Does Capacity Utilization Rate Affect Imports of Raw Materials in 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.

Keywords

• Capacity Utilization Rate, Import, Raw Materials, Generalized Methods of Moments