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

Friday Ademola Ajagbe, Joshua Olusegun Ajetomobi

Abstract


This study examines the influence of investment climate on 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 TFP for each firm; in the second stage, variation in the TFP is statistically related to indicators of the investment climate as well as firm characteristics. The analyses use 2009 World Bank Enterprise survey data on Nigeria. The results show systematic variations in the investment climate indicators, across various industries in Nigeria. The following indicators of poor investment climate: power outage, unofficial payment, loss in transit due to breakage or spoilage and tax burdens, have significant negative effects on TFP of manufacturing industries in Nigeria. Increasing power outage by one hour per month could reduce TFP by 0.06%, while a 1% rise in unofficial payment could lead to about 1.8% decline in TFP. Investment climate indicators, such as, management time in dealing with regulations and percentage of firms owned by private domestic individuals, companies and organizations have positive effects on TFP of manufacturing industries.

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This work is licensed under Creative Commons Attribution 3.0 License.

Mediterranean Journal of Social Sciences ISSN 2039-9340(Print) ISSN 2039-2117(Online)

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