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This research examined the impact of foreign direct investment (FDI) on the growth of Nigeria economy. According to (UNCTAD 2012) Nigeria received a net inflow of US$85.73. Unlike other studies this research extended the period of investigation to 2013 given that the Nigeria economic environment under investigation most likely has changed over the years.

The research employed ordinary least square (OLS) regression technique to analyze the time series data from 1980 – 2013, GDP and CPNG where used as the dependent variable, while interest rate, balance of payment, exchange rate and foreign direct investment where used as the independent variables. The unit root test showed that all the series where stationary after their first difference, and the cointegration test showed that there exist a long run relationship between the variables. The regression results revealed a positive relationship between FDI and GDP, and as well FDI and CPNG. In conclusion the research recommends that there should be provision of adequate infrastructure and good government policies that will attract more foreign investment into the country for sustainable growth and development of the economy.




1.0     Background Information

1.1        Statement of the problem

1.2        Research Methodology

1.2.1  Model Specification

1.3.    Objectives of the study

1.4     Significance Of The Study

1.5     Scope Of The Study

1.6       Limitation of the study

1.7       Research Hypothesis

1.8       Definition of terms



2.1 Review of Related Literature

2.2   Factors Inhibiting Foreign Direct Investment Inflow into Nigeria

2.3   Gains of Foreign Direct Investment


3.0     Introduction

3.1     Model Specification

3.2     Statistical Criterial

3.3     Unit Root Test

3.4     Cointegration Test

3.5     Vector Error Correction Model

3.6     Statistical package used

3.7     Regression Analysis

3.8     Multiple Linear Regression Model

3.8.1 Basic Assumption of Multiple Linear Regression Model

3.9     Estimate of Multiple Regression Equation

3.10   Properties of Ordinary Least Square Estimator


4.0     Introduction

4.1     Presentation and Interpretation of Results

4.2     Test for Stationarity

4.3     Test for Cointegraton (Johansen Approach)

 4.4    Vector Error Correction Model

4.5     Residual Diagnostic Test

4.6     Regression Results

4.7     Test of Significance of the Parameters for Model I

4.8     Test of Significance of the Parameters for Model II


5.0     Summary

5.1     Conclusion

5.3     Recommendations


          Appendix I


1. Table 1:    Descriptive Statistics

2. Table 2:    Unit Root Test for Level   

3. Table 3:    Unit Root Test for first Difference

4. Table 4:    Cointegration Results

5. Table 5:    Vector Error Correction Results

6. Table 6:    Heteroskedasticity Test Result

7. Table 7:    Breusch Godfery Serial Correlation Result

8. Table 8:    Regression Results for Model I

9. Table 9:    Results of t-statistics for Model I

10. Table 10: Result of F-Statistics for Model I

11. Table 11: Regression Results for Model II

12. Table 12:   Results of t-statistics for Model II

13. Table 13: Result of F-Statistics for Model II





1.0     Background Information

Foreign direct investment (FDI) are investments from other countries i.e (abroad), it has been described  as investment made so as to acquire lasting management interest, for example, 10% equity share in an enterprise operating in another country other than the investors country (Mwilliama, 2003 and World Bank, 2007 ). In other word, foreign direct investment implies foreign private investment. Foreign investment can be defined as the package of foreign resources comprising equity capital, reinvested earnings, or net borrowing of subsidiaries of foreign companies from their parents companies or affiliates.

In Nigeria, FDI is defined as an investment undertaken by an enterprise that is either wholly or partly foreign owned. Foreign investment inflow, particularly foreign direct investment (FDI) is perceived to have positive impact on economic growth on the host country through various direct and indirect channels. Some of the positive impact of foreign direct investment in a country like Nigeria is in the area of employment creation, transfer of technology, increased domestic competition and other positive externalities (Anyanwala, 2007).

FDI augments domestic investment which is crucial to the attainment of sustained economic growth and development. Nigeria is one of the greatest economies with great demand for goods and services and has attracted some FDI over the past decades. In Nigeria foreign direct investment increased from less than US$1billiion in 1990 to US$1.2 billion in 2000, US$1.9 billion in 2004, US$2.3 billion in 2005 and US$4.5 billion in 2006 according to United Nations Conference on Trade and Development (UNCTAD, 2007) and (CBN, 2006). As percentage of GDP, there has been a remarkable increase in FDI in recent times. The portfolio investment has also followed in the same direction, growing from US$0.2 billion in 2003 to US$0.92 billion in 2006 (UNCTAD 2007). Economic reforms and the resulting of macroeconomic stability have been adduced as reason for this, all leading to high confidence in Nigeria economy.

According to (UNCTAD, 2012), Nigeria received a net inflow of US$85.73 billion of foreign direct investment (FDI), much of which were from Nigerians in the Diaspora. Most FDI was directed towards energy and banking sectors.

The Nigeria Enterprise Promotion (NEP) Decree in 1972 (reviewed in 1977) was intended to reduced foreign direct investment in the Nigeria economy, this type of policy was not relevant in an economy with a rapidly growing force. Although one may accept the rationale for the promulgation of that decree, however, any exchange control policy that has the potential to discourage foreign investment will counter productivity under this present economic situation of the country. Hence the abrogation of the NEP decree was therefore a step in the right direction.

Foreign direct investment (FDI) is arguably an important source of employment opportunities for developing countries like Nigeria; hence it is imperative that the federal government promote a healthy private sector that can earn a reasonable rate of return.

