Impact of Private Investment on Labour Productivity in Nigeria
Keywords:
Endogeneity, labour productivity, private sector investment
Abstract
Labour productivity is one of the measures of economic performance. Its growth is essential for sustainable improvements in living standards and business conditions. The growth of labour productivity depends on certain factors, including investment. New growth theory states that labour productivity is driven by investment. It is on this basis that this study examined the impact of private sector investment on labour productivity in Nigeria. The study made use of time-series data of labour productivity, credit to private sector, domestic private investment and foreign direct investment in Nigeria from 1981 to 2016. The data were drawn from various issues of Central Bank of Nigeria statistical bulletin and World Bank data. The study adopted fully modified ordinary least squares to take care of endogeneity and error correction mechanism, which provide information on the long and short-run relationship, as well as the speed of adjustment between the variables. The findings showed that credit to private sector is essential for labour productivity growth in Nigeria in the long-run, while in the short-run, domestic private investment enhances growth in labour productivity; also, the ECM was negatively signed and significant at 5%. It was, therefore, recommended, among others, that there is a need for government to encourage domestic private investment through the creation of enabling environment for private investors to thrive.
References
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Engle, R.F. and Granger, C.W.J. (1987). Cointegration and error correction: Representation, estimation, and testing. Econometrica, 55: 251-276.
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Nazmi, N. and Ramirez, M.D. (2003). Public investment and economic growth in Latin America: An empirical test. Review of Development Economics, 7(1): 115-126.
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Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5): 1002-1037.
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Spoehr, J., Burgan, B. and Molloy, S. (2012). Public Investment, Productivity and Economic Growth: The role and contribution of debt funding. Adelaide: Australian Institute for Social Research, University of Adelaide.
Sprague, S. (2014). What can labour productivity tell us about the US economy? Productivity, 3(12):1-14.
Ugur, A. and Ruane, F. (2004). Labour productivity and foreign direct investment in Irish manufacturing industry: A decomposition analysis. Discussion Paper No. 27 Economics Department, IIIS, Trinity College Dublin.
Umoru, D. and Yaqub, O. (2013). Labour productivity and health capital in Nigeria: Empirical evidence. International Journal of Humanities and Social Science, 3(4): 199- 221.
Volek, T. (2012). Sectors Labour Productivity in the Context of Capital-Labour Ratio. Ceske Budejovice: University of South Bohemia.
Zhang, Z. (2002). Productivity and economic growth: An empirical assessment of the contribution of FDI to the Chinese economy. Journal of Economic Development 27(2): 81- 95.
Zghidi, N., Sghaier, I.M. and Abdia, Z. (2016). Does economic freedom enhance the impact of foreign direct investment on economic growth in the North African countries? Panel data analysis. African Development Review, 28(1): 64-74.
Adenikinju, A.F. (2005). Productivity performance in developing countries: Country case studies, Nigeria. Washington DC: UNIDO.
Adetiloye, K.O. and Adeyemo, K.A. (2012). Domestic investment, capital formation and population growth in Nigeria. Developing Country Studies, 2(7): 37-45.
Aljebrin, M.A. (2012). Labour demand and economic growth in Saudi Arabia. American Journal of Business and Management, 1(4): 271- 277.
Arrow, K.J. (1962). The economic implications of learning by doing. Review of Economic Studies, 29(3): 155-173.
Ayanwale, A.B. (2007). Foreign Direct Investment and Economic Growth: Evidence from Nigeria. Nairobi; Africa Economic Research Consortium.
Ayanwale, A.B. and Bamire, S. (2004). Direct foreign investment and firm-level productivity in the Nigerian agro/agro-allied sector. Journal of Social Science, 9(1): 29-36.
Auzina-Emsina, A. (2014). Labour productivity, economic growth and global competitiveness in post-crisis period. Procedia-Social and Behavioral Sciences, 156: 317-321.
Bello, M.Z, Nagwari, A.B. and Saulawa, M.A. (2011). Crowding in or crowding out? Government spending and private investment: The case of Nigeria. European Scientific Journal, 8(28): 9-22.
Bleischwitz, R. (2001). Rethinking productivity: Why has productivity focused on labour instead of natural resources? Environmental and Resource Economics, 19(1), 23-36.
Contessi, S. and Weinberger, A. (2009). Foreign direct investment, productivity and country growth: An overview. Federal Reserves Bank of St. Louis Review, 91(2): 61-78.
Engle, R.F. and Granger, C.W.J. (1987). Cointegration and error correction: Representation, estimation, and testing. Econometrica, 55: 251-276.
