Original Research

Manipulation of transfer prices by multi-national companies in Nigeria

Aderounmu A. Ogunoye, Oyebanji J. Ibitoye, Ewert P.J. Kleynhans
South African Journal of Economic and Management Sciences | Vol 26, No 1 | a4657 | DOI: https://doi.org/10.4102/sajems.v26i1.4657 | © 2022 Aderounmu A. Ogunoye, Oyebanji J. Ibitoye, Ewert P.J. Kleynhans | This work is licensed under CC Attribution 4.0
Submitted: 11 May 2022 | Published: 22 March 2023

About the author(s)

Aderounmu A. Ogunoye, Department of Economics, Faculty of The Social Sciences, Adekunle Ajasin University, Akungba Akoko, Nigeria; and, Department of Economics and Development Studies, Faculty of Arts and Social Sciences, Islamic University of Uganda, Mbale, Uganda
Oyebanji J. Ibitoye, School of Economics Sciences, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa
Ewert P.J. Kleynhans, School of Economics Sciences, Faculty of Economic and Management Sciences, North-West University, Potchefstroom, South Africa

Abstract

Background: Transfer pricing manipulation diminishes revenue generation by the host countries. The results of the investigations in the literature show divergence to the extent of the impact of transfer pricing on economic growth in both the low- and high-tax countries, especially as this type of investigation is still scanty in the literature.

Aim: The study examines the effect of transfer pricing manipulation on economic growth in Nigeria.

Setting: Multi-national companies in Nigeria.

Methods: The auto-regressive distributed lag (ARDL) approach was applied to data from Nigeria between 1986 and 2019.

Results: The findings reveal an insignificant relationship between economic growth and explanatory variables such as transfer pricing manipulation, unemployment rate, government revenue and trade openness. The result also shows a significant negative relationship between the exchange rate and economic growth.

Conclusion: The study recommends that the government should implement proper monitoring of multinational companies to check their day-to-day transaction activities. This may help the government to generate more revenue, and serves as an avenue to create more employment opportunities.

Contribution: In this study an important aspect is indicated in that multinational companies often misuse revenue to gain undeserved profits, rendering unnecessary costs to market and rendering other companies less competitive, as well as exploiting buyers and consumers. This is an important loophole that law- and policymakers as well as governments should pay attention to and act against.


Keywords

transfer pricing manipulation; government revenue; unemployment; economic growth and auto-regressive distributed lag (ARDL); co-integration; analysis

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