Service Sector Output and Economic Growth In Nigeria: An Autoregressive Distributive Lag and ECM Approach

Purpose: Recent technological advancements in manufacturing have diminished employment opportunities for low-skilled workers, particularly in developing economies, resulting in slower job creation and productivity growth. In light of this challenge, many nations are seeking alternative pathways to stimulate economic expansion. This study examines the potential of Nigeria's service sector as a driver of growth, focusing on the impact of key sub-sectors, Education (EDU), Real Estate (RES), Health Services (HES), and Trade (TRD) alongside government regulation (proxied by inflation). Method: The study uses Central Bank of Nigeria data (1981–2023) and applies econometric techniques, including the Augmented Dickey-Fuller (ADF) test, Johansen Cointegration test, and Error Correction Mechanism (ECM). These assess stationarity, long-run equilibrium, and short-term dynamics. The ADF test confirms stationarity after first differencing, while cointegration reveals five long-term equilibrium relationships. Result: HES significantly boost short-term economic growth, while TRD has a positive but insignificant effect. RES negatively impacts growth, whereas EDU shows an insignificant negative link. To improve performance, the study recommends increased healthcare investment, sustained public administration expansion, and financial reforms to strengthen the service sector, mitigating adverse effects and promoting sustainable growth.