Effects of Extreme Weather on Productivity of Manufacturing Firms in Nigeria
Date
2026
Authors
Joshua Olusegun Ajetomobi
Friday Ademola Ajagbe
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Rising global temperatures increasingly threaten economic productivity, yet micro-level evidence on how heat affects firms in developing countries remains limited. This study examines how temperature variability affects manufacturing productivity in Nigeria using firm-level data from the 2009 and 2025 World Bank Enterprise Surveys, matched with daily temperature records from the Nigerian Meteorological Agency. A pseudo-panel dataset of 2,075 firms was constructed and linked to regional weather exposure measured as annual counts of days in three temperature ranges: below 25 °C, 25–27 °C, and above 27 °C. Labour productivity is estimated using fixed-effects panel regressions, while total factor productivity (TFP) is analysed through a one-stage structural Cobb–Douglas production function that incorporates temperature directly into the productivity term and corrects for simultaneity using a control-function estimator. Descriptive evidence indicates that Nigerian manufacturing firms operate under persistent heat exposure, averaging about 197 days annually above 27 °C. Regression results show that extreme heat significantly reduces labour productivity: in the preferred specification, an additional hot day lowers productivity by approximately 2.4%. Structural production-function estimates reveal that materials are the dominant driver of output, while labour exhibits diminishing marginal productivity. Temperature effects on TFP are nonlinear, displaying an inverted-U pattern in which moderate warmth may initially raise output but excessive heat reduces it. Interaction results further indicate that labour acts as an adaptive margin, with larger workforces partially offsetting heat-related productivity losses, whereas capital intensity does not significantly mitigate temperature shocks.
Overall, the findings demonstrate that temperature influences manufacturing performance primarily through short-run efficiency channels rather than long-run technological change. Persistent exposure to high temperatures therefore poses a structural constraint on industrial productivity, particularly in labour-intensive firms and regions with greater heat intensity. Policies aimed at improving workplace conditions, energy reliability, and firm-level adaptive capacity may be more effective for sustaining productivity under rising temperatures than strategies focused solely on capital accumulation.