The Determinants of Capacity Utilization in the Nigerian Manufacturing Sector.

Abstract

This study empirically investigated the determinants of capacity utilization in the Nigerian manufacturing sector between 1975 and 2008. The study used capacity utilization as the dependent variable while its determinants such as Real Manufacturing Output Growth Rate (MGDP), Real Interest Rate (INTR), Consumer’s Price Index (CPI), Fixed Capital Formation in Manufacturing Sector (CPF) and Electricity Generation on Rate(ELEGR)(Proxy for energy) were used as independent variables. Cointegration and Error Correction Model(ECM) were employed as the estimation techniques so as to study the time series properties of the variables and to ascertain the existence of long-run relationship between capacity utilization and its determinant indicators. Structured questionnaire was administered to assess the operational materials and the performance of the selected firms. The findings of the study revealed that there is positive relationship between consumer’s price index, Fixed capital formation in manufacturing sector and capacity utilization. The study also showed that there is negative relationship between Electricity Generation, Real Manufacturing Output Growth Rate and Capacity Utilization which resulted in low manufacturing productivity growth rate in Nigeria. Based on the findings, the study strongly recommended that government should make adequate provision of infrastructural facilities especially Electricity Generation to boost production.

Keywords: Capacity Utilization, Real Manufacturing Output Growth Rate, Electricity Generation, Co-integration and Error Correction Mechanism and the use of descriptive survey type