Productivity, market structure, and trade liberalization in Nigeria

This study investigates the relationship between trade liberalization and the market structure and productivity performance of the Nigerian manufacturing sector. The study uses firm-level panel data for the three years from 1988 to 1990, a period of considerable liberalization in the country. The data cover 382 manufacturing firms. The study shows that in general, the productivity level of Nigerian manufacturing is very low. This reflects in part an outcome of years of industrialization strategy that stressed factor accumulation rather than the efficiency with which factors are utilized. The findings from the study show that sectors with a high component of local raw materials generally performed better than those depending on imported inputs. The study also shows that foreign ownership has an important bearing on firm performance and foreign-owned firms generate positive spillover effects on the other firms in the industry. Moreover, the findings support the current trade liberalization effort of the government as we found that the policy of trade liberalization and the lowering of average tariff rates open up the economy to foreign investment, the promotion of manufactured exports impinges positively on total factor productivity in the Nigerian manufacturing sector. However, the government needs to exercise some caution with the pace of import liberalization, as import growth rate was found to have a negative impact on productivity. While this may be a short-run phenomenon, the implication that the pace of import liberalization proceeded too fast for domestic firms to cope with.