DETERMINANT OF FOREIGN INVESTMENT INFLOW ON THE ECONOMIC GROWTH
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DETERMINANT OF FOREIGN INVESTMENT INFLOW ON THE ECONOMIC GROWTH
Chapter one
Introduction
Background of the study.
One of the primary goals of sovereign governments around the world is to implement policies and programmes aimed at improving the living conditions of their citizens while also ensuring economic growth and development.
The achievement of this fundamental goal in developing countries such as Nigeria and other Sub-Saharan African (SSA) countries has been hampered by low levels of capital formation caused by vicious cycles of poor productivity, low income, and low level earnings (Adepoju et al 2007).
This requires both governmental and private attention, and a financial and non-financial bridge from overseas to handle it has become fairly necessary. Foreign Direct Investment (FDI) is one vehicle or avenue for bridging foreign capital flows into developing countries such as Nigeria.
According to Adefeso et al. (2012), the overwhelming importance of Foreign Direct Investment (FDI) inflows to developing nations has taken up a significant amount of economic research.
Again, it addresses the vicious cycle of economic misalignment. According to Ngowi (2001) in Adefeso et al. (2012), FDI creates jobs and serves as a vehicle for technology transfer, provides superior skills and management techniques, facilitates local firms’ access to international markets, increases product diversity, and is an overall engine of economic growth and development in Africa, where its importance cannot be overstated.
Unfortunately, Nigeria did not profit from these gains prior to 2003 due to diminishing and changing foreign investment inflows. Nigeria alone cannot provide all of the domestic funds required to invest in all sectors of the economy, make it one of the world’s twenty largest economies by 2020, and meet the Millennium Development Goals (MDGs) in 2015.
Therefore, harnessing her foreign direct investment becomes a sine qua non for a healthy economy. Uwubanwen et al. (2012) discovered that economic expansion, as stated by the neoclassical growth theory, is caused by an increase in the number of factors of production as well as the efficiency with which they are allocated.
In a simple two-factor economy (labour and capital), it is well recognised that developing economies (such as Nigeria) have ample manpower but inadequate capital due to a lack of domestic savings mobilisation, which limits capital production and economic growth.
Even when domestically generated capital and labour are sufficient, growing production may be hampered by a lack of foreign input (machines), which are required for the manufacture of goods and services in developing countries.
This makes international capital flow a crucial component of developing countries’ efforts to reduce the investment-savings gap. Montiel and Reinhart (2002) went on to argue that, based on the perceived or rational meaning of FDI as described above, there is little or no dispute that FDI directly augments the real resources available for production in the host country’s economy.
Indeed, the literature suggests that FDI is “a good cholesterol” required to close the existing investment-savings imbalances in emerging countries.
They concluded that the attraction of FDI into developing economies (such as Nigeria) is usually based on the implicit assumption that increased FDI inflows will accelerate economic growth (measured by GDP), mobilise domestic capital, and improve the balance of payments.
Statement of the Problem
The ultimate outcome of this dive is that the Nigerian government has adopted a number of policy measures to encourage foreign direct investment.
Despite these improvements, Nigeria’s perceived and obvious demand for FDI inflows remains modest as compared to other developing countries. This development is alarming and conveying signs of a seemingly low prospect for economic
The study’s objectives
The study’s aims are:
To determine the relationship between foreign investment and economic growth in Nigeria.
To assess the influence of GDP on FDI inflows in Nigeria.
To assess the impact of interest rates on FDI inflows in Nigeria.
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