EFFECT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The rapid growth of interest in foreign direct investment (FDI), stand from the perceived opportunities derivable from utilizing this form of foreign capital injection into the economy, to augment domestic savings and further promote economic development in most developing economies (Aremu 2005). According to Alfaro, (2006) Policymakers believe that FDI produces positive effects on host economies. Some of these benefits are in the form of externalities and the adoption of foreign technology. Olokoyo, (2012) stated that Foreign investment inflow, particularly foreign direct investment (FDI) is perceived to have a positive impact on economic growth of a host country through various direct and indirect channels. It augments domestic investment, which is crucial to the attainment of sustained growth and development. Governments have been trying to lift the country out of the economic crisis without achieving success as desired. Each of these governments has not focused much attention on investment especially foreign direct investment which will not only guarantee employment but will also impact positively on economic growth and development. FDI is needed to reduce the difference between the desired gross domestic investment and domestic savings (Eravwoke & Eshanake, 2012). Most studies on FDI and growth are cross country studies. However FDI and growth debates are country specific. Among Nigeria studies like those by Chowdhury and Mavrotas (2006);Olokoyo, (2012); Omankhanlen, (2011); Cuadros, Orts and Alguacil (2001); Lumbila (2005); Ayashagba and Abachi (2002); Saibu and Keke (2014) 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. Considering the various critisism of empirical studies on how foreign direct investment in Nigeria affects its economic growth, there is need for further studies to be carried out on how FDI affects the economic growth of the Nigeria after the financial crisis.This is so given that foreign investment remains the sure way of economic growth. Given this fact assessment will be based on the existing link among Foreign Direct Investment, Exchange rate and Gross Domestic Product.

Many policy makers and academics argue that foreign direct investment (FDI) can have robust positive effects on a host economy’s development. In addition to the direct capital financing it supplies, FDI can be a source of valuable technology and know-how and enhances linkages with local firms, which can help to boost growth in an economy. Based on these arguments, industrialized and developing countries have offered incentives to encourage foreign direct investments in their economies (Melnyk, Kubatko and Pysarenko, 2014). Foreign Development Investors are mostly invited by transition and developing countries in a hope that through this international activity, the positive experience from developed countries will come to their domestic economies (Silvio, and Ariel, 2009). Thus, as foreign direct investment flow increases in an economy, export volume of that economy increases (Pulatova, 2016).

For a developing country like Nigeria, foreign direct investment is considered as a way of transferring technology and capital from other developed and even developing countries to the domestic economy. According to Yu, Ning, Tu, Younghong and Tan (2011) FDI is considered to be one of the major channels of technological transfer. Melnyk, Kubatko and Pysarenko (2014) believe that when foreign direct investment comes to a domestic country (in specific business), that firm receives a competitive advantage due to the usage of new knowledge, experience, ways of production and management. Adding that current successful economic growth of developing countries is explained by "catch up effect" in technological development with developed countries. Lahiri and Ono (1998) observe that higher efficiency of foreign firms may help lower prices and hence increase consumers’ surplus. Furthermore, FDI raises employment by either creating new jobs directly or using local inputs, thus, creating more jobs indirectly. According to Koojaroenprasit (2012), FDI is an important factor which contributes to economic growth through technology transfer. Capital accumulation and augmentation of human capital through education, trainings, and new managements are also prescribed to FDI inflows (Buckley, Clegg, Wang and Cross, 2002). Muntah, Khan, Haider and Ahmad (2015) opined that foreign direct investment contributes significantly in the human resource development, capital formation and organization and managerial skills of the people in an economy. Eller, Haiss and Steiner (2006) suggest the level and quality of foreign investment influences the financial sectors’ contribution to growth in emerging markets. The advantage for investors is that investing in developing countries may bring higher gain and profits. Also more productive foreign firms stimulate industry competition, which is often useful for domestic firms. Thus as suggested by Blomstrom and Kokko (1998), domestic firms with foreign investment have high-quality output, driving up production standards in other competitive domestic firms. The presence of foreign firms in the economy with their superior endowments of technology and management skills will expose local firms to fierce competition (Chen, Chang and Zhang, 1995). Local firms may also be under pressure to improve their performance and to invest in research and development. Thus FDI enhances the marginal productivity of the capital stock in the host economies and thereby promotes growth (Wang and Blomstrom, 1992).

TOPIC: EFFECT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA

Format: MS Word

Chapters: 1 - 5, Abstract, References
Delivery: Email

Number of Pages: 80

Price: 3000 NGN

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