An Empirical Analysis of the Determinants and Growth Trend of Foreign Direct Investment (Fdi) in Nigeria: 1970 - 2008

Topics: Investment, Foreign direct investment, Macroeconomics Pages: 26 (9304 words) Published: August 21, 2011


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International capital flows have increased dramatically in recent years particularly to the sub-Saharan Africa, but their impact on Nigeria has not been so clear. Consequently, this study investigates the economic indicators that are responsible for or can influence the inflows of FDI into Nigeria as it is believed to have the capacity to lead to industrialisation and economic growth of any nation. Employing the OLS regression methodology, our results showed an impressive FDI inflow to Nigeria with occasional variability. It further revealed that there was a positive relationship between GDP, BOP, democratic government, and government expenditure and FDI while on the other hand there exists an inverse relationship between inflation, and government policies and FDI. The study proffers some recipes such as the need to improve existing political climate; reinvigorating the non-oil export activities; and the need to introduce greater depth and comprehensive review of the on-going restructuring of investment policies of government such as divesting in and privatising PHCN, NNPC and many more of their type for efficiency.

1. Introduction
The importance of foreign direct investment (FDI) has long been acknowledged and discussed in academic literature worldwide. For example, it is argued that FDI has the potency to benefit developing countries in many ways including its ability to: i. Complement the unimpressive internal efforts of these nations to fill their resource gaps in order to rescue their battered economies; ii. Help to massively inject foreign capital or resources in order to generate and bring about the much needed increase in output, minimize their ever rising unemployment rate and reduce the escalating rate of inflation; and iii. Create a non-debt external resource through the acquisition of foreign technology, transformation of the structure of their domestic outputs and provide an array of goods and services to residents of the recipient countries, the diversification and expansion of the non-oil export sector of the oil dependent countries such as Nigeria, and the effective management of their external liabilities. Generally, FDI has the potency to spark an economic performance of both the host and exporting countries and spur appropriate policy frameworks. Admittedly, an underlying investment and business principle is that the movement of capital can only be undertaking by a rational investor if such investment would yield tangible returns to him given favourable financial market regulations, economic and most importantly political factors that prevail in the receiving country that will ensure the safety of life and investment. The research questions that are to be addressed by this study therefore are: 1. What are the factors that have affected the flow of FDI to Nigeria during the intervening period?

2. What are the relationships between the observed FDI inflow and the size of the Nigerian market, economic situation and the prevailing political environment?

3. Has any or all the factors either adversely or positively affected the movement of FDI to Nigeria?

Foreign private investment has remarkable potentials for regenerating the economy of the importing or receiving country. This assertion is without prejudice to the arguments of scholars like Ake (1978), Oyande (1976), Ohiorhenuah (1983) who separately argued that FDI enables foreigners to dominate domestic economies, create distortions in the domestic labour market by paying higher or discriminatory wages. As a matter of fact,...

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