STATISTICAL ANALYSIS OF THE IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON NIGERIA’S ECONOMIC GROWTH (1980 – 2012)
ABSTRACT
This study looked at the effect of foreign direct investment (FDI) on the growth of the Nigerian economy. Nigeria received a net inflow of US$85.73, according to UNCTAD (2012). Unlike previous studies, this one extended the investigation period to 2013, owing to the fact that the Nigerian economic environment under consideration has most likely changed over time.
The research used the ordinary least square (OLS) regression technique to analyze time series data from 1980 to 2013. The dependent variables were GDP and CPNG, while the independent variables were interest rate, balance of payment, exchange rate, and foreign direct investment. The unit root test revealed that all of the series were stationary after their first difference, and the cointegration test revealed that a long run exists. The variables have a relationship. The regression results revealed that FDI and GDP, as well as FDI and CPNG, have a positive relationship. Finally, the research suggests that adequate infrastructure and good government policies be implemented to attract more foreign investment into the country for long-term economic growth and development.
CHAPTER ONE
INTRODUCTION
1.0 Background Information
Foreign direct investment (FDI) is investment from other countries, i.e. (abroad). It has been defined as investment made to acquire long-term management interest, such as a 10% equity stake in a company operating in a country other than the investor’s home country (Mwilliama, 2003 and World Bank, 2007 ). Foreign direct investment, in other words, implies foreign private investment. Foreign investment is defined as a package of foreign resources that includes equity capital, reinvested earnings, or net borrowing of foreign subsidiaries from their parent companies or affiliates.
In Nigeria, FDI is defined as an investment made by a company that is wholly or partially owned by a foreign entity. Foreign investment inflows, particularly foreign direct investment (FDI), are thought to boost economic growth.
on the host country via various direct and indirect channels. Some of the positive externalities of foreign direct investment in a country like Nigeria include job creation, technology transfer, increased domestic competition, and other positive externalities (Anyanwala, 2007).
Foreign direct investment (FDI) supplements domestic investment, which is critical to achieving long-term economic growth and development. Nigeria is one of the largest economies in the world, with high demand for goods and services, and has attracted some FDI over the years. According to the United Nations Conference on Trade and Development (UNCTAD, 2007) and the Central Bank of Nigeria (CBN), foreign direct investment in Nigeria increased from less than US$1 billion 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.
FDI has increased dramatically in recent years as a percentage of GDP. Portfolio investment has followed suit, increasing from US$0.2 billion in 2003 to US$0.92 billion in 2006. (UNCTAD 2007). Economic reforms and the resulting macroeconomic stability have been cited as reasons for this, all of which point to a high level of confidence in the Nigerian economy.
According to the United Nations Conference on Trade and Development (UNCTAD), Nigeria received a net inflow of US$85.73 billion in foreign direct investment (FDI), the majority of which came from Nigerians in the Diaspora. The majority of FDI went into the energy and banking sectors.
The Nigeria Enterprise Promotion (NEP) Decree of 1972 (revised in 1977) was intended to reduce foreign direct investment in the Nigerian economy; however, this type of policy was no longer applicable.
in a rapidly expanding economy. Although one can accept the rationale for the decree’s issuance, any exchange control policy that has the potential to discourage foreign investment will undermine productivity in the country’s current economic situation. As a result, the repeal of the NEP decree was a step in the right direction.
Foreign direct investment (FDI) is arguably an important source of job opportunities for developing countries like Nigeria; thus, the federal government must promote a healthy private sector that can earn a reasonable rate of return.
Developing countries that want to attract FDI should consider measures such as establishing a transparent legal framework that does not discriminate between local and foreign investors. Foreign investors, adopting a liberal foreign regime, e.g., one with no large gaps between official and market rates, developing simple investment-friendly regulations and institutions, and effectively administering them, so that the rate of FDI inflow into the country improves noticeably.
