THE IMPACT OF FOREIGN DIRECT
INVESTMENT ON NIGERIA’S ECONOMIC DEVELOPMENT
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Economic Performance and economic
growth of a country is influenced by multiple factors. For economies in general
and developing economies in particular, Foreign Direct Investment (FDI) has
been observed and argued as a significant determinant. However there remain two
contrasting views. Esther & Folorunso (2011) have investigated the impact
of FDI flows on economic growth in Nigeria. Their study found that FDI had a beneficial
impact on the economic growth. However, they also report that the extent to
which FDI influences the economic growth positively could be limited by human
capital. With the environment of domestic and foreign policies narrowing
towards a common international economic order induced globalization, foreign
direct investment and now represent a major form of cross border resources flow
among countries. More than before, more firms, in numerous industries and in
many countries are expanding abroad through foreign direct investment (either
private or portfolio). The magnitude of foreign direct investment (FDI) with
the past few years has compelled discussions as to the desirability of a
multinational investments agreement (MIA). Developing countries in Africa,
Asia, and Latin America has 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, economist tends to favour 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 believed to be at high risk market for investment.
Foreign direct investment can also be a veritable booster to kick starts an
economy. Nigeria in the past and present, have a large population and enlightened
market; a real potential market, an investment conscious society, as well as a
conducive sustainable environment for foreign private investment to thrive in
the development of the economy. Over the past two decades, Nigeria have
implemented broad ranging economic reforms, including the liberalization of
foreign trade and investment regimes domestic market and privatization of state
companies which has had an effect on the flow and nature of foreign investment.
Nigeria especially since the African financial crisis has become much more
liberal in its‟ economic policies to attract more foreign direct investment to
increase its economic growth and development. Hence (though not mentioned
explicitly in official policy statement) alleviating poverty in the country.
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 in an enterprise operating in another country other
than that of investors‟ country (Mr.Williams 2003; World Bank 2007). Policy
makers believe that foreign direct investment (FDI) produces positive effect on
host economies. Some of these benefits are in the form of externalities and
adoption of foreign technology. Externalities here can be, in form of licensing
agreement, limitation, employee training and the introduction of new processes
by the foreign firms. (Alfaro 2006). According to Tang, Selvanathan and
Selvanathan (2008), Multinational Enterprises (MNES) diffuse technology and
management know –how to domestic firms. When foreign direct investment (FDI) is
undertaken in high risk areas or new industries economic rents are created
accruing to old technologies and traditional management styles. These are
highly beneficial to recipient countries or economy. In addition (FDI) help in
bridging the capital shortage gap and complement domestic investment especially
when it flows to a high risk areas of new firms where domestics‟ resources are
limited. (Noorzoy, 2007). Nigeria is one of the economies with great demand for
goods and services and has attracted some foreign direct investment over the
years. The amount of foreign direct investment inflow in to Nigeria has reached
US $ 2.23 billion in 2003 and it rose to US $ 5.31 billion in 2004 (a 138 %
increase), this figure rose again to US $ 9.92 billion (an 87% increase) in
2005. The figure however declined slightly to US $ 9.44 in 2006 (Loco
Monitor.com). The question that comes to mind is, do these for actually
contribute to economic growth in Nigeria? If foreign direct investments
actually contribute to growth, then, the sustainability of foreign direct
investment is a worthwhile activity and a way of achieving this sustainability
is by identifying the factors contributing to its growth with a view to
ensuring its enhancement. However, foreign direct investment and growth debates
are country specific. Foreign direct investment (FDI) can have a spill over on
all firms thereby boost the productivity of the entire economy. Smith .M
(2002), however argued to the contrary. According to them, (FDI) can affect
resource allocation and growth negatively where there is price distortion,
financial, trade and other distortions existing prior to foreign direct
investment injection. Wheeler and Mody (2010) also supports the view of Boyd
and Smith (2008). According to wheeler and Mody (2011), infrastructures enhance
foreign direct investment is contributions by reducing their operating costs
and increasing the productivity of investments. In other words, the growth
impact of (FDI) is not automatic but tied to certain levels of infrastructure
and economic performance.
1.2 STATEMENT OF THE PROBLEM
In recent times, the government of
Nigeria has embarked on economic policies to check the flow of foreign private
investment in certain sectors of the economy. Admittedly, how to achieve rapid
economic development through foreign investment has proved to be one of the
economic problems facing Nigeria. Therefore, this work tends to analyse critically
the following; the determinants of Foreign Direct Investment (FDI) in the
Nigerian economy, the impact of foreign investment on the growth of the Nigeria
economy.
1.3 RESEARCH QUESTIONS
The research questions of this study
seek to provide solution to include:
i. Is foreign investment having any
relevant preparation to determine the economic growth?
ii. To what extent can foreign
investment be best applicable in enhancing the economics of Nigeria as a whole?
iii. Why should foreign investment be
included in financial and the government target tool for economic growth?
iv. How can the monetary value of
foreign investment service be determined?
v. Can these monetary values serve as
an aid to management in internal control problems of the Nigerian economy?
vi. What are the possible effects of
the monetary worth of employee‟s services to the profitability of an
organization and the economic?
1.4 OBJECTIVES OF THE STUDY
Foreign Direct Investment as a
veritable booster kick start an economy, this research work aims to ascertain
the role of foreign direct investment from 1993– 2013 as an important engine
for economic growth and development in Nigeria. The main objectives of the
study are; To discover the determinants of foreign direct investment (FDI) in
the Nigerian economy, To determine the impact of foreign direct investment
(FDI) on economic growth in Nigeria, To examine the case for FDI in Nigeria, To
make recommendations on measures to put in place to attract capital inflow, To
examine the effect of globalization on Nigeria‟s foreign direct investment.
TOPIC: THE IMPACT OF FOREIGN DIRECT INVESTMENT ON NIGERIA’S ECONOMIC DEVELOPMENT
Format: MS Word
Chapters: 1 - 5
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Delivery: Email
Number of Pages: 56
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