Impact Of Foreign Direct Investment On Economic Growth
Foreign Direct Investment (FDI) exerts a profound influence on economic growth by fostering the influx of capital, technological know-how, and managerial expertise from foreign entities into a recipient country. This injection of external resources bolsters domestic industries, augments productivity, and stimulates job creation. The symbiotic relationship between FDI and economic growth is evident in the enhancement of infrastructure, innovation, and competitiveness within the host nation. Moreover, FDI often acts as a catalyst for the modernization of industries, driving economic diversification. The positive effects of FDI on economic growth are underscored by increased exports and improved balance of payments, contributing to a more robust and resilient economy. Policymakers play a pivotal role in shaping an environment conducive to attracting FDI, implementing reforms to facilitate ease of doing business, and creating regulatory frameworks that safeguard the interests of both foreign investors and domestic stakeholders. In essence, the dynamic interplay between foreign direct investment and economic growth underscores the significance of fostering an open and receptive environment for global capital inflows.
The study examined the impact of foreign direct investment (FDI) in Nigeria over the period 1980 to 2010. The study employed multiple regressions in analysis, using the ordinary least square (OLS) regression technique. The result at this revealed that FDI impacted positively on the growth of the Nigeria economy over the period under study. Based on this, the study recommended the provision of adequate infrastructure and policy framework that will be conducive for doing business in Nigeria, so as to attract the inflow of FDI necessary to stimulate growth.
Title Page
Approval Page
Dedication
Acknowledgement
Table Of Content
Abstract
CHAPTER ONE:
1.1 BACKGROUND OF STUDY
1.2 Statement Of Problem
1.3 Objective Of The Study
1.4 Statement Of The Hypothesis
1.5 Scope/ The Limitation Of The Study
1.6 Significance Of The Study
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Conceptual Issues
2.1.1 Foreign Direct Investment And Multinational Corporation
2.1.2 0wnership And Control Structure Of Foreign Direct Investment
2.1.3 Gains Of Foreign Direct Investment
2.2 Theoretical Literature
2.2.1 The Theory Of Foreign Direct Investment
2.3 Empirical Literature
2.4 Summary Of Literature And Justification Of The Study
CHAPTER THREE
3.0 METHODOLOGIES
3.1 Introductions
3.2 The Model
3.3 Method Of Evaluation
3.3.1 Economic Criteria
3.3.2 Statistical Criteria
3.3.3 Econometric Criteria
3.3.3.1 Auto Correlation Test
3.3.3.2 Muti-Colinearity Test
3.3.3.3 Heterosecedasticity
3.4 Justification Of The Model
3.5 Data Required And Source
3.6 Econometric Software
CHAPTER FOUR
4.0 PRESENTATION OF RESULTS
4.1 Presentation Of Results
4.2 Result Interpretation
4.2.1 Analysis Of Results Based On Economic (Riteria)
4.2.2 Analysis Based On Statistical Criteria
CHAPTER FIVE
SUMMARY OF FINDINGS, POLICY RECOMMENDATIONS AND CONCLUSION
5.1 Conclusion
5.2 Policy Recommendations
Bibliography
1.1 BACKGROUND OF STUDY:
Since the attachment 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 trends of gross fixed domestic investment or indirectly through policies aimed at stimulating the flow of foreign finance in any growing economy. This is so given that in the literature there are divergent views on the nature of effects of foreign direct investment has been argued to be the most growth stimulation source of foreign finance in any growing economy. This is so given that in the literature there are divergent views on the nature of effects of foreign direct investment on host economics. Those that are of the view that foreign direct investment produce positive effects on host economics argue that some of the benefits are in the form of externalities and the adoption of foreign technology, employers training and the introduction of new process by the foreign firms according to Ayadi, (2002) foreign direct investment
especially when it flows to a high risk area of new firms where domestic resource is limited.
The first national development plan was launched for industrial trade off and developments however as foreign industrial investors were. Rather apprehensive of the nascent independent administration efforts had to be made not only to alloy their fears of nationalization but also attract additional foreign investment through joint venture with individuals or the state. However Nigeria economy has been one of the important destination points of foreign direct investment in sub-Saharan Africa. The amount of foreign direct investment inflow into Nigeria according to ayadi (2002) has reached US $ 2.23billon in 2003 and it rose to US $ 5.31billons in 2004 (9.13% increase) the figure rose again to US $9.92 billion (87%increasing) in 2005. The figure however declined slightly to US $ 9.44 billion in 2006.
Nigeria is argued to be buoyantly blessed with enormous mineral and human resource but believed to be highly risky market for investment. Also decade of bad governance have almost crippled. The national economy with corruption and misappropriation is of fund becoming the norm rather than expectation. What is
the way out of this economic state? Many experts accepted that foreign direct investment. Is a verifiable boaster to kick start the economy. According to Odozi (1995) foreign investment appears to be the most. Crucial component of capital inflows and Nigeria should seek to attract in light of her current economic circumstance. Some scholars are of the view that Nigeria. Is in need of foreign direct investment as a verifiable boaster of the Nigeria economy while others are of the view that foreign direct investment is a form of neo- colonialism to what extent. Has foreign direct investment helped. The economic growth in Nigeria.
1.2 STATEMENT OF PROBLEM:
One of the major economic problem in less developed countries (LCD) is low capital formation to finance the necessary investment for economic growth.
