1.1 Introduction
Foreign direct investment involves the investment made by the citizens of a foreign country in a domestic country. Foreign direct investment refers to an investment made to acquire lasting interest in an enterprise operating outside of the economy of the investor (UNCTAD, 2002). Rotjanapan (2005) conceived foreign direct investment as long-term investment made by a foreign resident to have an interest and control of over a company in another economy.
According to Ngowi (2001) FDI can be an engine of economic growth in a host economy such investment can sustain and improve economics development in a country or region, he emphasized that given the economic condition of Africa countries and its level of direct investment in the region cannot be over emphasized. The continent needs to increase its share of global FDI inflows as one of the most likely ways to increase the needed external capital for its development (Ngowi, 2001).
This chapter will address the background information that motivated this study, the challenges that prompted it, its aim, and its objectives as a preface to subsequent sections of the study. Additional factors include the study's significance, scope, limitations, research questions and hypotheses, and the definition of technical terms.
1.2 Background of Study
Nigeria as a country given her magnanimous natural resource base and large market size qualifies to be one of the major recipients of FDI in Africa. Although, its one of the top three leading African countries that consistently received FDI in the past decade.
Foreign direct investment from developing countries has increased tremendously over the past two decades. However, the level of FDI attracted by Nigeria is mediocre compared with the resource base and potential need (Asiedu, 2003). This has been noted by several authors since the early '80's; for instance, Lall 1983,; Kumar 1995; Page 1988, e.t.c.
Foreign direct investment is an investment made by an individual or a company (an investor) in a country which is not the country of origin of the investor, in the form of establishing business or acquiring assets in the country.
It is an unalienable fact that FDI plays a vital role in any economy regardless of its level of development. Foreign direct investment can be seen as the basis upon which the general advancement of a nation is based on. There have been many controversies regarding the effect of foreign direct investment on the growth of the host country's economy. While some researchers suggest a positive effect, others found a negative effect. Many policy makers and academics argue that foreign direct investment can have robust effect on the host's economic development. For instance, the major component that drives economic integration is foreign investment. It is usually considered the central element for the process of growth and development. Most economic rationale for fronting special incentives for attracting foreign direct investment is based on the belief that foreign direct investment bridges the gap between the rich and poor nations in addition to the generation of technological transfers.
The major component that drives economic integration is foreign investment. It is usually considered the central element for the process of growth and development. According to UNCTAD 2005, promoting and facilitating technological transfer through foreign investment has assumed prominent place in the strategies of economic revival and gowth being advocated by policy makers at the national, regional and the international levels because it is considered to be the key to bridging the technology and resource gap of underdeveloped countries and avoiding futher build-up of debt.
Oseghale and Amonkhienan (1987) found that foreign direct investment is positively associated with GDP, concluding that greater inflow of FDI will spell a better economic performance for the country. In addition to the direct capital financing it supplies, foreign direct investment can be a source of valuable technology and know-how while fostering the linkages with local firms which can help jumpstart an economy (Melnyk, Kubatko and Pysarenko, 2014).
Most foreign direct investments have been by Asian frims establishing footholds in other Asian countries but there have also been investments in developed countries such as the EU. However, the special merits of the foreign direct investment are being questioned particularly the kinds of incentives offered to foreign firms in practice.
Although some FDI promotion efforts are probably motivated by temporary macroeconomic problems such as low growth rates and rising unemployment, there are also more fundamental explanations for the increasing emphasis on investment promotion in years. In particular, it appears that the globalization and regionalization of international economy have made FDI incentives more interesting and important for national governments. According to Yu, Ning, Tu, Younghong and Tan (2011) FDI is considered to be one of the major channels of technological transfer.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Impact of Foreign Direct Investment on Economic Growth and Development (1990-2016).
1.3 Statement of Problems
The theory of big push simply states that the stagnant and undeveloped economies need huge and sudden injection of large capital form foreign direct investment. The role of capital in economic growth is still regarded as very crucial as both theory of big push and the concept of vicious cycle attest to the crucial role of capital in the growth process. One of the major economic problem in less developed countries is low capital formulation to finance the necessary investment for growth. Ayanwale and Bamire (2001) assess the influence of FDI on firm's level of productivity in Nigeria and report a positive spillover of forign firms on domestic firms productivity.
Nigeria is one of the economies with great demand for goods and services and has attracted some FDI over the years. The amount of FDI inflow into Nigeria has reached US$2.23 billion in 2003 and it rose to US$5.31 billion in 2004 (a 138% increase) this figure rose again to US$9.92 billion (an 87% increase) in 2005. The figure however declined slightly to US$9.44 billion in 2006 (LOCOmonitor.com). The question that comes to mind is, do these FDIs actually contribute to economic growth in Nigeria? If FDI actually contributes to growth, then the sustainability of FDI is a worthwile activity and a way of achieving its sustainability is by identifying the factors contributing to its growth with a view to ensuring its enhancement.
Earlier studies (for instance, Otepola, 2002; Oyejide, 2005; Akinho, 2004) examine only the importance of FDI on growth and the channels through which it may be benefitting the economy. Overall, empirical evidence in the last few decades indicates that FDI flows have been growing at a pace far exceeding the volume of international trade. Between 1975 and 1995, the aggregate stock of FDI rose from 4.5% to 9.7% of world GDP, with sales of foreign affiliates of multinational enterprises substantially exceeding the value of world exports (Barrell and Pain, 1997).
The United Nations Conference on Trade and Development, UNCTAD (2007) reports that FDI flow to Africa has increased from $9.68 billion in 2000 to $1.3 trillion in 2006. The UNCTAD World Investment Report 2006 shows that foreign direct investment inflow to West Africa is mainly dominated by inflow to NIgeria, who received 70% of the sub-regional total and 11% of Africa's total. Out of this Nigeria's oil sector alone received 90% of the FDI inflow.
1.4 Aim and Objectives of Study
The aim of the study is to investigate the impact of foreign direct investment on Nigeria economic growth at large. In achieving this aim, the following specific objectives were laid out as follows:
- To empirically investigate the impact of foreign direct investment on the economic growth of Nigeria;
- To ascertain the casual relationship that exists between foreign direct and Nigeria economic growth; and
- To determine if there is any observed long run relationship between economic growth and foreign direct investment in Nigeria.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Is there any observed long run relationship between the economic growth and foreign direct investment in Nigeria?
- What impact does foreign direct investment have on the Nigerian economy?
- What is the casual relationship that exists between the foreign direct investment and the Nigerian economic growth?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant impact of foreign direct investment on the economic growth of Nigeria.
- H1: There is a significant impact of foreign direct investment on the economic growth of Nigeria.
1.7 Significance of Study
This study aims to explain the importance of this research paper in the economy. It'll try to esatblish the trends of inflow of investment into the country. This study will be important to policy makers, investors, researchers, firms, governments and it's agencies, students to formulate new policies, modify existing ones and to help attract foreign investors. Since it's obvious that one of the fundamental keys to economic growth and development is foreign investment, this study further explains how foreign investment affects economic stability.
This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.8 Scope of Study
The scope of the research is focused on the Impact of Foreign Direct Investment on Economic Growth and Development.
The study is limited to the data obtained from World Bank indicator, Central bank of Nigeria (CBN) Annual statistics bulletin and the National Bureau of statistics on foreign direct investment sector between 1990 and 2016.
1.9 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.10 Definition of Terms
FDI:
FDI is an acronym for Foreign Direct Investment.
Foreign Direct Investment:
It refers to an investment made to acquire lasting interest in an enterprise operating outside of the economy of the investor (UNCTAD, 2002).
