Investment Climate Impact on Total Factor Productivity of Manufacturing Industries in Nigeria

Friday Ademola Ajagbe and Joshua Ajetomobi

Working Papers from African Economic Research Consortium

Abstract: This study examines the influence of the investment climate on the productivity of manufacturing industries in Nigeria. The study is conducted in two phases: in the first phase, an econometric production function for Nigerian manufacturing industries is estimated to produce a measure of total factor productivity (TFP) for each firm; in the second stage, variation in TFP is statistically related to the indicators of investment climate as well as firm characteristics. The analyses use 2009 World Bank Enterprise survey data on Nigeria. The results show systematic variations in investment climate indicators across various industries in Nigeria. The indicators of poor investment climate a- power outages, unofficial payments, losses in transit due to breakage or spoilage and tax burdens a- have significant negative effects on the TFP of manufacturing industries in Nigeria. Increasing power outages by one hour per month could reduce TFP by 0.06%, while a 1% rise in unofficial payments could lead to a decline in TFP of about 1.8%. Investment climate indicators, such as management time dealing with regulations, and percentage of firms owned by private domestic individuals, companies and organizations have a positive influence on the TFP of manufacturing industries.

Date: 2020-12-10
Note: African Economic Research Consortium
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Working Paper: Investment Climate Impact on Total Factor Productivity of Manufacturing Industries in Nigeria (2020)
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