Why Does Economic Performance Differ between Domestic and Foreign-Owned Establishments? Evidence from Nigeria
Hideaki Goto Nonso Richard Okechukwu
Diversifying its economy away from the oil industry and developing competitive nonagricultural industries are two of Nigeria's most important policy targets. However, the Nigerian economy faces significant challenges, such as educational attainment among workers, soundness of infrastructure, and access to finance. This study investigates how and to what extent these factors affect the output and productivity of domestic establishments (DEs) and foreignowned establishments (FOEs) in Nigeria. Further, it compares the economic performance of these two groups of establishments and analyzes the determinants of ownership differentials. First, the results show that FOEs significantly outperform DEs. Second, access to finance plays a key role, both in improving the economic performance of establishments (regardless of their ownership) and in explaining ownership differentials in economic performance. Third, it is implied that increasing educational attainment amongst workers could improve the performance of DEs by making it easier for them to employ skilled employees. In Nigeria, many reforms are under way under the Economic Recovery and Growth Plan, and they aim to develop infrastructure, strengthen the financial system, and improve human capital, to name but a few objectives; however, their rapid and complete implementation are urgently needed.