Foreign Direct Investment and the Performance of Manufacturing Firms in Nigeria

Abstract

Purpose – The purpose of this study is to examine the impact of foreign direct investment (FDI) on the performance of manufacturing firms in Nigeria.

Methodology – Annual data of aggregate foreign direct investment, manufacturing foreign direct investment, manufacturing index, manufacturing capacity utilization, manufacturing value added, and manufacturing turnovers were used. In the analysis, we tested for stationarity using augmented Dickey–Fuller test, and the test for long-run relationship was conducted using Johansen cointegration test. Vector error correction model was used for causality test.

Findings – The data satisfied the stationarity test and that there is a long-run relationship between FDI and the performance of manufacturing firms in Nigeria. The study also found that causality runs from FDI to the performance of manufacturing firms.

Practical implications – Since there is a long-run relationship among the variables, policies to attract FDI into the manufacturing sector should have a long range view and should be sustainable. The policy direction should focus on improving productivity and innovative capabilities of the manufacturing sectors and strengthening the supporting industries and institutions. Specifically, policies like provision of tax relief to manufacturers on importation of new technology and expatriate that will bring about efficiency and effectiveness in productions.

Originality/Value of paper – This is one of the few attempts at studying the impact of FDI on manufacturing firms. The study draws attention of policy makers in Nigeria to the fact that diversification of the economy can be achieved through a viable manufacturing sector.

Citation

Adamu, A. and Embugus Barde, B. (2012), "Foreign Direct Investment and the Performance of Manufacturing Firms in Nigeria", Menyah, K. and Abor, J. (Ed.) Finance and Development in Africa (Research in Accounting in Emerging Economies, Vol. 12 Part B), Emerald Group Publishing Limited, Leeds, pp. 171-183. https://doi.org/10.1108/S1479-3563(2012)000012B012