THE IMPACT OF FISCAL DEFICIT ON THE CAPACITY UTILIZATION OF MANUFACTURING SECTOR IN NIGERIA

CHAPTER THREE

3.0 INTRODUCTION

This chapter deals with the various methods, techniques and instruments used in the conduct of this research work. In addition it also includes the model specification and the various sources of data employed.

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3.1 MODEL SPECIFICATION

The economic model employed in this project work intends to build the framework of analyzing the effect of fiscal deficit on capacity utilization and how they affect the manufacturing sector in Nigeria. Following the work of Abimbola, (2008), who made use of four variables, of which he used Gross domestic Product (GDP) as the dependent variable, Capacity utilization, index of manufacturing output, index of energy consumption as the independent variables. In addition, for this work, some variables were added, using Manufacturing output as the dependent variable while fiscal deficit, capacity utilization and government expenditure are the independent variable, in order to form the basis of this work.

Hence, the model is specified below:

The linear equation is specified as

LMOP= β0+ β1FD+ β2CU+ β3GEXP+U

Specifying the equation in an ECM Function

MOPt = β0 + β1MOPt-1 +β2FDt-1 + β3CUt-1 +β4GEXPt-1 + β5ECMt-1 + Ut

Then,

Where:

MOP = Manufacturing Output

FD = Fiscal Deficit

CU = Capital Utilization

GEXP = Government Expenditure

ECM = Error Correction Model

β0 = Intercept