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Generally, policies and strategies of Nigerian government towards foreign direct
investment are shaped by two principal objectives of the desire for economic
independence and the demand for economic development. Multinational
corporations are expected to bring into Nigeria foreign capital in the form of
technical skills, entrepreneurship, and technology and investment fund to boost
economic activities thereby raising the standard of living in Nigeria.
The main issues in this paper relates to understanding the effects of foreign direct
investment on the Nigerian economy as well as our ability to attract adequate
amounts, sufficient enough to accelerate the price of our economic growth and
development. From related research and studies, it was revealed that
multinational corporations are highly adaptive social agents and therefore, the
degree to which they can help in improving economic activities through FDI will be
heavily influenced by the policy choice of the host country.
Therefore this research work examines FDI and development of the Nigerian
economy from 1990 / 2010, a period o 20 years, using an ordinary least square
method of regression, the trade o relationship between FDI and GDP in Nigeria
was examined, the result showed that FDI has a positive relationship with GDP
and a positive change in FDI will increase GDP by 50.594 and also the nature and
magnitude of FDI can be determined.
Title page – – – – – – – – – – – I
Certification- – – – – – – – – – II
Dedication- – – – – – – – – – – III
Acknowledgement- – – – – – – – – IV – V
Abstract- – – – – – – – – – – VI – VII
Table of content- – – – – – – – – – VIII – XI
1.1 Background of the study– – – – – – – 1 – 3
1.2 Statement of problem- – – – – – – – 3 – 4
1.3 Research questions- – – – – – – – 4 – 5
1.4 Objectives of the study- – – – – – – – 5
1.5 Significance of the study– – – – – – – 5 – 6
1.6 Research hypothesis – – – – – – – 6 – 7
1.7 Scope and limitation of the study- – – – – – 7
2.1 Conceptual element- – – – – – – – 8 – 9
2.1.1 Definition of foreign direct investment- – – – – 9 – 10
2.1.2 Foreign direct investment and multinational corporation- – 10 – 12
2.1.3 Gains of foreign direct investment- – – – – – 13 – 15
2.2 Theoretical literature- – – – – – – – 15 – 18
2.2.1 The theory of foreign direct investment- – – – – 18 – 22
2.3 Empirical literature- – – – – – – – 22 – 25
2.3.1 The role of Nigerian investment promotion commission (NIPC) in
the promotion of FDI in Nigeria – – – – – – 25 – 28
3.0 Methodology- – – – – – – – – 29 – 30
3.1 Model specification- – – – – – – – 30
3.2 Method of evaluation- – – – – – – – 31
3.2.1 Evaluation based on economic criteria- – – – – 31
3.2.2 Evaluation based on statistical criteria- – – – – 31 – 32
3.2.3 Evaluation based on econometric criteria- – – – – 32 – 33
3.3 Justification of the model- – – – – – – 33
3.4 Data sources- – – – – – – – – 34
4.1 Presentation of result- – – – – – – – 35 – 36
4.2 Interpretation of result- – – – – – – – 36
4.2.1 Analysis of regression coefficient- – – – – – 36 – 37
4.2.2 Economic a’priori criteria- – – – – – – 37 – 38
4.2.3 Statistical criteria- – – – – – – – – 38 – 41
4.2.4 Econometric test- – – – – – – – – 42 – 46
4.3 Hypothesis testing- – – – – – – – 47 – 48
5.1 Summary- – – – – – – – – – 49
5.2 Policy recommendation- – – – – – – – 50
5.3 Conclusion- – – – – – – – – – 50 – 51
Bibliography- – – – – – – – – 52 – 54
Since Nigeria got her independence in 1960, it has created policies which are
geared towards promoting the Nigerian economic growth and development by
influencing domestic investment or indirectly policies which are aimed at
stimulating the flow of finance in any growing economy. This is so given that in
the literature there are divergent views on the nature of effects of foreign direct
investment. It has been argued to be the most growth stimulation sources of
foreign finance in any growing economy. There are divergent views on the nature
of foreign direct investment on host economies. There are views that foreign
direct investment produce positive effects on host economies and they argue that
some of the benefit are in the form of externalities and adoption of foreign
technology. Employers training and introduction of new process by the foreign
Developing countries in Africa, Asia and Latin America have come increasingly to
see that foreign direct investment is a source of economic development,
modernization, income growth and employment and poverty reduction. These
countries are successfully developing their economies under outward oriented
policies albeit in varying degrees.