Gatawa, N.M. and Bello, M.Z. (2011). An analysis of the effect of government expenditure on gross domestic private investment in Nigeria, 1975-2009. European Scientific Journal, 8(17): 46-60.
International Labour Organisation (2002). Key Indicators of the Labour Market, 2001-2002. ILO; New York.
Kalu, C.U. and Onyinye, M.O. (2015). Domestic private investment and economic growth in Nigeria: Issues and further consideration. International Journal of Academic Research in Business and Social Science, 5(2): 302-313.
Kipkurui, K.J. (2015). Foreign direct investment and labour productivity growth in Kenya. Unpublished MA thesis, School of Economics, University of Nairobi.
Kumar, N. and. Pradhan, J.P. (2002). Foreign direct investment, externalities and economic growth in developing countries: Some empirical explorations and implications for WTO negotiations on investment. RIS Discussion Papers 27, Research and Information System for the Non-aligned and Other Developing Countries, New Delhi.
Lee, G. (2007). Long-run equilibrium relationship between inward FDI and productivity. Journal of Economic Development, 32(2): 183-192.
Liang, F.H. (2008). Does foreign direct investment improve the productivity of domestic Firms? Technology spillovers, industry linkages, and firm capabilities. California, Berkeley: University of California.
Lucas, R.E. Jr. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(2): 3-42.
Maia, A.G. and Menezes, E. (2014). Economic growth, labour and productivity in Brazil and the United States: A comparative analysis. Brazilian Journal of Political Economy, 34(2): 212-229.
Nazmi, N. and Ramirez, M.D. (2003). Public investment and economic growth in Latin America: An empirical test. Review of Development Economics, 7(1): 115-126.
Noor, Z.M., Isa N., Said R. and Jalil S.A. (2011). The impact of foreign workers on productivity in Malaysian manufacturing sector. International Journal of Economics and Management, 5(1): 169-178.
Nto-Philips, O.O., Igberi, C.O. and Mbanasor J.A. (2012). Determinants of productivity among manufacturing firms in south-eastern Nigeria: Cobb-Douglas stochastic frontier production function approach.
Owyong, D.T. (2011). Productivity growth: Theory and measurement. APO Productivity Journal, 19-29.
Pettinger, T. (2012). Gross fixed capital formation. Retrieved from www.economicshelp.org.
Phillips, P.C.B. and Hansen, B.E. (1990). Statistical inference in instrumental variables regression with I(1) processes. Review of Economics Studies 57: 99-125.
Pujula, A.L. and Zapata, H.O. (2015). Macroeconomic aspects of Ghana's export performance. Retrieved from http://purl.umn.edu/143039.
Sjo, B. (2008). Testing for unit roots and cointegration. Retrieved from https://pdfs.semanticscholar.org.
Ramirez, M.D. (2006). Does foreign direct investment enhance labour productivity growth in Chile? A cointegration approach. Eastern Economics Journal, 32(2): 205-220.
Ramirez, M.D. (2012). Are foreign and public investment spending productive in the Argentine case? A single break unit root and cointegration analysis, 1960-2010. Modern Economy, 3: 726-737.
Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5): 1002-1037.
Riley, J. (2010). Explain what is meant by labour productivity and how it can be measured? Retrieved from www.tutor2u.net/business/blog.
Spoehr, J., Burgan, B. and Molloy, S. (2012). Public Investment, Productivity and Economic Growth: The role and contribution of debt funding. Adelaide: Australian Institute for Social Research, University of Adelaide.
Sprague, S. (2014). What can labour productivity tell us about the US economy? Productivity, 3(12):1-14.
Ugur, A. and Ruane, F. (2004). Labour productivity and foreign direct investment in Irish manufacturing industry: A decomposition analysis. Discussion Paper No. 27 Economics Department, IIIS, Trinity College Dublin.
Umoru, D. and Yaqub, O. (2013). Labour productivity and health capital in Nigeria: Empirical evidence. International Journal of Humanities and Social Science, 3(4): 199- 221.
Volek, T. (2012). Sectors Labour Productivity in the Context of Capital-Labour Ratio. Ceske Budejovice: University of South Bohemia.
Zhang, Z. (2002). Productivity and economic growth: An empirical assessment of the contribution of FDI to the Chinese economy. Journal of Economic Development 27(2): 81- 95.
Zghidi, N., Sghaier, I.M. and Abdia, Z. (2016). Does economic freedom enhance the impact of foreign direct investment on economic growth in the North African countries? Panel data analysis. African Development Review, 28(1): 64-74.
Published
2018-03-01
Section
Articles
