An Assessment Of The Impact Of Foreign Direct Investment On Nigerian Economic Growth (1990-2011)

Project and Seminar Material for Economics

Project and Seminar Material for Economics


This study assess the impact of Foreign Direct Investment in Nigerian economic growth over the period of 1990-2011. Data from Central Bank of Nigeria (CBN) Statistical Bulletin was used. The Ordinary Least Square (OLS) technique was specified and used to examine the relationship between the variables which includes the Gross Domestic Product as the dependent variable, export, Exchange rate, foreign direct investment and trade openness as the independent variables.

The explanatory power of the model was given by the R2 of 85.5% and was subjected to t-test and f-test to test the significance of the independent variables.

Table Of Contents

  • Title page  i
  • Approval page  ii
  • Dedication iii
  • Acknowledgement  iv
  • Abstract v
  • Table of content vi

Chapter One:

  • Introduction
  • 1.1 Background of the study 1
  • 1.2 Statement of problem  3
  • 1.3 Research Questions 4
  • 1.4 Objective of the study 4
  • 1.5 Research Hypothesis 6
  • 1.6 Significance of the study 8
  • 1.7 Scope of the study 10
  • 1.8 Limitation of the study 11

Chapter Two:

  • Literature Review
  • 2.1 Introduction 12
  • 2.2 Theoretical Framework 15
  • 2.3 Foreign Direct Investment and Economic growth (Empirical) 17
  • 2.4 FDI and competition in the Host market 20
  • 2.5 Impact of FDI on Productivity 22
  • 2.6 Impact of FDI on Innovation 23
  • 2.7 Impact of FDI on Technology Adoption 24
  • 2.8 Impact of FDI on Human Capital 24
  • 2.9 Factors Influencing Demand 25
  • 2.10 Factor Limiting Technology Transfers 27
  • 2.11 Benefits of FDI on Nigeria’s Economy 29

Chapter Three:

  • 3.1 Research Methodology 30
  • 3.2 Model Specification 31
  • 3.3 Method of Evaluation 32
  • 3.4 Justification of the Model 35
  • 3.5 Data Required and Source 35
  • 3.6 Econometric Software 26

Chapter Four:

  • Presentation And Analysis Of Regression Result
  • 4.1 Presentation of result 36
  • 4.2 Analysis of the Result 37
  • 4.3 Evaluation of Research Hypothesis 38

Chapter Five:

  • Summary, Policy Recommendation And Conclusion
  • 5.1 Summary of Findings 42
  • 5.2 Policy Recommendation 45
  • 5.3 Conclusion 48
  • Bibliography
  • Appendix

Chapter One

1.0 Introduction

1.1 Background Of The Study

Investors’ decisions and actions globally are influenced significantly by the dictates of self-interest which suggests that capital, not only be channeled to high-yielding economic sectors but also to those that are ostensibly quick yielding economies. On balance therefore investors would spun profitable opportunities characterized by extreme competitions, market glut, unfavorable regulation, long gestation periods and opt instead for investments that yield high returns within the shortest time possible. Base on this view, investors generally migrate from one economy to another in search of better investment climate and higher returns.

This form of capital movement results in the creation of a typical investment called Foreign Direct Investment. In the opinion of Jomo (1988) Foreign Direct Investment can be explained to represent the flow of tangibles from a country abroad of capital, equipment and other production and processing facilities into a host economy. It is also defined as a long term investment reflecting a lasting interest and control by a foreign direct investors (or parent enterprise), of an enterprise entity residents in an economy other than that of the foreign investor (IMF, 1993).

Foreign Direct Investment is widely thought to bring with it into the host country a bundle of productive assets including long term foreign capital, entrepreneurship, technology skills, innovative capacity and managerial, organizational and export marketing know-how. The distinctive feature of Foreign Direct Investment is that it involves not only a transfer of resources but also the acquisition of control. i.e the subsidiary does not simply have a financial obligation to the parent company, if is part of the same organizational structure

(Krugman and Obstfeld,2000). Foreign Direct Investment involves much more than the simple transfer of capital or the establishment of a local factory in a developing nation. Multinational carry with them technologies of production, tastes and diverse business practices including cooperative arrangement, marketing restrictions advertising and the phenomenon of transfer pricing. They engage in a range of activities, many of which have little to do with the development aspirations of the countries in which they operate. (Todaro, 2000).

Temle (1999) demonstrates that technical changes and technological learning which are significant components of Foreign Direct Investment represent important determinants of economic growth. Furthermore, it is relevant to add that technology is generated by Research and Development (R&D), most of which is conducted in industrialized countries making technology transfer very important for economic prosperity of countries with weak Research and Development (R&D) and innovation capacities.

