Impact of FDI spillovers on productivity in Nigeria: Evidence from manufacturing sector

Abstract

This study examines the impact of FDI spillovers on productivity of firms in the manufacturing sector in Nigeria. While there are numerous studies focusing on the direct impact of FDI in Nigeria, only very few studies have investigated the spillover effects of FDI on productivity. The study uses firm level panel survey data obtained from the World Bank’s Enterprise Survey. The techniques of analysis used are pooled OLS, random effects and generalised method of moments (GMM). Our results show that there is presence of significant FDI spillover effects in the manufacturing sector in Nigeria. We find positive and significant impact of FDI spillovers through the horizontal and forward channels while backward FDI spillover has a negative and significant impact on productivity. While the result of horizontal and forward spillovers can be attributed to the competitiveness of local firms and quality of inputs from foreign owned suppliers respectively, the negative backward spillover may be due to poor transportation networks and low absorptive capacity of local suppliers. We recommend that for domestic firms to benefit from their foreign customers in the downstream sector, there must be improved infrastructure especially transportation networks and local firms have to upgrade their capacity in terms of education.