Developing countries that wish to attract foreign direct investment (FDI) inflow should consider measures such as establishing a transparent legal framework that does not discriminate between local and foreign investors, adopting liberal foreign regime e.g. regime without large gaps between official and market rates, creating simple investment friendly regulations and institutions and effective administering them such that the rate of FDI inflow into the country will improve appreciably.

1.1     Statement of the Problem

One of the major economic problems in less developed countries (LCD) is low capital formation to finance the necessary investments for economic growth and as such there is need to analyze the impact of FDI on economic growth in Nigeria.

Although there have been a good number of studies on foreign direct investment and economic growth in Nigeria but the existing empirical evidence on their long-run relationship has been inconclusive and as such there is no consensus among researchers in relation to the period under review, it is against this backdrop that this project work is being proposed.

The research questions under consideration are:

1.       What is the significant impact of FDI on Nigeria’s economic growth?

2.       What are the measure that could facilitate the steady inflow of FDI into the Nigeria economy?

3.       What is the long-term relationship between FDI and economic growth in Nigeria?



The statistical technique that was employed in this study is regression analysis using time series data from 1980 – 2013.




The model examined the relationship between FDI as it affects the economic growth of Nigeria between 1980 – 2013. GDP and CPNG were used as the dependent variable as a function of independent variables which are FDI, BOP, EXR and INTR.

Model I

GDP = F (FDI, BOP, EXR, INTR) -------------------------------------------(1.1)

Yt = βo + β1X1t + β2X2t + β3X3t + β4X4t + ɛt -------------------------------(1.2)

Hence:         GDPt = βo + β1FDIt + β2BOPt + β3EXRt +β4INTRt +ɛt ----(1.3)

GDP: Real Gross Domestic Product.

FDI:   Foreign Direct Investment.

BOP: Balance of Payment.

EXR: Official Exchange Rate.

INTR: Interest rate.

ɛt: Error term.

β0is the constant term and β1,β2, β3, β4 are the regression coefficients.

The impact of FDI on oil and gas sector was also ascertained for the period under study.

Model II

CPNG = F (FDI, BOP, EXR, INTR) -----------------------------------------(1.4)

Yt =  o +  1X1t +  2X2t +  3X3t +  4X4t + ɛt -------------------------  (1.5)

Hence:  CPNGt =  o +  1FDIt +  2BOPt +  3EXRt +  4INTRt + ɛt -  (1.6)

CPNG: Crude petroleum and Natural gas.

FDI:   Foreign Direct Investment.

BOP: Balance of Payment.

EXR: Official Exchange Rate.

INTR: Interest Rate.

ɛt:      Error term.

 0is the Constant term, and  1 2,  3and 4 are the regression coefficients.



The general objective of this work is to assess the impact of foreign direct investment (FDI) on the economic growth of Nigeria. Other specific objectives are:

1.       To ascertain the impact of FDI on oil and gas sector of Nigeria economy.

2.       To determine the impact of FDI on balance of payment and exchange rate in the Nigeria economy.

3.       To suggest measures for facilitating the steady inflow of FDI into Nigerian economy.


The research work will be a source of information to policy makers; will broaden the knowledge of researchers as well as contribute to the existing literature on the subject matter by providing an expository analysis of the pattern of FDI in Nigeria economy. This will enhance policy formulation and also address some of our economic challenges in general. It will also be an invaluable tool for students, academics, institutions and individuals that want to know more about the relationship between foreign direct investment and economic growth.


The research work focused on the impact of foreign direct investment (FDI) on the economic growth of Nigeria only, using time series data for a period of 34years i.e (1980 – 2013) and FDI, GDP, BOP, and EXR as macroeconomic variable for the analysis.


An academic research of this nature is bound to be constrained by a number of factors, such factors are as follows:

i.        Financial constraint

ii.       Time factor

In general this study is limited in scope to Nigeria alone, as it only focuses on the effect of foreign direct investment (FDI) on the growth of Nigeria economy, it is also limited in temporal scope to 34 years during the period of 1988 – 2013, the model estimated in this research work, made use of FDI, EXR, and BOP as the only independent variables while GDP and % of oil and gas in GDP are used as the dependent variable. If there was enough time and resources, the researcher would also examine the effect of FDI on economy of other nations of the world in other to have a cross country analysis.


The main argument of the study here was synthesized into the following hypotheses and the analysis was carried out based on them:

Hypothesis 1

H0:    Foreign direct investment (FDI) has no significant impact on the growth of Nigeria economy. 

H1:    Foreign direct investment (FDI) has relative impact on the growth of the Nigeria economy.

Hypothesis 2

H0:    The level of balance of payment (BOP) Interest rate (INTR) and exchange rate (EXR) have no significant impact on the growth of the economy.

H1:    The level of balance of payment (BOP) interest rate (INTR) and exchange rate (EXR) have relative impact on the development of the Nigerian economy.

1.8     Definition of Terms

1.8.1  Foreign Direct Investment (FDI): Foreign direct investment is described as investment made so as to acquire lasting management interest for example 10% equity share in an enterprise operating in another country other than the investors country (Mwilliama, 2003).

1.7.2  Gross Domestic Product (GDP): Gross domestic product is the total value of all final goods and services produced in a country in a given year.

1.7.3  Balance of Payment (BOP): It is a record of transaction between residents of a country and the rest of the world.

1.7.4  Exchange Rate (EXR): It is the charge for exchanging currency of one country for the currency of another.

1.7.4  Interest Rate (INTR):Interest rate is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors).


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Project Details

Department Statistic
Project ID STS0006
Price N3000 ($14)
CHAPTERS 5 Chapters
No of Pages 80 Pages
Methodology Ordinary least square
Reference YES
Format Microsoft Word