Globally economists tend to favor the free flow of capital across national borders
because it allows capital to seek out the highest rate of returns. Nigeria is reputed
to be buoyantly blessed with an enormous minerals and human resources but
believe to be at a high risk market for investment. Foreign direct investment can
also be veritable booster to an economy (Omagbemir 2010).
Nigeria in the past and present has a large population and enlightened market. A
real potential market, an investment conscious society and a conclusive
sustainable environment for foreign private investment to thrive in the
development of the economy.
Foreign direct investment can be described as investment made so as to acquire a
lasting management interest (for instance 10% of voting stocks) and at least 10%
of equity shares main enterprise operating in another country other than that of
investor country(Willima 2003, World Bank 2007). Policy makers believe that
foreign direct investment (FDI) produce positive effects on host economies. Some
of these benefits are in the form of externalities and adoption of foreign
technology. Externalities can be a form of licensing agreement, limitation,
employee training and introduction of new processes by the foreign firms (Alfaro
According to Utomi (2007) foreign direct investment (FDI) via transnational
corporations do posses the needed capabilities which can be put to the services
of growth in any host economy.
One of the major economic problems in less developed countries (LDC) is low per
capital formation to finance the necessary investment for economic growth.
Capital was once regarded by most economists as the principal obstacle to
economic development and this made a lot of attention to be paid to capital
formation. The role of capital in economic growth is still regarded as very crucial.
Both the theory of “big push” and the concept of “vicious cycle” are all a test to
the crucial role of capital in the growth process. The theory of big push simply
states that the stagnant and undeveloped economies need huge and sudden
injection of large capital from foreign direct investment.
However in the literature FDI is found to be related to export growth while human
capacity building is found to be related to FDI floe.
Most studies on FDI and growth are cross country studies. However FDI and
growth debates are country specific. Among Nigeria, studies like those by Otepola
(2002), Oyeyide (2005), and Akinlo (2004) examined the importance of FDI on
growth for several periods and the channel through which it may be befitting the
In the literature there exist, a direct positive link between export growth and the
growth of an economy. This growth in export can further be traced down to the
level of investment which in most cases can be domestic or foreign investment.
This is so given that foreign capital remains the best option to filling the saving
investment gap where it exists. Given this fact assessment will be based on the
existing link among investment, export, exchange rate and economic growth.
Based on the objective of the study the following research questions are
necessary or the formulation of hypothesis
1. Does the FDI have a significant impact on the development of the Nigeria
2. What is the nature and magnitude of the FDI on economic growth in
3. Are there enough incentives by the governed to encourage the flow of FDI
The objectives of the study are as follows
I. To find out whether or not FDI has a significant impact on the growth of the
Nigerian economy
II. To determine the nature and magnitude of the impact of FDI on economic
growth in Nigeria
III. To ascertain the adequacy of the level of fiscal incentives given to foreign
investors by the Nigerian government
It is hoped that this study will act as a reference point for policy debate in the idea
of FDI in our economy.
On the whole it is envisaged that the research findings will be of the following
specific significance.
1. It will serve as a guide to economic policy makers and planners in future
decisions concerning FDI
2. It is equally hoped that the findings and recommendation of this study will
be of immense benefit not only to the government but also to other
researchers and students for future research undertakings
In order to find answers to the questions raised in the research questions, the
following hypothesis are necessary and would be tested and it will either be
accepted or rejected based on the research findings
I. Null hypothesis (HO): Foreign direct investment has a significant impact on
the development of the Nigeria economy
Alternate hypothesis (H1): Foreign direct investment has a significant
impact on the development of the Nigerian economy
II. Null hypothesis (HO): The nature and magnitude of foreign direct
investment on economic development in Nigeria cannot be determined
Alternate hypothesis (H1): The nature and magnitude of foreign direct
investment on economic development in Nigeria can be determined
III. Null hypothesis (HO):The level of fiscal incentive given to foreign investors
by the Nigeria government are not adequate
Alternate hypothesis (H1): The levels of fiscal incentives given to foreign
investors by the Nigeria government are adequate
Its focus is to verify if there is any contribution made toward economic growth
and development of Nigeria economy via gross domestic product (GDP) through
foreign direct investment for the period 1990-2010. It will be limited to
investigate the impact of FDI in the development of Nigeria economy.
Government also sought for measures to enhance economic development and
inflow of foreign direct investment into the country to reach its peak.


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