FOREIGN DIRECT INVESTMENT AND ITS ROLE IN ECONOMIC GROWTH IN NIGERIA FROM THE PERIOD 2010-2022

FOREIGN DIRECT INVESTMENT AND ITS ROLE IN ECONOMIC GROWTH IN NIGERIA FROM THE PERIOD 2010-2022

ABSTRACT

 

 

Foreign direct investment (FDI) plays a crucial role in driving economic growth and development in many countries, including Nigeria. As one of the largest economies in Africa, Nigeria has witnessed significant inflows of FDI over the years. However, there is a need to comprehensively examine the impact of FDI on economic growth in Nigeria and understand the underlying factors that influence this relationship. This study aims to investigate the role of FDI in fostering economic growth in Nigeria by addressing several research questions. Firstly, it seeks to analyze the relationship between FDI inflows and key economic growth indicators such as the gross domestic product (GDP) growth rate. Additionally, the study explores the interaction between FDI and other factors, including domestic investment, human capital development, trade openness, and institutional quality, to assess their combined influence on economic growth outcomes. The secondary data were sourced from various publications of the Central Bank of Nigeria, such as the CBN Statistical Bulletin, CBN Statement of Accounts and Annual Reports, and Bureau of Statistics publications. The period analysis covered twelve (12) years (2010 – 2022). Based on the findings revealed by the study, it is recommended that the Nigerian economy should improve the investment climate for existing domestic and foreign investors through infrastructure development. Moreover, provides services and changes in the regulatory framework relaxing laws on profit repatriation which will encourage investors to increase their investments and also attract new investors.By leveraging these findings, policymakers can develop strategies and implement targeted policies to maximize the positive impact of FDI on economic growth, ultimately driving sustainable development and prosperity in the country.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER ONE

 

 

INTRODUCTION

Foreign direct investment (FDI) plays a crucial role in the economic growth and development of countries around the world. It is a key driver of globalization and has the potential to significantly impact a country’s economy by stimulating investment, creating employment opportunities, transferring technology and knowledge, and fostering trade linkages. Nigeria, as one of the largest economies in Africa, has recognized the importance of FDI in achieving sustainable economic growth and has actively sought to attract foreign investors. This chapter provides an introduction to the research topic of FDI and its role in economic growth in Nigeria, focusing on the period from 2010 to 2022.

1.1 BACKGROUND OF THE STUDY

 

Nigeria is a resource-rich country with abundant natural resources, including oil, gas, solid minerals, and agricultural products. However, despite its vast potential, Nigeria has faced significant economic challenges, including low diversification, infrastructural deficiencies, and high unemployment rates. To address these challenges and stimulate economic growth, the Nigerian government has implemented various policies and reforms to attract FDI inflows. The period from 2010 to 2022 is of particular interest as it encompasses significant economic events, policy changes, and shifts in the global investment landscape.

The role of Foreign Direct Investment (FDI) in economic growth has been extensively debated in the literature. Some studies argue that FDI has a positive impact on economic growth (Adegbite and Ayadi, 2011; Koojaroenprasit, 2012; Onu, 2012; Adeleke, Olowe, and Fasesin, 2014; John, 2016; Ali and Hussain, 2017), while others suggest that its contribution is relatively small and insignificant (Akinlo, 2004; Louzi and Abadi, 2011). Nevertheless, the significance of FDI for any economy cannot be underestimated.

FDI refers to investments made by corporations or individuals from one country into another country, either by establishing businesses or acquiring assets. It involves the transfer of technology, capital, management expertise, and entrepreneurial skills from one nation to another (John, 2016). According to Farrell (2018), FDI encompasses a package of technology, capital, management, and entrepreneurship that firms utilize to operate and provide goods and services in foreign markets.

In Africa, Nigeria ranks as the third-largest host economy for FDI, trailing behind Egypt and Ethiopia. Countries such as the United States, the United Kingdom, China, the Netherlands, and France have invested in Nigeria (UNCTAD, 2018). However, Nigeria experienced a decline in FDI inflows in 2017, with a 21% drop amounting to USD 3.5 billion. This decline can be attributed to factors such as political instability, lack of transparency, widespread corruption, and poor infrastructure quality (UNCTAD, 2018). Consequently, this study aims to re-examine the impact of FDI on economic growth in Nigeria.

The importance of FDI cannot be overstated, as it brings new technologies, products, management skills, and a competitive business environment, thereby catalyzing economic growth. Many countries, particularly emerging economies, adopt policies that encourage FDI inflows due to the positive spillover effects associated with the provision of funds and expertise. These inflows assist smaller companies in expanding, increasing international sales, and facilitating the transfer of technology. FDI introduces new forms of capital input, such as the flow of services available for production, which cannot be achieved solely through financial investments or trade in goods and services.

The impact of FDI on economic growth in Nigeria has been a subject of considerable academic and policy debate. Proponents argue that FDI can bring in capital, technology, and managerial expertise, which can stimulate domestic investment, enhance productivity, and promote economic growth (Borensztein et al., 1998). They argue that FDI can lead to technology spillovers, knowledge transfer, and the creation of backward and forward linkages with domestic firms, thereby fostering economic development (Blomström, Lipsey, & Zejan, 1996).

