FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA “AN EMPIRICAL ANALYSIS”

ABSTRACT

This research work envisages ascertaining the effect of Foreign Direct Investment on the growth rate of Gross Domestic Product in Nigeria economy for the period 1970- 2009 .From a priori conception; it has been adduced that the effect of FDI on the Nigeria GDP should be positively related. Empirical analysis has affirmed that such relationship is positive, however the degree of positively is less Developed Countries is low and this attributable to the unfavourable business environment in these nations such as Nigeria.

Thus, government in all the level should put in place policies that will create healthy environment for both current and potential foreign investors ,thus accelerating the inflow of foreign Direct Investment into the country which in turn will impact positively on economic growth and development in Nigeria,

TABLE OF CONTENTS

Title page

Certification

Dedication

Acknowledgement

Abstract

Table of contents

CHAPTER ONE

INTRODUCTION  

1.0     Background of the Study

1.2     Statement of Problem

1.10 Limitation of the Study

1.11 Organization of the Study

CHAPTER TWO

REVIE'Y OF LITERATURE AND THEORETICAL FRAMEWORK

2.1     Introduction

MODEL SPECIFICATION /METHODOLOGY

EMPIRICAL ANALYSIS AND FINDING

4.1     Introduction

4.2     Economic A priori Expectation

4.3     Empirical Analysis

CHAPTER FIVE

SUMMARY, RECOMMENDATION AND CONCLUSION

5.1     Summary

5.2     Conclusion

5.3     Recommendations

 REFERENCES

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF STUDY

The need to accelerate the pace of economic growth and development by many countries especially the third -world countries has propelled them to make deliberate efforts to attract Foreign Direct investment (FDI).  Foreign Direct Investment refers to the flow of capital and personnel from abroad for investment in another country. The ownership of such capital can either be individual or a corporate body or a government.

Basically, the denominator for Foreign Direct Investment is that the foreign firms or individual must control a certain amount of shares of such firms .However, Foreign Direct Investment flow to a country depends largely on the presence in that country ,of a certain critical minimum requirements. Among the requirement is the presence of economic, political and social stability as well as rules regulating entry and operation of business .Others includes standard of treatment of foreign affiliates, business facilitation, materials, low coat but efficient labour force and physical infrastructure in form of ports, power and telecommunication.

The deliberate efforts by many less developed countries to attract Foreign Direct Investment is necessitated because their economics are characterized by inadequate domestic savings, excessive imports relative to exports capital as well as high level of external debts. They therefore require external capital to finance their current account deficits and to accelerate pace of economic growth and development through increased productive activities .In this regard; Foreign Direct Investment augments domestic savings in bridging the savings ­investment gap.

The effort made by the less developed countries are regard towards improving the general investment climate through the adoption and implementation of foreign investment -friendly policies and programmes such as tax incentives, export promotion and macroeconomic adjustment. Significantly ,the drive for foreign investment derives from the various benefits it confers on host country .These benefits include addition of new capitals, technology ,improved management and market access.

Foreign Direct Investment has also been acknowledged as a veritable source of enhancing efficiency of the productive sectors through competition, stimulation of economic progress, creation of jobs and fostering growth in the host economies. It is also a potent source of foreign exchange and technological transfer especially to the developing countries through subsidiaries of the transnational and multinational corporations. FDI also enhances skill improvement ,promote employment generation in the host country ,and also gives access to foreign market as well as forward and backward linkage ,FDI therefore is a major component of both capital and current account of a nation's balance of payment (BOP) .However ,in spite of the genuine desire and efforts by the less developed countries such Nigeria t attract the much needed foreign investment ,a number of factors renders them unattractive, some of these factors include: heavy debt burden, which eroded confidence in developing countries as well as low credit worthiness. Others are recession and persistent macroeconomic and political instability, which have further worsened the perception of foreign investors.

