Resource-Use Efficiency and Firm Performance in Nigeria’s Manufacturing Industry

Abstract

The study investigated the existence of technical efficiency among manufacturing firms and examine its effects on firm performance in Nigeria using firm level data between 2001 and 2017. Variables such as capital, labour, total overhead inputs, total firm output, competition, capital intensity, firm market share, technical efficiency scores and firm profitability were used in this study. Using the stochastic frontier analysis (SFA) to generate the technical efficiency scores, the study adopted System-GMM to examine the effects of technical efficiency on firm performance among quoted manufacturing firms operating in consumer (food beverages and tobacco), industrial and health (pharmaceutical) sectors in Nigeria. The findings revealed that 29% of the variation between the observed and optimal outputs is attributed to inefficiency among manufacturing firms. However, firm competitiveness significantly increases the efficient use of resources among manufacturing firms. This study further showed that technical efficiency variable has positive effects on manufacturing firm performance in Nigeria. The paper concluded that competition increases the efficient utilization of resources which positively improves firm performance in Nigeria’s manufacturing industry. Finally, the paper recommended that industrial policies should be geared towards promoting healthy competition (and not collusion) among manufacturing firms to attain optimal economic efficiency of resources.