When Preparation Meets Opportunity, Good Fortune Results

It feels good to be through with a course of study, and be convinced that you have added significantly, however little, to the body of knowledge. This post is dedicated to sharing the synopsis of my doctoral thesis. Of course the search for answers to the myriad real world and research problems goes on. 

I am grateful to my esteemed thesis supervisors and every other person who contributed to the success of the research process. In sum, the study advocates that domestic firm absorptive capacity (preparation) is necessary for the presence of foreign firms (opportunity) to be socially beneficial and productivity enhancing.

By way of introduction, the manufacturing sector has been recognised as an engine of growth, industrial and technological advancement for developing countries. Amongst other things, foreign direct investment (FDI) is sought as a propeller of industrial productivity growth and technology spillovers. However, a rising trend of FDI flow to Nigeria and a concomitant decline in its average manufacturing capacity utilisation and index of industrial production is cause for concern. 

This questions why FDI has not been delivering on its promise of manufacturing development in Nigeria.  Even though macroeconomic-type studies on the growth effects and determinants of FDI proliferate the literature, there are very few studies that examine the productivity and labour market effects of FDI in Nigeria. Where such studies exist, they are limited in geographical scope and manufacturing sub-sector coverage. Moreover, due to the paucity of firm-level data, determinants of firm’s absorptive capacity are not widely investigated.

The overarching objective of the thesis was to examine the relationship between foreign presence and labour productivity in the Nigerian manufacturing industry. Accordingly, the study investigated the effect of inter-firm interactions, technological distance and firm absorptive capacity on the extent of productivity spillovers from foreign presence in the Nigerian manufacturing sector. 

Founded on a hybrid theoretical framework consisting the theory of the multinational enterprise, endogenous growth theory and dynamic capability argument, the study examined the motives of host country FDI and the mechanisms via which gains can be maximised for the domestic economy.

The findings of the study show that the existence of supply linkages and firm’s absorptive capacity impacts positively on labour productivity of firms in the manufacturing sector. Furthermore, the study found evidence of positive productivity spillovers from the presence of foreign firms in the Nigerian manufacturing industry, which indicates a potential for technological learning via demonstration effects. 

Additionally, the findings show that, contrary to the backwardness hypothesis that a larger technological gap is beneficial for technology absorption leading to productivity gains, a wider technological gap is associated with negative productivity in Nigerian manufacturing. The study also provides evidence on firm-specific determinants of manufacturing firm productivity.

In effect, the study contributes to the limited body of empirical literature on the factor productivity effects of foreign presence in the Nigerian manufacturing industry. Largely, the findings of the study provide policy orientation with respect to investment, local content and foreign contributions to the Nigerian manufacturing sector. 

Moreover, the study points to the need to focus more on the nature and composition of FDI than the current preoccupation with the volume of FDI inflows. Set within the new structuralist school of thought, the study advocates specific and coordinated changes necessary to chart a definitive pathway to industrialisation for Nigeria.

The discussion continues…