IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH AND DEVELOPMENT (1990-2016).
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IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH AND DEVELOPMENT (1990-2016).
Chapter one
INTRODUCTION
1.0 Introduction.
This section of the research study focuses on the study’s introduction. The background of foreign direct investment (FDI) and its concerns will be discussed. The study’s aims, hypothesis, scope, and limits would be outlined.
1.1 BACKGROUND OF STUDY.
Nigeria, with its vast natural resource base and massive market size, qualifies as one of Africa’s primary receivers of foreign direct investment. However, it is one of the top three African countries that have consistently attracted FDI over the last decade.
Foreign direct investment from emerging nations has expanded dramatically over the last two decades. However, Nigeria’s FDI inflows remain poor when compared to its resource base and prospective need (Asiedu 2003). Several authors have recognised this since the early 1980s, including Lall (1983), Kumar (1995), and Page (1988), among others.
Foreign direct investment is an investment made by an individual or a firm (an investor) in a country other than the investor’s place of origin, such as founding a business or acquiring assets in the country.
It is an undeniable reality that foreign direct investment (FDI) is critical to the development of any economy. Foreign direct investment can be viewed as the foundation for a country’s overall development.
There have been numerous debates over the impact of foreign direct investment on the growth of the host country’s economy. While some researchers show a favourable effect, others discovered a negative one.
Many policymakers and researchers believe that foreign direct investment can have a significant impact on the hosts’ economic development. For example, foreign investment is a primary driving force behind economic integration.
It is commonly regarded as the central factor in the process of growth and development. Most economic rationales for frantically pursuing special incentives to attract foreign direct investment are based on the notion that foreign direct investment bridges the gap between rich and poor countries while also generating technical transfers.
Foreign investment is a fundamental driver of economic integration. It is commonly regarded as the central factor in the process of growth and development.
According to UNCTAD 2005, promoting and facilitating technological transfer through foreign investment has taken a prominent place in economic revival strategies and is being advocated by policymakers at the national
regional, and international levels because it is regarded as the key to closing the technology and resource gap in underdeveloped countries and avoiding further debt accumulation.
Oseghale and Amonkhienan (1987) discovered that foreign direct investment is positively related to GDP, indicating that a higher influx of FDI will result in better economic performance for the country.
In addition to providing direct capital finance, foreign direct investment can provide essential technology and know-how while also creating connections with local enterprises, which can assist kickstart an economy (Melnyk, Kubatko, and Pysarenko, 2014).
The majority of foreign direct investments have been made by Asian firms looking to build a presence in other Asian countries, although there have also been investments in industrialised countries like the EU.
However, the unique benefits of foreign direct investment are being questioned, particularly the types of incentives available to foreign enterprises in practice.
Although some FDI promotion initiatives are likely motivated by short-term macroeconomic issues such as low growth rates and rising unemployment, there are more fundamental reasons for the increased emphasis on investment promotion in recent years.
In particular, it appears that the globalisation and regionalization of the world economy have increased the appeal and importance of FDI incentives to national governments.
According to neoclassical scholars, foreign direct investment and international capital flows help developing nations close their savings gap.
We would expect capital to flow from capital wealthy to capital poor countries, as stated by Mundell’s Heckscher-Ohlin approach to trade (1957), because capital is limited in emerging countries and should result in attractive investment opportunities for capital in developing countries.
For a developing country like Nigeria, foreign direct investment is viewed as a means of transferring knowledge and capital from other developed and developing countries to the domestic economy. According to Yu, Ning, Tu, Younghong, and Tan (2011), FDI is regarded as one of the primary conduits of technical transfer.
Romer (1993) contends that there are concept gaps between rich and poor countries, and that foreign investment can facilitate the transfer of technology and commercial expertise to developing countries.
According to this viewpoint, foreign direct investment has a spillover effect on all firms, increasing overall economic production. However, Boyd and Smith (1992) claimed otherwise.
According to them, FDI can have a detrimental impact on resource allocation and growth if there are pricing, financial, trade, and other types of distortion in place prior to the injections. Wheeler and Mody (1992) also agree with Boyd and Smith (1992).
1.2 Problem Statement.
The notion of big push basically asserts that stagnant and underdeveloped economies require a massive and abrupt injection of significant money from foreign direct investment.
The importance of capital in economic progress is still widely recognised, as evidenced by the theory of large push and the concept of vicious cycle.
One of the most serious economic issues in developing countries is a lack of funds to fund critical expansion investments. Ayanwale and Bamire (2001) evaluate the impact of FDI on firm productivity in Nigeria and find that foreign firms have a positive spillover effect on native firms’ productivity.
Nigeria is one of the economies with high demand for products and services, and it has received some FDI over the years. The amount of FDI influx into Nigeria reached US$2.23 billion in 2003, increased to US$5.31 billion in 2004 (a 138% rise), and then to US$9.92 billion (an 87% increase) in 2005.
The value fell slightly to US$9.44 billion in 2006 (LOCOmonitor.com). The question is, do these FDIs contribute to Nigeria’s economic growth? If FDI genuinely contributes to growth, then FDI sustainability is a worthwhile activity, and one method to achieve it is to identify the variables leading to its growth and improve them.
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