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The Impact Of Foreign Direct Investment On Economic Growth In Nigeria
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Recent studies however show that Foreign Direct Investment is what is
needed to bridge the gap of savings and investment that exists in
African and in nigeria particularly. Prior to the 1970‟s FDI was not
seen as an instrument of economic development the perception of FDI as
parasitic and retarding the development of domestic industies for export
promotion had engendered hospitality to multi –national companies and
their direct investments in many countries.
However, the consensus
now is that FDI is an engine of growth as it provides the much needed
capital for investment, increased competition in the host countries
industries and aids local firms to become more productive by adopting
more efficient technologies or by investing in human and or physical
capital. Foreign Direct investment contributes to growth in a
substantial manner because it is more stable than other forms of capital
(Ajayi ,2006). While the FDI growth link is still ambiguous most
macroeconomics studies nevertheless support the notion of a positive
role of FDI within particular economic conditions. There are three main
channels through which FDI can bring about economic growth. The first is
through the release it affords from the binding constraints of domestic
savings. In this case, foreign direct investment contributes to savings
in the process of capital accumulation. Second FDI is the main source
through which technology spillovers lead to an increase in factor
productivity and efficiency in the utilization of resources which leads
to growth . third FDI leads to export as a result of increased capacity
and competitiveness in domestic production. This linkage is often said
to depend on another factor called „‟Absorptive Capacity‟‟ which include
the level of human capital development, type of trade regimes and
degree of openness (Ajayi 2006; Borenztein et al 1998).
The
proposition made in this paper is that FDI facilitates economic growth
on one hand and on the other hand economic growth attracts FDI into
Nigeria. In other words FDI and economic growth are endogeneousely
determined in Nigeria.
Consequently the objective of this study is to
analyse the edogeneouse nature of the effect of FDI on economic growth
in Nigeria using data between 1980-2010. The aim is to find out if there
is a directional relationship between economic growth and FDI‟s inflows
into Nigeria.
This study justified particularly for the following
reasons: the study recognizes the growing evidence from cross countries
studies that the relationship between FDI and economic growth is
endogenous. That is FDI engenders growth and growth attracts FDI. The
study does not simply assume endogenity but actively tests for
endogenity of FDI and economic growth in Nigeria, using appropriate
econometric methodologies. The study is also significant because it
differs from other studies in the scope. This gives the study an edge
because it examines the FDI growth relation in the near contemporary
context, checking account of past trends and recent developments in the
global financial market for capital flows.
Finally the study adds to
the literature by specifically examine the interaction between FDI and
human capital and infrastructure with the view for examining whether FDI
affects growth by itself or through an indirect interaction term.
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ABSRACT - [ Total Page(s): 1 ]Foreign Direct Investmemt has been widely described as an indispensible vihicle of economic growth, Variuos reseachers have tried to advocate foreign direct investment as a tool for employment generation, transfer of technological skills, manpower development and increased foreign dexchange earnings.This study was carried out to determine the impact of FDI on economic growth in Nigeria. The study made use of the ordinary least square (OLS) method of estimation in determinig the impact of FDI ami ... Continue reading---
