CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
Nigeria‘s economic development was
anchored basically on agricultural and primary exports before independence. A
purposive effort was made to alter the structure of the economy by increasing
investment in other sectors on attainment of political independence in 1960.
Since then and, specifically from the early 1950s, virtually all the productive
sectors of the Nigerian economy were dominated by foreign investments and
therefore ownership incentive measures were, thus, directly aimed at attracting
foreigners, their capital, technology and skills. (Garba, 1998:18). Over the
last three decades Foreign Direct Investment (FDI) has emerged as one of the
most important sources of globalization and an important catalyst for economic
growth, transferring technology and knowledge between participating countries.
Foreign direct investment is a direct
investment into production or business in a country by an individual or company
in another country, either by buying a company in the target country or by
expanding operations of an existing business in that country. Foreign direct
investment also provides opportunities and financial challenges around the
world. In addition, gaps in entrepreneurship, managerial and supervisory
personnel, organizational experience and expertise, innovation in products and
production techniques in third world countries are presumed to be partially or
wholly filled by foreign investors.
The theories related to the types of
FDI suggest two types of FDI: horizontal (market-seeking) and vertical. The
international market searching for the lowest cost of production is called
vertical FDI, which is mainly export oriented (Shatz and Venables,
2000:222-223). Horizontal FDI refers to the establishment of homogenous plants
in foreign locations as a means of supplying certain goods in a foreign
country. This type of FDI replaces exports from the home country to the host
country.
Nigeria receives the largest amount of
Foreign Direct Investment (FDI) in Africa. Foreign Direct Investment inflows
have been growing enormously over the course of the last decade: from USD1.14
billion in 2001 and USD2.1 billion in 2004, Nigeria‘s FDI reached USD11 billion
in 2009 according to UNCTAD, making the country the nineteenth greatest
recipient of FDI in the world. The country experienced real GDP growth
averaging 7.8 percent from 2004 to 2007, and 6.4 percent in 2007. This was
higher than those of the low-income sub-Saharan (LI-SSA) countries with median
(4.0 percent), the LI median (6.0 percent), and the rate in Indonesia (6.3
percent). Kenya however had a higher rate of 7.0 percent. Prior to 2001 40
percent of GDP came mainly from oil which changed from 2001 to 2006 though in
2003 real growth in other sectors exceeded growth in the oil sector (IMF,
2008). Some notable sectors in this respect include telecommunications, wholesale
and retail trade, and agriculture (Economist Intelligent Unit,2008).
Agricultures potentials are yet to be fully exploited.
In the year 2007, Nigeria had an
estimated gross domestic product (GDP) of US$166.8 billion according to the
official exchange rate and US$292.7 billion according to Purchasing Power
Parity (PPP). GDP rose by 6.4 percent in real terms over the previous year.GDP
per capita was about US$1,200 using the official exchange rate and US$2,000
using the PPP method. About 60 percent of the population lives on less than
US$1 per day. Also during the same period (2007) the GDP was composed of the
following sectors: agriculture, 17.6percent; industry, 53.1 percent; and
services, 29.3 percent. In 2006 Nigeria received a net inflow of US$5.4 billion
of Foreign Direct Investment (FDI), much of which came from the United States.
FDI constituted 74.8 percent of gross fixed capital formation, reflecting low
levels of domestic investment. Almost all the FDI is directed toward the energy
sector.
Between 2008 and 2020, Nigeria hopes
to attract US$600 billion of FDI to finance its vision. FDI is considered as a
strategic instrument for economic growth. Thus, this study assesses the impact
of FDI on economic growth in Nigeria within the period 1999-2013.
1.2 Statement of Problem
It is widely believed that economic
growth depends critically on both domestic and foreign investments
(Andenyangtso, 2005: 305-323). Equally, the rate of inflow of foreign
investment depends on the rate of economic growth. Osaghale and Amenkhieman
(1987: 383-403), Ohiorheman (1993: 1185-1207), Fabayo (2003: 227-252) and Aremu
(2005:2079-2085) establish a relationship between investment and growth in
Nigeria. However, empirical studies of the impact of FDI on growth are concerned
with either the overall effect on growth (or net welfare) or with specific
aspects of the FDI impact on employment, technology, trade, entrepreneurship
and other areas of the economy, such as, infrastructures, education and health.
Thus, the impact of FDI on economic growth remains unclear. It is, therefore,
necessary to determine the impact of FDI on the economic growth in Nigeria..
1.3 Research Objectives
The overall objective of this study is
to examine the effect of foreign direct investment on the economy of third
world countries economies. Specific objectives of this study are:
i. To determine the rate of Foreign
Direct Investment inflows into Nigeria;
ii. To determine whether foreign
direct investment has impacted positively or negatively on the economy of the
Nigeria; and ,
iii. To examine the relationship
between foreign Direct Investment, exports and growth in Nigeria.
TOPIC: THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE ECONOMY OF THIRD WORLD COUNTRIES
Chapters: 1 - 5
Delivery: Email
Delivery: Email
Number of Pages: 70
Price: 3000 NGN
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