Empirical Analysis of the Impact of Trade Openness on Manufacturing Sector Productivity in Nigeria

Trade openness theoretically stimulates manufacturing productivity through competitive pressure and technology transfer, but empirical evidence on this relationship for Nigerian manufacturing is mixed and methodologically limited, making a rigorous assessment of current evidence and an empirical contribution important. This study empirically analysed the impact of trade openness on manufacturing sector productivity in Nigeria using quarterly data from 2000 to 2022. Trade openness was measured as total trade (exports plus imports) as a share of GDP. Manufacturing productivity was proxied by manufacturing value added per worker. Additional control variables included human capital, infrastructure quality, financial development, and exchange rate competitiveness. A Fully Modified OLS approach was applied to estimate the long-run relationship, and an ECM captured short-run dynamics. Results showed a positive but non-linear relationship between trade openness and manufacturing productivity. Moderate trade openness (trade-to-GDP ratio of 25 to 35 percent) was associated with the highest productivity gains, while extreme openness beyond 50 percent was associated with negative productivity effects due to import competition crowding out domestic production. Technology-intensive imports showed positive productivity spillovers. The export orientation dimension of openness showed stronger productivity effects than import liberalisation alone. The study fills an important empirical gap in Nigerian trade-productivity literature and recommends calibrating trade liberalisation to protect strategically important domestic manufacturing sectors while promoting export competitiveness.

Keywords: trade openness, manufacturing productivity, Nigeria, FMOLS, import competition