Capital was one regarded by most economists as the principal obstacle to economic development and this is lot attentions were paid to capital formation. The role of capital in economic growth is still regarded as very crucial both the theory of ‘big push’ and the concept of ‘vicious cycle’ all a test to the crucial role of capital in the growth process. The theory of ‘big push’ simply state that the stagnant and undeveloped economies need huge and sudden injection of large capital from foreign direct investment.
However in the literature FDI is found to be related to export growth while human capacity building is found to be related to FDI floe.
Most studies on FDI and growth are cross country studies. However FDI and growth debates are country specific. Among Nigeria studies like those by otepola(2002) oyeyide(2005), Akinlo(2004) examined the importance of FDI on growth for several period and the channel through which it may be benefiting the economy.
In the literature there exist a direct positive link between export growth and the growth of an economy. This growth in export can further be traced down to the level of investment which in most cases can be domestic or foreign investment.
This is so given that foreign capital remains the sure best option of filling the saving investment gap where it exists. Given this fact assessment will be based on the existing link among investment, export, exchange rate and economic growth.
These problems therefore raise the following research question.
1. What is the impact of foreign direct investment to the growth of Nigeria economy?
1.3 OBJECTIVE OF THE STUDY
The objectives of the study are as follow
1. To find out whether or not FDI has a significant impact on the growth of the Nigeria economy.
2. To determine the nature and magnitude of the impact of FDI on economic growth in Nigeria.
1.4 STATEMENT OF THE HYPOTHESIS
H01: FDI has no significant impact on the growth of the Nigeria economy
H02: The nature and magnitude of FDI on economics growth in Nigeria cannot be determined.
1.5 SCOPE/ THE LIMITATION OF THE STUDY
The focus of the study is to verify if there has been any contribution made toward the economic growth and development of the Nigeria economics via gross domestic product (GDP) through foreign direct investment for the period.(1990-2010)
This study will however be limited to investigate the impact of foreign direct investment on the growth of the Nigeria economy.
1.6 SIGNIFICANCE OF THE STUDY
Finding from the study will be of immense benefits in a number of ways and to different groups of persons.
1. For policy making, the expected result outcome shall serve as a riseful guide for future policies as it relates to stimulating growth within the economy.
2. For further studies, it will serve as a reservoir of knowledge for such academic exercises.
SHARE PROJECT MATERIALS ON:
Impact Of Foreign Direct Investment On Economic Growth:
Foreign Direct Investment (FDI) can have a significant impact on economic growth in a host country. However, the nature and extent of this impact can vary depending on several factors, including the host country’s economic conditions, policies, and the sector in which FDI is directed. Here are some of the key ways in which Foreign Direct Investment can influence economic growth:
- Capital Inflow: Foreign Direct Investment involves the transfer of capital from one country to another. This influx of capital can help bridge the savings-investment gap in the host country, leading to increased investment in various sectors of the economy. This, in turn, can stimulate economic growth by boosting aggregate demand and productivity.
- Technology Transfer: Foreign Direct Investment often brings advanced technology, knowledge, and managerial practices to the host country. This can lead to increased productivity and efficiency in domestic industries, thereby promoting economic growth. Domestic firms may learn from foreign investors and improve their processes and products.
- Job Creation: Foreign Direct Investment projects typically create jobs in the host country, both directly and indirectly. New employment opportunities can reduce unemployment and poverty, increase household income, and stimulate consumption, all of which contribute to economic growth.
- Export Promotion: Foreign Direct Investment can enhance a country’s export capacity. Multinational corporations often use host countries as export platforms, increasing the country’s access to international markets. This can lead to increased export revenues and improved balance of payments, which can positively impact economic growth.
- Infrastructure Development: Foreign Direct Investment projects may require improvements in infrastructure such as transportation, telecommunications, and energy supply. These infrastructure investments not only support the Foreign Direct Investment projects but also benefit other sectors of the economy, fostering growth.
- Market Access: Foreign Direct Investment can provide host countries with access to foreign markets through the global networks of multinational corporations. This access can lead to increased exports and economic growth, as the host country’s firms tap into larger customer bases.
- Competition and Efficiency: Foreign Direct Investment often introduces competition into domestic markets. This competition can incentivize domestic firms to become more efficient, innovate, and improve the quality of their products and services to remain competitive, all of which contribute to economic growth.
- Government Revenue: Foreign Direct Investment can generate revenue for the host country through taxes, royalties, and fees paid by foreign investors. This revenue can be used to fund public infrastructure projects and social programs that support economic growth.
However, it’s essential to note that the impact of Foreign Direct Investment on economic growth is not uniform across all countries and circumstances. Several factors can influence the magnitude and direction of this impact, including the quality of institutions, the policy environment, the absorptive capacity of the host country, and the sectoral composition of Foreign Direct Investment.
In some cases, poorly regulated or managed Foreign Direct Investment can lead to negative consequences, such as environmental degradation, resource depletion, or income inequality. Therefore, host countries often need to implement policies and regulations that promote positive Foreign Direct Investment spillovers while mitigating potential risks.
Overall, while Foreign Direct Investment has the potential to significantly contribute to economic growth, its impact depends on a complex interplay of factors, and careful planning and management are crucial to maximize its benefits.