Response of economic growth to the dynamics of service sector in Nigeria

Abstract The misconception of services as being non-productive 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 service subsector is significant and positively related to economic growth. Health service subsector and transportation and communication subservice sector are significant and positively related to economic growth when governance indicators were accounted for. Interaction of the subservice 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 a 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.