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

Abstract

The real sector for which the manufacturing sector is a part play key role in the quest for achieving economic growth of any country. A high output in the manufacturing sector will connote a high level of GDP all things been equal. However, the productivity of the manufacturing sector is directly dependent on the capital-labour ratio. Thus, this study seeks to examine the impact of foreign capital (FDI) and domestic labour force (population) 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 FDI inflow significantly and positively determine the manufacturing output in Nigeria, while labour influence the manufacturing in a positive but insignificant way. Further result prove that the impact of labour force is elastic, indication that little change in the labour force will cause drastically change in the level of output in the manufacturing output. In general, the manufacturing sector is capital-driven rather labour-driven. A recommendation is made of the need for the improvement in education and training to increase the efficiency of labour. Secondly, since FDI capital demonstrate significant positive impact, the authority concern should device policy that will woo more it into the sector for higher productivity. Such policy include, tax holidays, stable exchange rate and lower interest rate to enable smooth flow of investment.