Drivers of manufacturing firms’ productivity: a micro-perspective to industrialization in Nigeria

Abstract

A significant body of literature suggests that the manufacturing sector has a strategic role in the economic development of a country. To develop a sound, inclusive, sustained and innovative manufacturing sector, it is, therefore, essential to study the drivers of productivity among firms operating in the sector. Thus, this study investigates the major determinants of manufacturing firms’ productivity in Nigeria as a micro-perspective to industrialization. To realize its objective, the study uses simultaneous technique of stochastic frontier to analyse 2007–2014 unbalanced panel firm-level dataset. Our findings reveal that manufacturing firms in Nigeria are heavily labour intensive and face increasing returns to scale. The results further disclose that while average labour costs or earnings and frequency of power outage exert negative effects on the firms’ productivity or efficiency level, micro and small firms are found to more efficient than large manufacturing firms. Also, exporting manufacturing firms are more efficient than their non-exporting counterparts. Policy implications of the study are that to formulate pragmatic industrialization policy, it has to be micro-founded in nature and such a policy should encourage exportation, provision of stable power supply and pay special attention to large-scale manufacturing firms.