Political and economic policies bothering on FDI assist immensely in stimulating the economic growth of the recipient nations Chang(2001) believes that in the 16th and 17th centuries deliberate transfer policies of King Henry viii made Britain a leading manufacturing nation. Among the hotly debated issues in development, economics is the role played presently by FDI in export performance of developing countries such as the case of East and South East Asian country.

FDI flows to Africa have expanded only marginally and are still at levels behind those of other developing countries. The region accounted for less than 1% of the global total FDI inflows in the late part of 1990s (Odenthal, 2001) while inflows to developing countries as a group increased from U.S $20billion to U.S

$75billion between 1981 and 1985. Africa’s share of that inflow dropped (UNCTAD 1999).

Historically, low rates of FDI inflows to the region and Nigeria in particular are explained by hostile policies, unstable political environment characterized by civil wars and armed conflicts, lack of effective regional integration efforts, poor and deteriorating infrastructure, burdensome regulations or lack of institutional capacity to implement FDI to establish confidence.

1.2 Statement Of Problem

In recent time, the government of Nigeria has embarked on economic policies to check the flow of Foreign Direct Investment (FDI) in certain sectors of the economy. Admittedly, how to achieve rapid economic growth and development through FDI which has proved to be one of the economic problems facing Nigeria.

Therefore, this work tend to analyze critically the following:

  1. The determinants of FDI in emerging economy such as Nigeria.
  2. The impact of Foreign Direct Investment on the growth of Nigerian economy.
  3. To analyze the increase in local wage cost through payment of wages by Multinational Corporations (MNC) affiliates.
  4. To examine the importation of capital intensive and cost dates technology.

1.3 Research Questions

The following research questions have been designed as a guild to elicit reliable information for this study. They are:

  1. To which extent will the Nigerian economy depend on the foreign capital inflow?
  2. How friendly is Nigeria’s trade policy and environment to FDI?
  3. How have the Nigerian industries been stimulated by foreign technology?
  4. Does intellectual poverty production increase the attractiveness of FDI?
  5. To which extent has the FDIs in Nigerian led to the diversification of Nigerian economy?
  6. Has the rate and volume of FDI into Nigeria increased the consumption expenditure of its citizenry?

1.4 Objective Of The Study

The objective of the study includes:

  1. To determine the magnitude of the impact of FDI on economic growth in Nigeria.
  2. To find out whether or not FDI has a significant impact on the growth of Nigeria economy.
  3. To examine the appropriateness and suitability of the nature and quality of foreign technology transfer on Nigeria economy.

1.5 Research Hypothesis

The following hypothesis have been formulated to determine the validity and reliability of the study.

Null Hypothesis (Ho):

There is no relationship between the volumes of FDI inflows and the growth of the Nigerian economy.

Alternative Hypothesis (H1):

There is a relationship between the volume of Foreign Direct Investment inflows and the growth of the Nigerian economy.

1.6 Significance Of The Study

Technological adoption by any country is a function of local technological capabilities which in turn are largely determined by the quality and volume of Research and Development being sponsored by foreign or parent companies. Thus, FDI appears to substitute local innovation as the technology recipient firms in the n host country becomes mere in the global chain of affiliates subject to central decision making. Therefore, this study is designed to assist the policy maker in determining the technology transfer through FDI into Nigeria. Also, the global economic circumstances permit that national economics should be integrated into global economic network and this is only possible through effective capital transfers appraised and monitored through research of this nature.

There is also need to meet challenges post by foreign product domination of internal market and this is supported by research work such as this study. The study can also be relevant in universities and research centers in Nigeria libraries, National Bureau of Statistic and investors will find this study highly useful.

1.7 Scope Of The Study

The study is restricted within the confines of the impact of Foreign Direct Investment in the growth of Nigeria economy. The time frame covered by the study is between 1990-2011. The topic is chosen because of the importance of FDI in the growth of the Nigerian economy since independence.

1.8 Limitation Of The Study

In the course of this study, many problems were encountered and most of them centered on time, finance, dearth of data and poor attitude of respondents. The impact of time constraints were enormous because of the nature of programme. Financing of a project of this nature is always costly and this has been a major constraints because cost of sourcing materials, assemblage of data obtained, collected and printing constitute large chuck of fund.

Also, dearth of data and poor attitude of respondents affected the early completion of the study many business organization in Nigeria do not make public their data bank for reach studies and this affects the quality of the information generated from either National Bureau of Statistics (NBS) and those released by their personal.

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