Economic growth, structural transformation and sectoral interdependencies in Nigeria

Abstract

In Nigeria, studies in structural transformation and sectoral interdependencies, particularly, employing time series data, rebased to the same and current basis are limited. The recent economic rebasing exercise, which has made available time series data needed for this kind of analysis provides some motivation to investigate these phenomena. Meanwhile, there have been conjectural discussions on ‘dwindling marginal productivity of labour’, despite year-on-year economic growth in the past few decades. This suggests that, while productivity decline was evident in some sectors of the economy, there were more than proportionate and compensatory productivity increases in some other sectors of the economy, albeit less visible, to warrant aggregate growth outcome. Consequently, this research attempts to understand labour productivity distribution across the major sectors of the economy and investigates the transitions in marginal productivity of labour and the reallocation of economic activities and resources among the major sectors of the Nigerian economy during the growth period of the past few decades in order to determine sectoral interdependencies and structural transformation. Vector error correction model (VECM) econometric tool was used to investigate sectoral interdependencies, while non-parametric methods were used to unravel structural transformation. The results revealed sectoral interdependencies and a transformation of the economy from production sectors of agriculture, manufacturing, mining and quarrying to services sectors, which include, retail and wholesale trade, information communications technology, financial services, administration and social services. The administration and social services sector has assumed more than proportionate importance in employment, whereas, it has the least productivity with negative implications for the overhead cost of governance. Government should design and implement policies to realign resources allocation optimally.