Determinants of Total Factor Productivity of The Manufacturing Industry in Nigeria

ABSTRACT Manufacturing sector in Nigeria had been developing positively as a result of foreign direct investment, foreign companies had introduced new manufacturing technology that saved time, cost and improved the quality of the manufactured goods, despite this initial flourishing growth phase, the sector was not able to successfully meet up domestic demand and the cost for imported manufactured goods were high. This study looked at the determinants of total factor productivity of the manufacturing industry in Nigeria. The objectives of the study were; to examine the short run determinants of total factor productivity; to determine the long run determinants of total factor productivity; to investigate Granger Casualty between determinants and total factor productivity. The study used yearly time series data from the World Bank Data Base, Nigeria National Bureau of Statistics (NBS) and the Central Bank of Nigeria (CBN) from the year 1970- 2016. To confirm that the variables were stationary, Unit root test such as Augmented Dickey-Fuller and Phillips Perron were employed. A Vector Autoregressive structure with 2 lags was confirmed using the lag order selection criteria base on the Likelihood Ratio, Akaike Information Criterion (AIC), Schwartz Information Criterion (SIC) and Hannan-Quinn Information Criterion (HQC). Further analysis was carried out in order to examine the short run and long run relationship between the variables, Johansen Cointegration test based on Maximum Eigen test and Trace test confirmed 1 cointegrating equation indicating; total factor productivity was explained by trade openness, foreign direct investment & consumer price index in the short run model as explained by the adjusted R-square about 51.3% of the variation, there exist in the long run model relationship between foreign direct investment, Population growth rate and Total factor productivity. Granger Casualty Test was used to test the relationship between the variables; which showed that foreing direct Investments and population growth rate granger cause total factor productivity of the Manufacturing industry at one (1) and five (5) percent level of significance (0.0882) and (0.037), respectively. There exist uni-directional casualty from total factor productivity to trade openness from foreign direct investment to consumer price index and human capital. In conclusion, most remittance inflows into the economy were not recorded by most financial institutions in the short run; long run equilibrium relationship exist between total factor productivity and foreign direct investment & population growth rate; there was unidirectional casual relationship between total factor productivity to trade openness and from foreign direct investment to consumer price index & human capital. The study recommends that long run development plan should be geared towards improving Nigeria manufacturing sector’s total factor productivity in respect to trade openness, consumer price index and human capital Development; there should be effort to strengthen and sustained Foreign Direct Investment at all time by the successive governments; more trade liberalization policies should be formulated, so that the sector will be fortified to satisfy domestic demands and bring about transfer of technology among others; lastly, the study model was able to explained 68% of the total variables, therefore, study recommends the remaining 32% other variables that could as well explain which were not captured by the study model should be investigated by further study.  

TABLE OF CONTENT 

DECLARATION .................................................................................... Error! Bookmark not defined.

APPROVAL ........................................................................................... Error! Bookmark not defined.

DEDICATION ........................................................................................................................................ iii

ACKNOWLEDGEMENT ...................................................................................................................... iv

TABLE OF CONTENT ........................................................................................................................... v

LIST OF TABLES ................................................................................................................................. vii

LIST OF ACRONYMS AND ABBREVIATIONS .............................................................................. viii

ABSTRACT ............................................................................................................................................. x

CHAPTER ONE: INTRODUCTION ...................................................................................................... 1

1.0 Introduction ........................................................................................................................................ 1

1.1 Background of the Study ................................................................................................................... 2

1.1.1 Historical Perspective ..................................................................................................................... 4

1.5 Statement of the Problem ................................................................................................................... 8

1.3 Objective of the Study ..................................................................................................................... 10

1.4 The specific objectives are to: .......................................................................................................... 10

1.4. Hypotheses of the Study ................................................................................................................. 10

1.5. Scope of the Study .......................................................................................................................... 11

1.6. Significance / Justification of the Study ......................................................................................... 12

1.8. Operational Definitions ................................................................................................................... 13

1.9 Conceptual framework .................................................................................................................... 15

1.10 Outline of the thesis ....................................................................................................................... 16

CHAPTER TWO: REVIEW OF RELATED LITERATURE ............................................................... 17

2.0 Introduction ...................................................................................................................................... 17

2.1 Theoretical Review .......................................................................................................................... 17

2.2. Theoretical Review of Productivity and Manufacturing Industry .................................................. 27

2.3 Empirical work on Human Capital .................................................................................................. 29

2.4. Empirical work on Manufacturing Industry .................................................................................... 31

2.5. Empirical work on Technology and Productivity ........................................................................... 35

2.6 Empirical work on Manufacturing industry now Nigeria’s major Economic Driver ...................... 36

2.7 Emprirical work on Productivity as Economic Activity ................................................................. 37

2.8 Research Gaps .................................................................................................................................. 37

vi 

CHAPTER THREE: METHODOLOGY .............................................................................................. 39

3.0 Introduction ...................................................................................................................................... 39

3.1 Research Design ............................................................................................................................... 39

3.2 Data variables and their measurement ............................................................................................ 39

3.3 Diagnostic Test ................................................................................................................................ 41

3.4 Determination of the optimal lag length .......................................................................................... 43

3.6 Techniques of Data Analysis ........................................................................................................... 45

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF THE 

FINDINGS ............................................................................................................................................. 48

4.0 Introduction ...................................................................................................................................... 48

4.1 Descriptive Statistics for the Series in Levels .................................................................................. 48

4.2 Unit Root tests.................................................................................................................................. 50

4.3 Results of the determinants of Total Factor Productivity of the manufacturing sector in Nigeria .. 51

4.4 Determination of the optimal lag length .......................................................................................... 53

4.5 Cointegration test ............................................................................................................................. 53

4.6 Interpretation/Analysis of the Long run model ................................................................................ 55

4.7 Interpretation/Analysis of the short run model ................................................................................ 56

4.8 Test for Normality of the short run residuals ................................................................................... 58

4.9 Variance decomposition analysis ..................................................................................................... 59

CHAPTER FIVE ................................................................................................................................... 64

DICUSSION OF THE FINDINGS, SUMMARY, CONCLUSION AND RECOMMENDATIONS .. 64

5.0. Introduction ..................................................................................................................................... 64

5.2. Summary ......................................................................................................................................... 68

5.3. Conclusion ...................................................................................................................................... 69

5.4. Recommendations ........................................................................................................................... 70

5.5 Contribution to Knowledge .............................................................................................................. 71

5.6 Area for further Study ...................................................................................................................... 72

REFERENCES ...................................................................................................................................... 73

APPENDIX I: Informed Consent .......................................................................................................... 98

APPENDIX II: Time Frame .................................................................................................................. 99

APPENDIX III: Proposed Budget ....................................................................................................... 100

APPENDIX IV: Data Set ..................................................................................................................... 101

APPENDIX V: World Bank Data base................................................................................................ 102

APPENDIX VI: Researcher’s Curriculum Vitae (CV) ........................................................................ 103