Investors’ origin and FDI Spillovers in Nigeria: Evidence from manufacturing sector

Abstract

The study of FDI spillover effects on domestic firms in developing countries has attracted the attention of many researchers over the past few decades. This study examines the role of country of origin of foreign investors in influencing FDI spillovers in the manufacturing sector in Nigeria using survey data from the World Bank Enterprise Survey published in 2018. Our study differs from previous FDI studies in the sense that existing studies in Nigeria did not pay attention to the country of origin of foreign investors in the analysis of FDI spillover effects. We follow the methodology of Javorcik (2004) in constructing the FDI spillover variables and use the augmented Cobb-Douglas production function to estimate the spillover effects of FDI on productivity of local firms where we incorporate investors’ origin. Pooled OLS is used for the estimation of the parameters. The results of the regression analysis show that investors that originated from Europe have positive and statistically significant impact on productivity and also generate more technology spillovers compared to investors from Asia, Middle East and Africa. It is recommended that policymakers consider the source country of foreign investors when formulating FDI policies and further micro level studies are needed for more understanding how FDI spillovers affect the performance of local firms in developing countries especially in Africa.