Inward FDI and Manufacturing Sector Productivity: An Empirical Evidence from the Dynamic ARDL Approach.

Abstract

The real sector for which the manufacturing sector is part play key role in the quest for achieving economic growth of any country. Naturally, high output in the manufacturing sector will contribute significantly to increase in economic growth. However, the productivity of the manufacturing sector is directly dependent on the capital-labour ratio performance. Thus, this study seeks to examine the impact of capital (FDI inflow) and labour (domestic labour) on the manufacturing sector output in Nigeria. The choice of ARDL approach by this study is informed by the mixed order of integration from the unit root test. The finding indicates that capital significantly and positively promotes the manufacturing sector output in Nigeria, while labour influences the manufacturing sector performance in a positive and insignificant way. Further result proves that the impact of labour is elastic, indicating that a little change in labour will cause a drastic change in the level of output in the manufacturing sector. In general, the manufacturing sector is capital-driven rather than labour-driven. A recommendation is made of the need for a systematic human capital development through improvement in education and training system to increase the efficiency of labour. Secondly, since FDI inflow demonstrates significant positive impact, the authority concern should formulate policy that will attract more FDI inflow into the sector for higher productivity. Such policy include, tax holidays, stable exchange rate, reasonable interest rate to enable investors gain access to fund in the domestic economy as well as general stability of the macroeconomic environment to enable smooth flow of investment.

Productivity Factors and the Growth of the Manufacturing Sector among the East African Community Members States: Testing the Adequacy of the Endogenous Growth Hypothesis

“…The study conducted by Joshua, Wubon, Arastus, and Owolabi (2021) explored the impact of capital (Foreign Direct Investments inflows) and labor (domestic labor) on the production of Nigeria's industrial sector. The selection of ARDL for this investigation was influenced by the mixed order of integration derived from the unit root test.…”