The Impact Of Foreign Investment On The Nigerian Economy

Project and Seminar Material for Economics

Project and Seminar Material for Economics


This study examined the relationship between foreign private investment and economic growth in Nigeria over the period of 1980 – 2009. In doing so, we investigate the impact of foreign private investment on economic growth in Nigeria, as well as the causal relationship between them. We used an ordinary Least Square Regression (OLS), based on objective one, we found that foreign private investment causes economic growth in Nigeria, and economics growth does not cause foreign private investment as it is a unidirectional movement and no feedback effect.

On the second objective, the findings revealed that economic growth directly related to inflow of foreign private investment and it is also statistically significant implying that a good performance of the economy is a positive signal for inflow of foreign private investment was statistical significant because its t-calculated was greater than the t-tabulated value at 5% level of significance.

Chapter One

1.0 Introduction

1.1 Background Of The Study

Sourcing of funds to finance project has been a key variable in Nigeria’s development effort over the years. Globally, economists tend to favour the free flow of capital to seek out the highest rate of returns.

Nigeria is reputed to be buoyantly blessed with enormous mineral and human resources but believed to be high risky market for investment. Also decades of bad governance have almost crippled the national economy, with corruption and misappropriation of funds becoming the norm rather than the exception. What is the way out of this economic state? Many experts accepted that foreign investment is a veritable boaster to kick start the Nigerian economy.

Since the attainment of independent in 1960, various policies of the Nigeria government have been geared essentially towards promoting the growth and development of the Nigeria economy by influencing the trend of gross fixed domestic investment or indirectly through policies aimed at stimulating the flow of private foreign investment into the economy.

The first National Development Plan was launched with the objective of providing the framework for industrial trade off and development. However, as foreign industrial investors were rather apprehensive of the nascent independent administrations, effort had to be made not only to alloy their fears of nationalization, but also to attract additional foreign investment through joint venture with rejoin and or federal government.

In ordinary way, investment means to buy shares, stocks, Bonds, and securities which already exist in stock market. But this is not real investments because it is simply a transfer of existing assets. Hence this is called financial investment which does not affect aggregate spending. In Keynesian terminology, investment refers to real investment which adds to capital equipment. It leads to increase in level of income and production by increasing the production and purchase of capital goods.

Investment thus include new plant and equipment, construction of public works like dams, roads, building etc. net foreign investment, inventories and stocks and shares of new companies. Increase in investment, raises the level of output, which increase profit, if profit is increased, savings will equally increase, and increase in savings stipulate the level of investment. This means that there exist a cyclical relationship between investment, output and savings.

According to Odozi; (1995) foreign investment appears to be the most crucial component of capital inflow, Nigeria should seek to attract in the light of her current economic circumstances. This view is supported by the need to the above definition, some scholars are of the view that Nigeria is in dire need of foreign investment as a veritable booster to kick star the Nigeria economy, while others are of the view that foreign investment is a form of neo-colonialism.

1.2 Statement Of The Problem

The impact of foreign investment on development of recipe country has been the core of macro economic as will as development literature over the past two decades. Apart from its contribution to growth through technological transfer and human capital development, it has other spill-over effect.

The Neo-Liberals argued that international capital flow alleviates the financial constraints of less developed economies by providing access to superior managerial techniques and business practices (Anyanwu, 1999 and Olison 2008). It is therefore evident that foreign investment is one of the basic requirements necessary for growth in developing economies. To some observers capacity of developing countries to attract foreign investment are functions of the presence of natural resources, their market size, the level of political tranquility and other macro economic motivation (Ahmed 2003).

Thus, developing countries have laboured tirelessly to create requisite to woo foreign investors but, there still exists a question mark regarding their success. The African continent has remained the least recipient of global foreign investment shares. As observed by (Sjoholm 1999) that Singaporereceives more capital flow more than the whole Africa put together. Among the factors responsible for this ugly incidence are frequent changes in macroeconomic policies which cause instability in their exchange rates, price level, output and interest rate respectively.

The Nigeria situation is a paradox in that, in spite of the enormous strategies put in place to attract the inflow of foreign investment into the country, the expected surge has not been realized. A cross examination of the behavioural pattern in Nigeria shows that aggregate investment which was 31.5% in 1976 declared to less than 9% in 1885. Although it rose to 14% in 1996, from 1997 till date, the same vein, from comparative perspective, out of a whooping 39% of global capital flows assigned to developing countries as observed by (Bonaiyo 2004), Nigeria got just 1 – 6% that fraction.

Supporting the observed above, NEEDS (2004) put it clearly that Nigeria bemoans the poor performance of the private sector’s investment which is riddle with huge savings, researcher formulates the following question.

  1. What is the impact of foreign investment on Nigeria Economy?
  2. What is the magnitude of the impact of foreign investment on the economic growth in Nigeria?

1.3 The Objectives Of The Study

The objectives of the study are as follows:

  1. To find out the impact of foreign investment on economic growth in Nigeria.
  2. To find out the magnitude of the impact of foreign investments on economic growth in Nigeria.

1.4 Statement Of The Hypothesis

  1. Foreign investment has no impact on economic growth in Nigeria
  2. The magnitude of the impact of foreign investment on economic growth in Nigeria is unknown.

1.5 Significant Of The Study

The merit of this study which makes it significant are many namely;

  1. To help educate the investing public on the investment opportunities.
  2. To point out the government or policy maker possible areas that required attention.

1.6 Scope Of The Study And Limitations

The focus of this is to verify if there has been any contribution made towards the economic growth and development of the Nigeria economy via gross domestic product (GDP) through private foreign investment for the periods (1980-2009). This study will however be limited to investigate the impact of foreign investment on the Nigeria economy.

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