 

However, critics argue that the benefits of FDI may not automatically translate into sustainable economic growth for the host country. They highlight the importance of assessing the quality of FDI, the absorptive capacity of the host country, and the institutional framework in determining the effectiveness of FDI in generating positive economic outcomes (Alfaro, Chanda, Kalemli-Ozcan, & Sayek, 2004). They also point out that FDI inflows can create potential risks, such as resource dependency, unequal distribution of benefits, and vulnerability to external shocks (UNCTAD, 2020).

Empirical studies examining the relationship between FDI and economic growth in Nigeria have yielded mixed results. Some studies have found a positive association between FDI and economic growth (Asiedu, 2002; Oyinlola, 2010), suggesting that FDI inflows have contributed to increased investment, job creation, and technology transfer. Other studies have found a limited or insignificant impact of FDI on economic growth (Akinlo, 2004; Jeroh & Sanni, 2013), highlighting the need for further analysis to understand the nuanced relationship between FDI and economic growth in Nigeria. Therefore, a comprehensive analysis is necessary to evaluate the role of FDI in fostering sustainable economic growth in Nigeria and inform evidence-based policy decisions.

 

1.2. STATEMENT OF THE PROBLEM

 

Foreign direct investment (FDI) has been recognized as a potential catalyst for economic growth in many countries. Nigeria, as one of the largest economies in Africa, has attracted substantial FDI inflows over the years. However, there is a need to critically examine the extent to which FDI has contributed to the overall economic growth of the country.

While FDI has the potential to bring in capital, technology, and managerial expertise, Nigeria continues to face significant economic challenges such as low productivity, high unemployment rates, and infrastructure deficiencies. It is important to assess whether FDI inflows have effectively addressed these challenges and led to sustainable economic growth.

The impact of FDI on economic growth is a complex issue influenced by various factors, including the quality of institutions, infrastructure development, and the business environment. Therefore, empirical analysis is necessary to evaluate the relationship between FDI and economic growth in Nigeria, considering the specific contextual factors and challenges faced by the country.

This study aims to address the following research questions:

 

• What is the relationship between FDI inflows and economic growth indicators, such as gross domestic product (GDP) growth rate, in Nigeria?
• Are there sector-specific or regional variations in the impact of FDI on economic growth within Nigeria?
• What policy implications can be derived from the findings to enhance the positive contribution of FDI to economic growth in Nigeria?

By exploring these research questions, this study aims to provide insights into the role of FDI in promoting economic growth and sustainable development in Nigeria. The findings will be valuable for policymakers, investors, and other stakeholders involved in shaping economic policies and attracting FDI to Nigeria to maximize its positive impact on economic growth.

1.3. OBJECTIVES OF THE STUDY

 

This research aims to analyze the role of FDI in promoting economic growth in Nigeria from 2010 to 2022. The specific objectives of the study are as follows:

 

• To examine the trends and patterns of FDI inflows into Nigeria during the study period.
• To evaluate the policy and regulatory framework for FDI in Nigeria and its effectiveness in attracting and retaining foreign investors.
• To identify the challenges and opportunities associated with FDI inflows in Nigeria.
• To provide policy recommendations for enhancing the role of FDI in Nigeria’s economic growth.

 

1.4. RESEARCH HYPOTHESES

 

The hypothesis of the study will be tested as follows:

 

H1: There is a significant relationship between FDI and economic growth in Nigeria.

 

H2: Domestic investment has no significant impact on Nigerian economic growth.

 

H3: Foreign Direct Investment and Domestic investment have no long-run significant relationship on economic growth in Nigeria.

 

 

1.5. SCOPE OF THE STUDY

 

The study will center on the contribution that has been made to the economic growth of Nigeria by way of gross domestic product (GDP) through FDI during the period from 2010 to 2021. Annual time series data will be engaged using GDP as a proxy for economic growth and other variables such as FDI, exports, foreign exchange, and interest rate in Nigeria.

This study will adopt a mixed-methods approach to achieve the research objectives. The research will involve both quantitative and qualitative analysis. The quantitative analysis will utilize secondary data from reputable sources such as the Central Bank of Nigeria, the Nigerian Investment Promotion Commission, and the World Bank’s World Development Indicators. The data will be analyzed using statistical techniques to identify trends, patterns, and relationships between FDI inflows and economic growth indicators. The qualitative analysis will involve a review of relevant literature, policy documents, and interviews with key stakeholders, including government officials, investors, and industry experts.

 

1.6. SIGNIFICANCE OF THE STUDY

This research is significant for several reasons. Firstly, it will contribute to the existing body of knowledge on the role of FDI in economic growth, specifically in the Nigerian context. Secondly, the findings of this study will provide policymakers, government agencies, and investors with valuable insights into the factors influencing FDI inflows and their impact on Nigeria’s economy. Lastly, the study will serve as a basis for future research and inform policy recommendations aimed at enhancing the role of FDI in Nigeria’s economic development.

 

FOREIGN DIRECT INVESTMENT AND ITS ROLE IN ECONOMIC GROWTH IN NIGERIA FROM THE PERIOD 2010-2022. GET MORE MASTERS BUSINESS ADMINISTRATION  THESIS PROJECT TOPICS AND MATERIALS

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