Abstract
The misconception of services as being nonproductive has led to the neglect of the service sector in both economic theory and applied economic researches. The Nigerian economy highly depends on the oil sector to generate revenue for the entire economy. This study examines the response of economic growth to the dynamics of the service sector in Nigeria from the windows of governance indicators. Using annual data series, endogenous growth model and autoregressive distributed lag technique, transportation and communication sub service sector is significant and positively related to economic growth. Health sub service sector and transportation and communication sub service sector are significant and positively related to economic growth when governance indicators were accounted for. Interacting the sub service sectors with governance indicators shows that none of the service subsectors were significant but were positively related to economic growth. The study shows that the activities of the education subsector have not contributed significantly to economic growth. Thus, for education to contribute positively to economic growth there is need for increase in budgetary allocation to education subsector. Efforts made to control corruption and promote government effectiveness should be reviewed frequently to checkmate the processes of governance, so that bureaucratic processes would not hinder services from contributing significantly to economic growth.
Title page i
Declaration……………………………………………………………………………………………………………… ii
Certification…………………………………………………………………………………………………………… iii
Dedication…………………………………………………………………………………………………………….. iv
Acknowledgements…………………………………………………………………………………………………. v
Abstract………………………………………………………………………………………………………………… vi
Table of Contents………………………………………………………………………………………………….. vii
List of Tables…………………………………………………………………………………………………………. ix
CHAPTER ONE…………………………………………………………………………………………………….. 1
INTRODUCTION………………………………………………………………………………………………….. 1
CHAPTER TWO…………………………………………………………………………………………………… 10
LITERATURE REVIEW………………………………………………………………………………………. 10
2.3 Conceptual Framework……………………………………………………………………………………. 32
CHAPTER THREE……………………………………………………………………………………………….. 37
THEORETICAL FRAMEWORK AND METHODOLOGY…………………………………….. 37
- Model Specification……………………………………………………………………………………………….. 41
CHAPTER FOUR…………………………………………………………………………………………………. 46
EMPIRICAL ANALYSIS…………………………………………………………………………………….. 46
- Pre-Estimation Analysis………………………………………………………………………………………….. 46
CHAPTER FIVE………………………………………………………………………………………………….. 63
Summary, Recommendation, and Conclusion……………………………………………………………. 63
REFERENCES…………………………………………………………………………………………………….. 67
Appendix……………………………………………………………………………………………………………… 74
List of Tables
Table 4.1: Descriptive statistics of variables 47
Table 4.3: Summary of unit root result 49
Table 4.4: ARDL bounds co-integration test result 53
Table 4.5: Lag order selection criteria 54
Table 4.6: Long run and short run model estimation 55
Table 4.7: Diagnostic test result 59
Appendix 1: Presentation of Data 74
Appendix 2: Unit root test 78
List of Figures
Figure 1: Trend and Pattern of LGDP and LEDU 50
Figure 2: Trend and Pattern of LGDP and LHLT 51
Figure 3: Trend and Pattern of LGDP and LTRC 51
- Background to the Study
The service sector is a crucial component of every country‟s economy, it has been identified as a sector with the capability to become a significant driver of sustained growth in Africa (Ghani & O‟Connell, 2014).The Nigerian service sector consists of several industries such as banking, retail and wholesale trade, tourism, real estate, telecommunications, motion pictures (Nollywood), information and communication technology, entertainment, and education. The service sector is currently the fastest growing sector in the world (Khanna et al., 2016). It accounts for a significant proportion of gross domestic product in most countries and makes significant contribution to the share of total employment. As of 2015, service sector contribution to Nigeria‟s GDP stood at about 60 percent, with an average of about 33 percent of employment share compared to 7 percent for industry. Services are rendered by service providers. This has the capacity to increase marginal rate of substitution of capital for labour, thereby making services responsible for a larger share of the world employment. The service sector has the capability of providing highly productive jobs with higher income earnings and ensuring poverty reduction.
The service sector has also led to the development of the educational system, as skilled labour such as artisans in traditional services and ICT experts in modern services require a high level of education. The need to increase the supply of highly skilled labour in modern services has led to a boost in investment in tertiary education, and also increase in
investment in technical colleges and vocational centers in the country as it will bring about an increase in the supply of artisans in traditional services (Ehigiator, 2017).
Over the years, the developments in Information and Communication Technology (ICT) have remodeled the traditional production process. Two different types of manufacturing industries arose as a result of the growth in ICT and services (Cakmak, 1996: 5-6; Riel, 2005; 493). First, the economic sector that is based on raw material production and is more traditional. Second, industries that make use of technological developments such as computers and electronic communications which are based on ICT. As of today, modern technologies have restructured the working layout of most parts of traditional services, and this has led to an increase in demand for factor capital in production process. Newly improved technologies have made services more transportable and attainable across the globe, and this has led to the creation of a wide range of businesses which would increase the competitiveness of countries and attract foreign investments, which would subsequently lead to economic development (Begg, 1993).Technological developments in Information Communication Technology (ICT) has positively influenced production process, made production process more flexible and mass production more profitable for industries.
A productive service sector is known to strengthen the performance of other sectors in the economy such as manufacturing (Khanna et al,2016).This is because the sector enables and facilitates the functioning of most sectors (manufacturing, industrial sector, etc), as most of these sectors rely majorly on the service sector to supply needed functions such as banking, accountancy, information and technology. The service sector provides supplementary outputs to manufacturing firms that are dependent on external sourcing of basic inputs such as transportation, financing, design, and communication. The growth of the service sector is
primarily a product of the level of individual consumption per capita (Botazzi & Gragnolati, 2015) and demand from the manufacturing sector. The service sector also influences the development of businesses by increasing productivity and value added. This is attainable by using highly educated and experienced workers with particular cognitive skills, thus increasing the business productivity. Although, the viability and sustainability of a service sector-led growth has been questioned, one of the reasons arising from the fact that Adam Smith defined services as non-productive (Golpek, 2015).
The Nigerian service sector has been able to display impressive result despite tough economic circumstances. In 2014, Nigeria‟s rebased Gross Domestic Product sectorial composition shifted towards the service sector and away from the oil sector. The service sector accounted for 54.8 percent of the rebased GDP, with the largest contributors being; wholesale and retail trade contributing 16.27 percent, real estate contributing 8.37 percent, and Information and Communication contributing 11.04 percent (National Bureau of Statistics, 2015).The service sector has the potential to increase economic growth in Nigeria, and in order for this to be achieved there is need to increase investment for the expansion of the service sector so as to generate employment for citizens. Diversifying and harnessing the full benefits of the service sector will reduce Nigeria‟s over reliance on the oil sector, as innovations in the service sector play a crucial role in increasing both the productivity levels and also economic growth through innovation expenditures and innovation activities in general (Cainelli et al, 2004).
- Statement of the Research Problem
The misconception of services as being nonproductive, as stated by Adam Smith led to the neglect of the service sector by economists in both economic theory and applied economic
researches for a long period of time. The service sector until recently was viewed as an unproductive sector, lacking the ability to provide employment opportunities to the masses and generate enough economic activities that would subsequently lead to economic growth, as services were perceived as non-tradable goods. Less emphasis has been placed on the service sector partly because there is less awareness of the contribution of services to the economy, and partly because there is little clarification about the types of measures that are required to drive the service sector to a more dynamic and sustainable growth path
