ABSTRACT
This study set out to empirically examine the effect of Foreign Direct Investment (FDI) on the economic growth in Nigeria between 1970 and 2010. The paper makes the proposition that there exists controversies over the effect of FDI on the economic growth of developing nations. However, the results obtained showed that FDI has some positive spillovers on the Nigerian economy hence the need to embark on the policies that would help to bring about greater FDI inflows.
CHAPTER ONE
INTRODUCTION
1.0 Background of the Study
The focus of this project is to study the effects of FDI on the Nigerian economy, identifying factors and conditions that promote or retard development. Developing countries are in a dilemma arising from the desire for foreign capital for internal economic development, yet there is the fear that foreign investors (which are already said to be at commanding heights of some sectors of the economy) may wrest complete control of the international economy and render it an appendage of the western economic hegemony.
However, most of the economic blueprints that have been recommended for developing economics are in agreement on the need for foreign capital. Thus, a developing country may have to determine the actual sectors which have to attract foreign private investment and also determine the optimum level of foreign investment that is necessary in order to supplement its internal resources. Thereby, maintaining a balance between economic development and economic independence. (IMF, 2009).
The impact of foreign direct investment has never been as important as it is now in the early 21stcentury, nations are more linked through trade in goods and services flow of money and investment. Owing to the enormous benefit accrued, most countries strive to attract foreign direct investment (FDI) as it is a proven tool of economic development. African and Nigeria in particular joined the rest of the world in seeking FDI as evidenced by the formation of the New partnership for Africa’s Development (NEPAD), which has the attraction of foreign investment to Africa as a major component (Funke and Nsouli 2003).
In the literature of Caves (1996), it was observed that the rationale for increased efforts to attract more FDI stems from the belief that FDI has several positive effects. Among these are productivity gains, technology introduction of new processes, managerial skills and know- how in the domestic market, employee training, international production networks and access to markets.
An agreed framework definition of foreign direct investment (FDI) exists in the literature, that is, FDI refers to the net inflows of investment to acquire a lasting management interest (10percent) or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of equity, other long- term capital, and short-term capital as shown in the balance of payments. It usually involves participation in management, joint- venture, transfer of technology and expertise. There are two types of FDI: Inward foreign direct investment and Outward foreign direct investment; resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment”, which the cumulative number for a given period.
FDI an indispensable factor to the economic growth of an economy is evident in the United States which is the world's largest recipient of FDI and is consequently the world's strongest economy. In the last 6 years America has benefited from the FDI through the establishment of over 4000 new projects and 630,000 new jobs have been created by foreign companies, resulting in .close to $314 billion in investment. Foreign companies has in the past supported an annual US payroll of billion with an average annual compensation of $68,000 per employee (UNCTAD, 2010)
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