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Does Capacity Utilization Rate Affect Imports of Raw Materials in Nigeria?

Author

Listed:
  • Augustine C. Osigwe

    (Department of Surveillance and Forecasting, Nigerian Institute for Social and Economic Research, Ibadan, Nigeria,)

  • Kenneth Obi

    (Department of Economics, Nnamdi Azikiwe University, Awka, Nigeria.)

Abstract

This study adopted a modified traditional import demand framework to examine the effects of capacity utilization rate (CUR) on imports of raw materials (IMRM) in Nigeria. A number of striking results emerged from the analysis of data. 1% increase in CUR causes IMRM to increase by 1.1%. 1% increase in the real exchange rate (depreciation of the Naira) reduces IMRM by 0.12% whereas 1% increase in domestic inflation results into a 0.72% decrease in the importation of raw materials. Expectedly, we found that a 1% increase in real gross domestic product triggers a 77% increase in IMRM. In line with the traditional import function, we discovered that foreign exchange earnings positively and significantly determine IMRM. On the basis of our findings, we recommend that the relevant stake holders should make genuine efforts towards boosting Nigeria's CUR. This recommendation stems from the fact that many of the local manufacturing firms depend heavily on IMRM.

Suggested Citation

  • Augustine C. Osigwe & Kenneth Obi, 2015. "Does Capacity Utilization Rate Affect Imports of Raw Materials in Nigeria?," International Journal of Economics and Financial Issues, Econjournals, vol. 5(2), pages 489-492.
    • Handle: RePEc:eco:journ1:2015-02-21
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    References listed on IDEAS

    as
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    2. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
    3. Egwaikhide, F.O., 1999. "Determinants of Imports in Nigeria: a Dynamic Specification," Papers 91, African Economic Research Consortium.
    4. John R. Baldwin & Wulong Gu & Beiling Yan, 2013. "Export Growth, Capacity Utilization, and Productivity Growth: Evidence from the Canadian Manufacturing Plants," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 665-688, December.
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    More about this item

    Keywords

    Capacity Utilization Rate; Import; Raw Materials; Generalized Methods of Moments;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F1 - International Economics - - Trade

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