1.1 Statement of the Problem
One of the major economic problems in less developed countries (LDC) is a lack of capital formation to finance the necessary investments for economic growth; therefore, the impact of FDI on economic growth in Nigeria must be examined.
Although there have been a number of studies on the relationship between foreign direct investment and economic growth in Nigeria, the existing empirical evidence on their long-run relationship has been inconclusive, and as a result, there is no consensus among researchers in relation to the period under review; it is against this backdrop that this project work is proposed.
The following research questions are being considered:
What is the significance of foreign direct investment in Nigeria’s economic growth?
What are the measures that could help to ensure a steady inflow FDI into Nigeria’s economy?
What is the long-term relationship between FDI and Nigerian economic growth?
1.2 RESEARCH METHODOLOGY
The regression analysis technique was used in this study, which used time series data from 1980 to 2013.
1.3 OBJECTIVES OF THE STUDY
The overarching goal of this work is to assess the impact of foreign direct investment (FDI) on Nigeria’s economic growth. Other specific goals include:
To assess the impact of FDI on the Nigerian economy’s oil and gas sector.
To assess the impact of FDI on the Nigerian economy’s balance of payments and exchange rate.
To propose measures to encourage the steady inflow of FDI into the Nigerian economy.
1.4 SIGNIFICANCE OF THE STUDY
The research will provide policymakers with information, broaden the knowledge of researchers, and contribute to the existing literature on the subject by providing an expository analysis of the pattern of FDI in the Nigerian economy. This will improve policy formulation while also addressing some of our general economic challenges. It will also be a valuable resource for students, academics, institutions, and individuals interested in learning more about the relationship between FDI and economic growth.
1.5 SCOPE OF THE STUDY
The study only looked at the impact of foreign direct investment (FDI) on Nigeria’s economic growth over a 34-year period, from 1980 to 2013, and used FDI, GDP, BOP, and EXR as macroeconomic variables.
1.6 LIMITATION OF THE STUDY
This type of academic research is bound to be constrained by a number of factors, including the following:
i. Financial constraints
ii. Time consideration
In general, the scope of this study is limited to Nigeria alone, as it only focuses on the effect of foreign direct investment (FDI) on the growth of the Nigerian economy. It is also limited in time to 34 years, from 1988 to 2013. The model estimated in this research work uses FDI, EXR, and BOP as the only independent variables, while GDP and the percentage of oil and gas in GDP are used as the dependent variables. If time and resources permitted, the researcher would also investigate the impact of FDI on the economy of the host country. In order to conduct a cross-country analysis, other countries around the world must be included.
1.7 RESEARCH HYPOTHESES
The study’s main argument was synthesized into the following hypotheses, and the analysis was based on them:
1st Hypothesis
H0: Foreign direct investment (FDI) has no significant impact on Nigeria’s economic growth.
H1: Foreign direct investment (FDI) has a relative impact on Nigeria’s economic growth.
2nd Hypothesis
H0: The level of the balance of payments (BOP), interest rate (INTR), and exchange rate (EXR) has no significant impact on economic growth.
H1: The level of the Nigerian economy’s balance of payment (BOP), interest rate (INTR), and exchange rate (EXR) have a relative impact on its development.
1.8 Definition of Terms
1.8.1 Foreign Direct Investment (FDI): Foreign direct investment is defined as an investment made to acquire long-term management interest, such as a 10% equity stake in a company operating in a country other than the investor’s home country (Mwilliama, 2003).
1.7.2 Gross Domestic Product (GDP): The total value of all final goods and services produced in a country in a given year is referred to as GDP.
1.7.3 Balance of Payment (BOP): A record of transactions between a country’s residents and the rest of the world.
1.7.4 Exchange Rate (EXR): The fee for exchanging one country’s currency for another’s currency.
1.7.4 Interest Rate (INTR): The interest rate is the rate at which borrowers (debtors) pay interest on their loans. use of money borrowed from lenders (creditors).
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