granger causality from government expenditure to industrial output, suggesting that fiscal policy has predictive relevance for industrial performance. The findings suggests that Nigeria’s industrial sector requires more than aggregate fiscal expansion and monetary adjustment; it requires targeted public spending, moderate price stability, lower investment-financing constraints, and stronger coordination between fiscal and monetary authorities. Keywords: Fiscal Policy; Monetary Policy; Industrial Output; Government Expenditure; Inflation; Interest Rate; ARDL
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