An Empirical Analysis Of The Effect Of Foreign Direct Investment On Poverty Reduction In Nigeria

Project and Seminar Material for Economics

An Empirical Analysis Of The Effect Of Foreign Direct Investment On Poverty Reduction In Nigeria

Chapter One


1.1 Background Of Study

Foreign Direct Investment (FDI) is an investment made to obtain a long-term management stake (typically 10% of voting stock) in a company that is based in a nation other than the investors’ (Macaulay, undated; Jhingan, 1998; World Bank, 1996). According to Macaulay (undated), such investments can be either “Greenfield” (also known as “mortar and brick”) or merger and acquisition (M & A), which involves the purchase of an existing interest rather than a fresh venture. According to Olusanya (2013), countries and continents (particularly developing ones) today consider obtaining foreign direct investment to be an important part of their economic growth plan. This is most likely due to the fact that foreign direct investment is viewed as a mix of capital, technology, marketing, and management. Ogunniyi and Igberi are two Nigerians. (2014) further claimed that FDI can be a vehicle for poverty reduction because it complements local savings and is frequently accompanied by technology and managerial skills, both of which are necessary for economic development. Despite the fact that scholars have claimed that FDI by multinational companies tends to locate production in countries or regions with low wages, low taxes, and weak environmental and social standards (Klein, Aaron, and Hadjimichael, 2001), the benefits of FDI arguably outweigh the “Given the plausibility of the theoretically potential gains emanating from FDI, world economies, particularly developing economies, have been at loggerheads in trying to attract a significant portion of global FDI flows, thus making the market for FDI highly competitive,” according to Oli According to Macaulay (undated), many countries and continents (especially developing countries like Nigeria) now regard obtaining FDI as a key part of their economic growth plan.Foreign Direct Investment (FDI) packages include financing, technology, and highly qualified individuals (Lall and Streeton 1977). Indeed, in the case of Nigeria, as in the case of other third-world nations, FDI was the primary avenue via which their import-substitution industrialization policies were carried out. Given appropriate host-country policies and a basic level of development, benefits from Foreign Direct Investment (FDI) are widely believed to include job creation, the acquisition of new technology and knowledge, and increased tax revenue from cooperative profits generated by Foreign Direct Investment (FDI). All of these benefits are predicted to lead to increased economic and employment growth, which is the most essential and effective tool for improving human well-being in Nigeria and eliminating poverty. However, several factors, such as host nation policies and institutions, influence the impact of foreign direct investment (FDI) on poverty alleviation. The most effective strategy for Foreign Direct Investment (FDI) to aid in poverty alleviation is via increasing employment possibilities. Nigeria’s ability to relieve poverty is contingent on adequate inflows of foreign investment funds. For decades, the country has struggled in its efforts to reduce poverty. Currently, the majority of Nigerians are living in poverty. As a result, given the low level of per capital income found in developing economies, the classic economic model posits that average and marginal consumption propensities are high, savings are low, and new productive capital formation is limited.

1.1 Statement Of Problem

Despite massive FDI flows into the country aimed at strengthening the economy and, as a result, reducing poverty, Nigeria still has a high poverty rate (Ogunniyi and Igberi, 2014; Oni, 2014). Inflows of foreign direct investment (FDI) have been steadily increasing. Currently, the country is the most popular foreign capital destination in Africa, accounting for more than 15% of total FDI flows into the continent (UNCTAD, 2012). However, there has been no answer to the poverty FDI inflows nexus in Nigeria, particularly the influence of some selected macroeconomic variables or indicators like Foreign direct investment, External earnings, Trade openness, Market size, Exchange rate, External debt, Foreign aid, and technology on poverty reduction in As a result of this knowledge vacuum, empirical research is needed to determine the impact of these selected macroeconomic variables on poverty reduction in Nigeria.

1.2 Objective Of Study

The following are primary objectives of this study

  1. To determine if foreign direct investment causes poverty in Nigeria.
  2. To determine the effect of foreign direct investment on the reduction of poverty in Nigeria.
  3. To examine if foreign direct investment in Nigeria has had an influence on poverty reduction.

1.3 Research Question

  1. Does foreign direct investment cause poverty in Nigeria?
  2. What is the effect of foreign direct investment on the reduction of poverty in Nigeria?
  3. Has foreign direct investment had an influence on poverty reduction in Nigeria?

1.4 Significance Of Study

The government of Nigeria, students, and the general public will benefit from this study. Nigeria’s ability to relieve poverty is contingent on adequate inflows of foreign investment funds and a secure investment environment. The work will also act as a resource for future academics interested in this subject.

1.5 Scope Of Study

The scope of the study covers foreign direct investment and poverty reduction in Nigeria.

1.6 Limitation Of Study

Finance, inadequate materials and time constraint were the challenges the researchers encountered during the course of the study.

1.7 Definition Of Terms

Poverty Reduction:

This is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.

Foreign Direct Investment:

A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.

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