TECHNOLOGY TRANSFER AND MANUFACTURING PERFORMANCE: NIGERIA’S COINTEGRATION AND CAUSAL EVIDENCE

Abstract

This paper investigates the long-run and causal relationships of technology spillovers on manufacturing performance in Nigeria using the share of Foreign Direct Investment (FDI) in gross fixed capital formation as a proxy for technology transfer for the period 1981 to 2019 in a Vector Error Correction Model (VECM). The FDI stock appears to be too low at less than 1% of capital formation to generate any significant positive spillovers on manufacturing performance, resulting in an insignificant negative long-run relationship and the absence of causal relationships. The size of the local market has the most significant positive long-run effect on manufacturing performance, and the causality for this effect is one-way from manufacturing. A one-way causality was also observed from manufacturing to income per capital, though the long-run effect was significantly negative. The paper concluded that FDI technology spillover is presently not a major factor in Nigeria’s manufacturing performance. This may be redressed with policies aimed at increasing FDI inflows, increasing the technology-learning capacity of local firms and their vertical integration with foreign firms, and the creation of national infrastructure for technology development and diffusion