IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMIC GROWTH
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IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMIC GROWTH
Chapter one
1.1 Introduction
Many countries, particularly the least developed countries (LDCs), such as Nigeria, have made concerted efforts to attract foreign direct investment (FDI).
Ezirim, Emenyeonu, and Muoghalu (2002) proposed that these initiatives are aimed at enhancing the overall investment climate through the adoption and execution of foreign investment.
Nonetheless, favourable policies and programmes such as tax breaks and export promotion play a vital role in driving the many benefits that foreign investment provides on the host country.
The benefits include increased cash, technology, improved management, and market access. FDI has also been recognised as a powerful source of enhancing productivity through competition, stimulating economic advancement, creating jobs, and supporting growth in host nations.
According to Narula and Portelli (2004), over the last two decades, the expansion of multinational enterprises (MNE) activities in developing nations has become one of the defining aspects of the global economy, as well as an engine of economic progress in host economies.
Multinational Enterprise (MNE)-related externalities have piqued the interest of developing countries due to the potential benefits of cash, technology, and knowledge infusion. Key externalities of multinational companies (MNEs) include knowledge spillovers and links with domestic firms in host nations.
The form of these MNE-externalities may come from pure market transactions (e.g., through MNE vertical linkages) or from knowledge spillovers that take non-mar monetary company to non-monetary business.
MNE externalities might result from market transactions (e.g., through vertical linkages) or knowledge spillovers between on-market or monetary firms.
This broad change of attitudes regarding Foreign Direct Investment (FDI) has occurred in the context of the promotion of outward-looking economic strategies as planned by the International Monetary Fund (IMF) and the World Bank.
As a result, developing countries have shifted their policies away from an inward-looking perspective. Import substitution industrialization models towards ore outward, export-oriented economic strategies, Narula (2001) and Ozawa (2002).
This problem has gained prominence in the context of the anti-globalization movement, which opposes growing liberalisation of international commerce and investment. FDI and its developmental implications are thus a topic of great interest among academics and policymakers (Narula and Portelli, 2004).
Nigeria has a plethora of natural resources, including crude oil, cold, zinc, limestone, coal, and qualified personnel. However, due to poor economic resource management; a lack of adequate capital resources; declining higher inflationary rates; and a high rate of poverty (which impacts savings and capital development), direct foreign investment or capital is unavoidable for the economy. This study proposal, therefore, is an attempt to investigate the influence of Foreign Direct Investment on the Nigerian economy.
1.2 Statement of Research Problem
The following are the research challenges that demand carrying out this study work:
What impact does FDI have on Nigeria’s economic growth?
Direct foreign investment has not contributed to the increase of GDP.
The government’s fiscal policy has little effect on the flow of foreign direct investment into Nigeria.
1.3 Aim and Objectives of the Study
The study’s overall goals and objectives are to better understand the impact of foreign direct investment on the Nigerian economy.
The objectives of this study are:
1) To measure the contribution of foreign direct investment to the Nigerian economy.
2) To investigate the impact of FDI on the economic growth of developing countries.
3) To identify the many factors that influence the entrance of foreign direct investment into Nigeria’s economic growth and development.
1.4 Statement of Research Hypothesis
The hypotheses for this study are written in both null (Ho) and alternative (HA) versions.
Hypothesis 1.
Ho: FDI infusion has no substantial impact on Nigeria’s economic development and performance.
HA: FDI inflows have substantial impact on Nigeria’s economic growth and performance.
Hypothesis 2.
Ho: Direct foreign investment does not add to easing in GDP.
HA: Direct foreign investment adds to a growth in GDP.
Hypothesis 3
Ho: Industrial production and direct foreign investment affect Nigeria’s GDP.
HA: Industrial production and direct foreign investment have no effect on Nigeria’s Gross Domestic Product.
1.5 Research methodology
According to Koustyanis (2000), research technique refers to how data is acquired and analysed in research investigations. However, the methodologies used in this study involve data sources and analysis tools (such as statistical tools).
1.5.1 Source of data
This study’s data came primarily from secondary sources. The secondary statistics for this study are related to the flow of foreign investment and the Nigerian economy’s GDP.
Secondary statistics are sourced from the Central Bank of Nigeria (CBN) publications such as the CBN Economic and Financial Review, CBN Bullion, CBN Briefs and Newsletter, Federal Office of Statistics (FOS) Bulletin, and other economic management journals.
This study also relies on important information from textbooks and electronic online materials via the internet from institutions such as the CBN, IMF, World Bank group, etc.
1.5.2 Statistical Tools.
This also refers to the analytical instruments. However, because this research used econometric modelling of the variables specified, multiple regression statistical techniques (econometrics) regression was used for its suitability in analysing secondary data.
The Ordinary Least Method (OLB) of multiple regression would be used. The OLS would be used to estimate models based on independent and dependent variables.
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