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FOREIGN DIRECT INVESTMENT AND IT'S IMPACT ON THE DEVELOPMENT
OF NIGERIAN ECONOMY (1990-2010)
ABSTRACT
Generally, policies and strategies of Nigerian government
towards foreign direct investment are shaped by two principal objectives of the
desire for economic independence and the demand for economic development.
Multinational corporations are expected to bring into Nigeria foreign capital
in the form of technical skills, entrepreneurship, and technology and
investment fund to boost economic activities thereby raising the standard of
living in Nigeria.
The main issues in this paper relates to understanding the
effects of foreign direct investment on the Nigerian economy as well as our
ability to attract adequate amounts, sufficient enough to accelerate the price
of our economic growth and development. From related research and studies, it
was revealed that multinational corporations are highly adaptive social agents
and therefore, the degree to which they can help in improving economic
activities through FDI will be heavily influenced by the policy choice of the
host country.
Therefore this research work examines FDI and development of
the Nigerian economy from 1990 / 2010, a period o 20 years, using an ordinary
least square method of regression, the trade o relationship between FDI and GDP
in Nigeria was examined, the result showed that FDI has a positive relationship
with GDP and a positive change in FDI will increase GDP by 50.594 and also the
nature and magnitude of FDI can be determined.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Since Nigeria got her independence in 1960, it has created
policies which are geared towards promoting the Nigerian economic growth and
development by influencing domestic investment or indirectly policies which are
aimed at stimulating the flow of finance in any growing economy. This is so
given that in the literature there are divergent views on the nature of effects
of foreign direct investment. It has been argued to be the most growth
stimulation sources of foreign finance in any growing economy. There are
divergent views on the nature of foreign direct investment on host economies.
There are views that foreign direct investment produce positive effects on host
economies and they argue that some of the benefit are in the form of
externalities and adoption of foreign technology. Employers training and
introduction of new process by the foreign firms.
Developing countries in Africa, Asia and Latin America have
come increasingly to see that foreign direct investment is a source of economic
development, modernization, income growth and employment and poverty reduction.
These
countries are successfully developing their economies under
outward oriented policies albeit in varying degrees.
Globally economists tend to favor the free flow of capital
across national borders because it allows capital to seek out the highest rate
of returns. Nigeria is reputed to be buoyantly blessed with an enormous
minerals and human resources but believe to be at a high risk market for
investment. Foreign direct investment can also be veritable booster to an
economy (Omagbemir 2010).
Nigeria in the past and present has a large population and
enlightened market. A real potential market, an investment conscious society
and a conclusive sustainable environment for foreign private investment to
thrive in the development of the economy.
Foreign direct investment can be described as investment made
so as to acquire a lasting management interest (for instance 10% of voting
stocks) and at least 10% of equity shares main enterprise operating in another
country other than that of investor country(Willima 2003, World Bank 2007).
Policy makers believe that foreign direct investment (FDI) produce positive
effects on host economies. Some of these benefits are in the form of
externalities and adoption of foreign technology. Externalities can be a form
of licensing agreement, limitation, employee training and introduction of new
processes by the foreign firms (Alfaro 2006).
According to Utomi (2007) foreign direct investment (FDI) via
transnational corporations do posses the needed capabilities which can be put
to the services of growth in any host economy.
1.2 STATEMENT OF THE PROBLEM
One of the major economic problems in less developed
countries (LDC) is low per capital formation to finance the necessary
investment for economic growth.
Capital was once regarded by most economists as the principal
obstacle to economic development and this made a lot of attention to be paid to
capital formation. The role of capital in economic growth is still regarded as
very crucial. Both the theory of “big push” and the concept of “vicious cycle”
are all a test to the crucial role of capital in the growth process. The theory
of big push simply states that the stagnant and undeveloped economies need huge
and sudden injection of large capital from foreign direct investment.
However in the literature FDI is found to be related to
export growth while human capacity building is found to be related to FDI floe.
Most studies on FDI and growth are cross country studies.
However FDI and growth debates are country specific. Among Nigeria, studies
like those by Otepola (2002), Oyeyide (2005), and Akinlo (2004) examined the
importance of FDI on growth for several periods and the channel through which
it may be befitting the economy.
In the literature there exist, a direct positive link between
export growth and the growth of an economy. This growth in export can further
be traced down to the level of investment which in most cases can be domestic
or foreign investment.
This is so given that foreign capital remains the best option
to filling the saving investment gap where it exists. Given this fact
assessment will be based on the existing link among investment, export,
exchange rate and economic growth.
1.3 RESEARCH QUESTIONS
Based on the objective of the study the following research
questions are necessary or the formulation of hypothesis
1. Does the FDI have a significant impact on the development
of the Nigeria economy?
xiii
2. What is the nature and magnitude of the FDI on economic
growth in Nigeria?
3. Are there enough incentives by the governed to encourage
the flow of FDI
1.4 OBJECTIVE OF THE STUDY
The objectives of the study are as follows
I. To find out whether or not FDI has a significant impact on
the growth of the Nigerian economy
II. To determine the nature and magnitude of the impact of
FDI on economic growth in Nigeria
III. To ascertain the adequacy of the level of fiscal
incentives given to foreign investors by the Nigerian government
1.5 SIGNIFICANCE OF THE STUDY
It is hoped that this study will act as a reference point for
policy debate in the idea of FDI in our economy.
On the whole it is envisaged that the research findings will
be of the following specific significance.
1. It will serve as a guide to economic policy makers and
planners in future decisions concerning FDI
2. It is equally hoped that the findings and recommendation
of this study will be of immense benefit not only to the government but also to
other researchers and students for future research undertakings
1.6 RESEARCH HYPOTHESIS
In order to find answers to the questions raised in the
research questions, the following hypothesis are necessary and would be tested
and it will either be accepted or rejected based on the research findings
I. Null hypothesis (HO): Foreign direct investment has a
significant impact on the development of the Nigeria economy
Alternate hypothesis (H1): Foreign direct investment has a
significant impact on the development of the Nigerian economy
II. Null hypothesis (HO): The nature and magnitude of foreign
direct investment on economic development in Nigeria cannot be determined
Alternate hypothesis (H1): The nature and magnitude of
foreign direct investment on economic development in Nigeria can be determined.
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