Backward Integration Policy and Manufacturing Firms Value Added in Nigeria

Abstract Research Purpose: The paper investigates the impact of the backward integration policy on manufacturing firms’ value added in Nigeria. It complements the existing literature and extends the frontier of knowledge by evaluating the impact of backward integration policy (local raw materials as proxy) on manufacturing firms’ value added in Nigeria. Design/Methodology/Approach: Firm-level data were sourced from the annual reports and statement of accounts of 49 sampled manufacturing firms, Central Bank of Nigeria statistical bulletin, National Bureau of Statistics annual abstract and Nigeria Customs Service tariff books for the period (2002-2020). The Fisher-type Augmented Dickey-Fuller (ADF) unit root test procedure was employed to examine the stationarity properties of each of the variables used in the study. The test was necessary to verify the time series property of the panel data employed. Thereafter, the Pooled Ordinary Least Squares (OLS) method was employed for the regression. Findings: The findings show that backward integration policy through the use of local raw materials in production significantly led to an increase in manufacturing firms’ value added in Nigeria. An increase in the use of local raw materials in production leads to an increase in value added by all sampled firms across manufacturing industries in Nigeria. The findings also reveal that fixed assets, employment, energy cost and exchange rate have a significant positive influence on the value added of all sampled manufacturing firms, while the tax has a significant negative coefficient, implying that as tax paid by firms increases, the value added of manufacturing firms declines in Nigeria. Originality/Value/Practical implications: Most previous studies focused on a single industry, but this study investigates the impact of backward integration policy on manufacturing firms’ value added in Nigeria. The study covers a wide range of firms and industries more than previous studies. It uses firm-level and panel data of manufacturing firms in Nigeria, which makes the study unique. It is the first study that hypothesises that backward integration can be used to improve the value added of manufacturing firms and consequently reduce import dependency, promote Nigeria’s product competitiveness and create more employment in Nigeria.