THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE NIGERIAN ECONOMY

ABSTRACT

Most economic rationales for granting special incentives for attracting FDI are based on the belief that FDI bridges the “idea gap” between the rich and the poor nations in addition to the generation of technological transfers and spillovers. Empirical Literature however finds controversial, the effect of FDI on productivity growth. This study is an investigation into the impact of FDI on the Nigerian economy. Using secondary data obtained from CBN Statistical Bulletin and National Bureau of Statistics, Ordinary Least Square regression techniques were employed in the analysis. Major findings show that FDI has a significant positive impact on the Nigerian economy. It is recommended among others that government should enhance its economic climate and increase the incentives to attracting more FDI flows to the economy. It is suggested that further studies should explore the impact of each of the determinants of FDI on the economy.

CHAPTER ONE
INTRODUCTION
1.1        BACKGROUND OF THE STUDY
One of the most salient features of today’s globalization drive is conscious encouragement of cross-border investment, especially by transnational corporations and firms (TNCs). Many countries and continents (especially developing) now see attracting FDI as an important element in their strategy for economic development. This is most probably because FDI is seen as an amalgamation of capital, technology, marketing and management.


Sub-Saharan Africa as a region now has to depend very much on FDI for so many reasons, some of which are amplified by Asiedu (2001). The preference for FDI stems from its acknowledged advantages (Sjoholm 1999; Obwona, 2001, 2004). The efforts by several African countries to improve their business climate stem from the desire to attract FDI. In fact, one of the pillars on which the New Partnership for Africa’s Development (NEPAD) was launched was to increase available capital to US$64 billion through a combination of reforms, resource mobilization and condusive environment for FDI (Funke and Nsouli, 2003).

Unfortunately, the efforts of most countries in Africa to attract FDI have been futile. This is in spite of the perceived and obvious need for FDI in the continent. The development is disturbing, sending very little hope of economic development and growth for these countries. Further, the pattern of the FDI that does exist is often skewed towards extractive industries, meaning that the differential rate of FDI in flow into sub-Saharan African countries has been adduced to be due to natural resources, although the size of the local market may also be a consideration (Morriset 2000; Asiedu, 2001).

Nigeria as a country, given her natural resources base and large market size, qualifies to be a major recipient of FDI in Africa and indeed is one of the top three leading African countries that consistently received FDI in the past decade. However, the level of FDI attracted by Nigeria is mediocre (Asiedu, 2003) compared with the resource base and potential need.

Following the collapse of the international market for crude petroleum, Nigeria’s mono-export total foreign exchange earnings declined persistently creating acute shortage in the country’s ability to finance high import bills and servicing of external debt which has been on the increase. Continuation of regime of controls on trade and payment proved counter-productive and made economic environment unsuitable for investment.


In order to deal with the above situation, the federal government introduced several measures in aid of her economic recovery. Paramount on the list of measures is the introduction of Structural Adjustment Programme (SAP) comprising a package of economic policy measures aimed at creating a suitable climate for growth and investment within the economy. The ability of the policy measure in Nigeria’s structural Adjustment Programme (SAP) to stimulate aggregate output in the country depends strictly on the size, composition and quality of foreign direct investment the country can attract in the medium term (Eden, Lekan 1990). Also, among the revamping measures is the use of the monetary policy to attract direct foreign investment. Other policy measures include; the review of the 1970 indigenization policy which restricted foreign investors venturing into some sectors of the economy. While some arrears barred to direct foreign investors have been lifted, others with minority permission have now been liberalized (Ahmed, 1998).

These and other measures have been in force. The question is why “despite the presence of the FDI in the country, their impact on economic and national development is yet to be felt”? Maybe, tracing the history of FDI in Nigeria will help answer the above question, this shall be treated in the next chapter. This study will therefore make its contributions by examining the contributions of FDI to growth and then determine the contributory variables to FDI flow in Nigeria.

1.2     STATEMENT OF THE PROBLEM

Nigeria is one of the economies with great demand for goods and services and has attracted some FDI over the years. The government has spent enormous resources meant for other pressing economic needs in attracting foreign direct investment in the country. Large chunk of budget allocations are set aside yearly for embarking on foreign trips in a bid to attract foreign direct investments. The government over the years has introduced different measures to encourage foreign investment. Though there has been an increasing presence of foreign investment in the country, one begins to wonder and worry over the direction and magnitude of the impact of FDIs on the development of Nigeria economy and the question that comes to mind is, do these FDIs actually contribute to economic growth in Nigeria? This informs the approach to this study....

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Item Type: Postgraduate Material  |  Attribute: 58 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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