AN ASSESSMENT OF THE IMPACT OF FOREIGN DIRECT INVESTMENT ON NIGERIAN ECONOMIC GROWTH (1990-2011)

CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Investors’ decisions and actions globally are influenced significantly by the
dictates of self-interest which suggests that capital, not only be channeled to
high-yielding economic sectors but also to those that are ostensibly quick yielding
economies. On balance therefore investors would spun profitable opportunities
characterized by extreme competitions, market glut, unfavorable regulation, long
gestation periods and opt instead for investments that yield high returns within
the shortest time possible. Base on this view, investors generally migrate from
one economy to another in search of better investment climate and higher
returns.
This form of capital movement results in the creation of a typical investment
called Foreign Direct Investment. In the opinion of Jomo (1988) Foreign Direct
Investment can be explained to represent the flow of tangibles from a country
abroad of capital, equipment and other production and processing facilities into a
host economy. It is also defined as a long term investment reflecting a lasting
interest and control by a foreign direct investors (or parent enterprise), of an
enterprise entity residents in an economy other than that of the foreign investor
(IMF, 1993).
Foreign Direct Investment is widely thought to bring with it into the host
country a bundle of productive assets including long term foreign capital,
entrepreneurship, technology skills, innovative capacity and managerial,
organizational and export marketing know-how. The distinctive feature of
Foreign Direct Investment is that it involves not only a transfer of resources but
also the acquisition of control. i.e the subsidiary does not simply have a financial
obligation to the parent company, if is part of the same organizational structure
(Krugman and Obstfeld,2000). Foreign Direct Investment involves much more
than the simple transfer of capital or the establishment of a local factory in a
developing nation. Multinational carry with them technologies of production,
tastes and diverse business practices including cooperative arrangement,
marketing restrictions advertising and the phenomenon of transfer pricing. They
engage in a range of activities, many of which have little to do with the
development aspirations of the countries in which they operate. (Todaro, 2000).
Temle (1999) demonstrates that technical changes and technological
learning which are significant components of Foreign Direct Investment represent
important determinants of economic growth. Furthermore, it is relevant to add
that technology is generated by Research and Development (R&D), most of which
is conducted in industrialized countries making technology transfer very
important for economic prosperity of countries with weak Research and
Development (R&D) and innovation capacities.
Political and economic policies bothering on FDI assist immensely in stimulating
the economic growth of the recipient nations Chang(2001) believes that in the
16th and 17th centuries deliberate transfer policies of King Henry viii made Britain
a leading manufacturing nation. Among the hotly debated issues in development,
economics is the role played presently by FDI in export performance of
developing countries such as the case of East and South East Asian country.
FDI flows to Africa have expanded only marginally and are still at levels
behind those of other developing countries. The region accounted for less than
1% of the global total FDI inflows in the late part of 1990s (Odenthal, 2001) while
inflows to developing countries as a group increased from U.S $20billion to U.S
$75billion between 1981 and 1985. Africa’s share of that inflow dropped
(UNCTAD 1999).
Historically, low rates of FDI inflows to the region and Nigeria in particular
are explained by hostile policies, unstable political environment characterized by
civil wars and armed conflicts, lack of effective regional integration efforts, poor
and deteriorating infrastructure, burdensome regulations or lack of institutional
capacity to implement FDI to establish confidence.
1.2 STATEMENT OF PROBLEM
In recent time, the government of Nigeria has embarked on economic
policies to check the flow of Foreign Direct Investment (FDI) in certain sectors of
the economy. Admittedly, how to achieve rapid economic growth and
development through FDI which has proved to be one of the economic problems
facing Nigeria.
Therefore, this work tend to analyze critically the following:
i. The determinants of FDI in emerging economy such as Nigeria.
ii. The impact of Foreign Direct Investment on the growth of Nigerian
economy.
iii. To analyze the increase in local wage cost through payment of wages by
Multinational Corporations (MNC) affiliates.
iv. To examine the importation of capital intensive and cost dates
technology.
1.3 RESEARCH QUESTIONS
The following research questions have been designed as a guild to elicit
reliable information for this study. They are:
v To which extent will the Nigerian economy depend on the foreign capital
inflow?
v How friendly is Nigeria’s trade policy and environment to FDI?
v How have the Nigerian industries been stimulated by foreign technology?
v Does intellectual poverty production increase the attractiveness of FDI?
v To which extent has the FDIs in Nigerian led to the diversification of
Nigerian economy?
v Has the rate and volume of FDI into Nigeria increased the consumption
expenditure of its citizenry?
1.4 OBJECTIVE OF THE STUDY
The objective of the study includes:
i. To determine the magnitude of the impact of FDI on economic growth in
Nigeria.
ii. To find out whether or not FDI has a significant impact on the growth of
Nigeria economy.
iii. To examine the appropriateness and suitability of the nature and quality of
foreign technology transfer on Nigeria economy.
1.5 RESEARCH HYPOTHESIS
The following hypothesis have been formulated to determine the validity and
reliability of the study.
1. Null Hypothesis (Ho): There is no relationship between the volumes of FDI
inflows and the growth of the Nigerian economy.
Alternative Hypothesis (H1): There is a relationship between the volume
of Foreign Direct Investment inflows and the growth of the Nigerian
economy.
1.6 SIGNIFICANCE OF THE STUDY
Technological adoption by any country is a function of local technological
capabilities which in turn are largely determined by the quality and volume of
Research and Development being sponsored by foreign or parent companies.
Thus, FDI appears to substitute local innovation as the technology recipient firms
in the n host country becomes mere in the global chain of affiliates subject to
central decision making. Therefore, this study is designed to assist the policy
maker in determining the technology transfer through FDI into Nigeria. Also, the
global economic circumstances permit that national economics should be
integrated into global economic network and this is only possible through
effective capital transfers appraised and monitored through research of this
nature.
There is also need to meet challenges post by foreign product domination of
internal market and this is supported by research work such as this study. The
study can also be relevant in universities and research centers in Nigeria libraries,
National Bureau of Statistic and investors will find this study highly useful.
1.7 SCOPE OF THE STUDY
The study is restricted within the confines of the impact of Foreign Direct
Investment in the growth of Nigeria economy. The time frame covered by the
study is between 1990-2011. The topic is chosen because of the importance of
FDI in the growth of the Nigerian economy since independence.
1.8 LIMITATION OF THE STUDY
In the course of this study, many problems were encountered and most of
them centered on time, finance, dearth of data and poor attitude of respondents.
The impact of time constraints were enormous because of the nature of
programme. Financing of a project of this nature is always costly and this has
been a major constraints because cost of sourcing materials, assemblage of data
obtained, collected and printing constitute large chuck of fund. Also, dearth of
data and poor attitude of respondents affected the early completion of the study
many business organization in Nigeria do not make public their data bank for
reach studies and this affects the quality of the information generated from either
National Bureau of Statistics (NBS) and those released by their personal.