THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA

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  • Methodology: Ordinary Least Squares
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THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND OF THE STUDY
    Foreign direct investment (FDI) refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, other long-term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. Hence, FDI is one example of international factor movements.
Foreign direct investment (FDI) is now been regarded as the main source of capital inflows to developing countries today, Nigeria inclusive. Unlike other capital flows, FDI is less volatile and does not show a pro-cyclical behaviour.  FDI increased rapidly during the late 1980s and the 1990s in almost every region of the world, revitalizing the long and contentious debate about the costs and benefits of FDI inflows. On one hand, many would argue that, given appropriate policies and a basic level of development, FDI can play a key role in the process of creating a better economic environment. On the other, potential drawbacks do exist, including a deterioration of the balance of payments as profits are repatriated and negative impacts on competition in national markets (Ozturk and Kalyoncu2, 2007).
    Abass (2009) asserts that multinational companies seek investment in foreign countries with reasonable risk, and Nigeria has been described as a high-risk market for investment due to such factors as bad governance, corruption, unstable macro-economic policies, and investment as a way out of Nigeria’s economic state of underdevelopment. Consequent on the above, the federal government of Nigeria since 1999 has undertaken several steps to attracting FDI into the country. These include the repeal of laws that are inimical to foreign investment growth, promulgation of investment law, various overseas trips for image laundry by the president.
    The policy strategy of the Nigerian government is hinged on two broad principal objectives namely; the desire for economic independence and the need for economic growth and development, and economic development on the other hands, is a function of investment capital, Technical skills, Enterprise and Natural resources that are resident within the host country.  
1.2    STATEMENT OF THE RESEARCH PROBLEM
    The need for foreign direct investment is born out of the underdeveloped nature of the Nigerian economy that essentially, hindered the pace of her economic development. Generally, policies and strategies of the Nigerian government towards foreign investments are shaped by two principal objectives; the desire for economic independence, and the demand for economic development.  There are four basic requirements for economic development namely.
i)    Investment capital
ii)    Technical skills
iii)    Enterprise
iv)    Natural resources.
Without these components, economic and social development of the country would be a process lasting for many years.  The provisions of these first three necessary components present problems for developing countries like Nigeria.  This is because of the fact that there is a low level of income that prevents savings, big enough to stimulate investment capital domestically or, to finance training in modern techniques and methods.  The only way out of this problem is through acceleration of the economy by external sources of money (foreign investment) and technical expertise.  Foreign direct investment is therefore supposed to serve as means of augmenting Nigeria’s domestic resources in order to carryout effectively, her development programmes andraise the standard of living of her people.
    According to Chowdhury and Mavrotas (2005), a large number of empirical studieson the role of FDI in host countries suggests that FDI: is an important source of capital,complements domestic private investment which is usually associated with new jobopportunities; enhances both technology transfer and spillover and human capital (knowledge and skill) enhancement boosts overall economic growth in host countries. On the other hand, Alfaro (2003) argues that, although it may seem natural to argue that foreign direct investment (FDI) can convey great advantages to host countries, his findings however show that the benefits of FDI vary greatly across sectors by examining the effect of foreign direct investment on growth in the primary, manufacturing, and services sectors. An empirical analysis using cross-country data for the period 1981-1999 suggests that total FDI exerts an ambiguous effect on growth. Foreign direct investments in the primary sector, however, tend to have a negative effect on growth, while investment in manufacturing a positive one. Evidence from the service sector was ambiguous.
Hence, the focus of this study is on the causal relationship between FDI and economic development in Nigeria.  Therefore, the Specific research questions of the study are:
(i)    Does Foreign Direct Investment have any impact on the development of the Nigerian economy?
(ii)    What is the relationship between Openness and economic developmentin Nigeria?
(iii)    Does Human Capital affect the development of the Nigerian economy?
(iv)    What is the relationship between Infrastructures and economic development in Nigeria?

1.3    OBJECTIVE OF THE STUDY    
    The study seeks to determine;
(i)    The impact of Foreign Direct Investmenton economic development in Nigeria.
(ii)    To examine the trend of FDI flows and its components over the years
1.4    HYPOTHESES OF THE STUDY    
    The followings are the Hypotheses of this study;
(i) Foreign Direct Investment has a strong impact on the development of             the Nigerian economy.
    (ii)    Openness has positive impact on economic development in Nigeria.
    1.5    SIGNIFICANCE OF THE STUDY
    As indicated in the statement of problem, the study will definitely give     an insight into the relevance of FDI in economic development of Nigeria.
The study will also be relevant to potential foreign investors who would     want to come into the country to invest.
Furthermore, the study will be very relevant to the Nigerian government, ccorporate bodies and policy makers, as it will provide them useful     information and guidelines to formulating appropriate policies and programmes affecting FDI and economic growth and development of Nigeria.
Again, the academia, researchers, Finance students and other related disciplines will also benefit immensely, as it will also constitute viable data source that will enable them conduct further studies.
1.6    SCOPE OF THE STUDY    
        The study will examine the impact of Foreign Direct Investment on Economic development in Nigeria. Hence, a ten- year annual data relating to FDI inflows to the country (1980 to 2010) will be sourced from the Central Bank of Nigeria (CBN) statistical bulletin and the Nigerian stock exchange-since the study is within the context of the Nigerian economy.

1.7    LIMITATION OF THE STUDY
    The first limitation of the study is time. The time limit for this study may not be enough for a study of this magnitude. Secondly, the study relies heavily on secondary data. However, there are often conflicting values, for some of the variables under investigation, from different sources. Any such shortcomings in the values of the variables occasioned by the source of data used may constitute a constraint to the results of the study. However, this constraint will be minimized by trying as much as possible to stick to data from the Nigerian stock exchange and the Central Bank of Nigeria statistical bulletin, where available, since the two sources are credible.












THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA
For more Info, call us on
+234 8130 686 500
or
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  • Type: Project
  • Department: Accounting
  • Project ID: ACC1672
  • Access Fee: ₦5,000 ($14)
  • Chapters: 5 Chapters
  • Pages: 62 Pages
  • Methodology: Ordinary Least Squares
  • Reference: YES
  • Format: Microsoft Word
  • Views: 824
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    Details

    Type Project
    Department Accounting
    Project ID ACC1672
    Fee ₦5,000 ($14)
    Chapters 5 Chapters
    No of Pages 62 Pages
    Methodology Ordinary Least Squares
    Reference YES
    Format Microsoft Word

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