Nigeria has potential to attract FDI but has not been successful in attracting it despite her efforts of liberalizing its enabling environment. Even though, Nigeria has embarked on policies and structural reforms leading to increased openness, low barriers to trade, liberalized its domestic financial markets and removed restrictions on capital movements, FDI flows has been mainly in the oil sector of the economy where the country derives over 90% of her export .In terms of diversification of FDI to other sectors of the economy, Nigeria has not benefits commensurate to her potentials.

1.2     STATEMENT OF PROBLEM

Since the 1980s, flow of investment has increased dramatically the world over. Total world outflows of capital in that decade grew at an average of almost 30%, more than three times the rate of the world exports at that time, with further growth experienced in the 1990s (Kosteletou and Liargovas,2000). Despite the increased flow of investment to developing countries in particular, Sub-Sahara Africa countries including Nigeria are still characterized by low per-capita income high unemployment rates and low and falling growth rate of GDP problem which direct foreign direct investment are theoretically supposed to solve.

The Nigerian Government is putting so much effort into attracting foreign investors and yet the economy is still dwindling .Against this background, this study is focused on analyzing the impact of foreign direct investment on domestic investment and GDP growth rate .The study will determine its significant and recommend policies with regards to whether the government should intensify efforts toward attracting foreign investors or seek other means to boost the economy.

1.3      OBJECTIVE OF THE STUDY

The major objective of this paper is to examine the effect of foreign direct invest on the economic growth of Nigeria .In achieving this major objective ,the study will aim at indentifying the magnitude and pattern of foreign direct investment in the Nigeria Economy. In addition to this, attention will be focused on factors which will influence foreign investors in investing in the Nigeria economy.

1.4     STATEMENT OF HYPOTHESIS

The hypotheses to be tested include:

Ho:    There is no relationship between Economic growth and Foreign Direct Investment in Nigeria

Hi:     There is relationship between Economic growth and Foreign Direct Investment in Nigeria.

1.5     METHODOLOGY

For the purpose of this study, an appropriate econometric technique will be adopted in establishing the functional relationship in the system .The Ordinary Least Square OLS technique will be employed in obtaining the numerical estimates of the constant coefficients in the equation .The OLS methods was chosen because it possess some optimal properties, its computational procedure is fairly simple and it is also an essential component of most other estimators.

1.6     MODEL SPECIFICATION

Succinctly, the model specification will be using the Gross Domestic Product GDP as the dependent variable and Foreign Direct Investment FDI as independent variable.

Specification Error: GDPg = f (FDI)

Thus the model is:

GDPg = ao + aiFDI + et

Where

GDPg = Gross Domestic Product growth rate

ao = Constant coefficient

ai= Constant coefficient of FDI

FDI= Foreign Direct Investment

ET = Error term

1.7     SIGNIFICANCE OF STUDY

Lack of sufficient domestic savings, investment in the Nigeria economic has serious problem ,hence a study is required to ascertain the cause and remedies to such domestic savings ,investment insufficiencies .The study is of great relevance to scholars who might wish to embark on a further study on the FDI on the economic growth of Nigeria .It is also expected that this study will serve as a reference point for further investigation in an attempt to encourage the inflow of FDI and enhancing Nigeria real GDP growth rate.

1.8     SCOPE OF THE STUDY

This research work is to analyze the effect of Foreign Direct Investment FDI on the economic growth of Nigeria between 1970- 2009.

1.9     SOURCE OF DATA

The study shall make use of data obtained from secondary sources. The ultimate source of all data in this study is General Central Bank of Nigeria Statistic Bulletin (various issues),which is an annual statistical publication of the aforementioned .Other source include the Federal Office of Statistics (FOS) ,journal and other relevant textbook.

1.10   LIMITAIONS

The limitation of this study was financial constraint and problem of data collection from the source.

1.11   ORGANIZATION OF THE STUDY

The is divided into five chapters .Chapter one gives an insight or a background of the study on the topic .Chapter two reviews relevant literature on the topic in terms of historical views of foreign direct investment and current literature on the subject with special reference to Nigeria .Chapter three deal with the methodology of the study which include introduction, method of data analysis, analytical tools.

Chapter four is concern with Empirical analysis of the collected data. Chapter five will focus on summary, recommendation and conclusion of the study.