Is There Really a Foreign Ownership Productivity Advantage? Evidence from Nigerian Manufacturing Firms

Abstract

ABSTRACT The role of foreign ownership of an enterprise in impacting their performance is a vital policy issue for Africa. In this paper, panel data for manufacturing firms is used to investigate that role in Nigeria. After controlling for unobserved firm heterogeneity, inputs simultaneity, measurement errors and possible selection bias, I find that foreign ownership has a positive, but statistically insignificant, effect on total factor productivity (TFP). However, foreign-owned firms operate on a far larger scale than domestic ones, with much higher levels of employment, capital intensity and labour productivity. As it is labour productivity that determines the ability of firms to pay higher wages, the evidence presented in this paper suggests it is their ability to operate at higher scale, rather than having higher TFP, is what characterises foreign-owned firms in Nigeria.