FOREIGN DIRECT INVESTMENT AND ITS IMPACT ON THE DEVELOPMENT OF NIGERIAN ECONOMY (1990 – 2010)

CHAPTER ONE

1. BACKGROUND OF THE STUDY

Since Nigeria got her independence in 1960, it has created policies which are geared towards promoting the Nigerian economic growth and development by influencing domestic investment or indirectly policies which are aimed at stimulating the flow of 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. It has been argued to be the most growth stimulation sources of foreign finance in any growing economy. There are divergent views on the nature of foreign direct investment on host economies. There are views that foreign direct investment produce positive effects on host economies and they argue that some of the benefit are in the form of externalities and adoption of foreign technology. Employers training and introduction of new process by the foreign firms.

Developing countries in Africa, Asia and Latin America have come increasingly to see that foreign direct investment is a source of economic development, modernization, income growth and employment and poverty reduction. These

countries are successfully developing their economies under outward oriented policies albeit in varying degrees.

Globally economists tend to favor the free flow of capital across national borders because it allows capital to seek out the highest rate of returns. Nigeria is reputed to be buoyantly blessed with an enormous minerals and human resources but believe to be at a high risk market for investment. Foreign direct investment can also be veritable booster to an economy (Omagbemir 2010).

Nigeria in the past and present has a large population and enlightened market. A real potential market, an investment conscious society and a conclusive sustainable environment for foreign private investment to thrive in the development of the economy.

Foreign direct investment can be described as investment made so as to acquire a lasting management interest (for instance 10% of voting stocks) and at least 10% of equity shares main enterprise operating in another country other than that of investor country(Willima 2003, World Bank 2007). Policy makers believe that foreign direct investment (FDI) produce positive effects on host economies. Some of these benefits are in the form of externalities and adoption of foreign technology. Externalities can be a form of licensing agreement, limitation,

employee training and introduction of new processes by the foreign firms (Alfaro 2006).

According to Utomi (2007) foreign direct investment (FDI) via transnational corporations do posses the needed capabilities which can be put to the services of growth in any host economy.

1. STATEMENT OF THE PROBLEM

One of the major economic problems in less developed countries (LDC) is low per capital formation to finance the necessary investment for economic growth.

Capital was once regarded by most economists as the principal obstacle to economic development and this made a lot of attention to be 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” are all a test to the crucial role of capital in the growth process. The theory of big push simply states 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), and Akinlo (2004) examined the importance of FDI on growth for several periods and the channel through which it may be befitting 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 best option to 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.

1. RESEARCH QUESTIONS

Based on the objective of the study the following research questions are necessary or the formulation of hypothesis

1. Does the FDI have a significant impact on the development of the Nigeria economy?

1. 1. What is the nature and magnitude of the FDI on economic growth in Nigeria?

1. 1. Are there enough incentives by the governed to encourage the flow of FDI

1. OBJECTIVE OF THE STUDY

The objectives of the study are as follows

1. To find out whether or not FDI has a significant impact on the growth of the

Nigerian economy

1. To determine the nature and magnitude of the impact of FDI on economic growth in Nigeria

1. To ascertain the adequacy of the level of fiscal incentives given to foreign investors by the Nigerian government

1. SIGNIFICANCE OF THE STUDY

It is hoped that this study will act as a reference point for policy debate in the idea of FDI in our economy.

On the whole it is envisaged that the research findings will be of the following specific significance.

1. 1. It will serve as a guide to economic policy makers and planners in future decisions concerning FDI

1. 1. It is equally hoped that the findings and recommendation of this study will be of immense benefit not only to the government but also to other researchers and students for future research undertakings

1. RESEARCH HYPOTHESIS

In order to find answers to the questions raised in the research questions, the following hypothesis are necessary and would be tested and it will either be accepted or rejected based on the research findings

1. Null hypothesis (HO): Foreign direct investment has a significant impact on the development of the Nigeria economy

Alternate hypothesis (H1): Foreign direct investment has a significant

impact on the development of the Nigerian economy

1. Null hypothesis (HO): The nature and magnitude of foreign direct investment on economic development in Nigeria cannot be determined Alternate hypothesis (H1): The nature and magnitude of foreign direct investment on economic development in Nigeria can be determined
2. 1. Null hypothesis (HO):The level of fiscal incentive given to foreign investors by the Nigeria government are not adequate

Alternate hypothesis (H1): The levels of fiscal incentives given to foreign investors by the Nigeria government are adequate

1. SCOPE AND LIMITATION OF THE STUDY

Its focus is to verify if there is any contribution made toward economic growth and development of Nigeria economy via gross domestic product (GDP) through foreign direct investment for the period 1990-2010. It will be limited to investigate the impact of FDI in the development of Nigeria economy. Government also sought for measures to enhance economic development and inflow of foreign direct investment into the country to reach its peak.