ABSTRACT

This research study was designed to analyze the effect of foreign direct investment (FDI) on economic growth in Nigeria. To achieve the objective of the study, secondary data from the Central Bank of Nigeria statistical bulletin and the National Bureau of Statistics for the period of 2000-2015 was collected. The analysis of data was conducted using econometric analysis by employing tool of Ordinary Least-Square (OLS). The study employed the Johansen co-integration test and Error Correction Method. The co-integration test shows the existence of long run equilibrium relationship among the variables. Among other things the result of the study revealed that the positive value of the co-efficient of (FDI) indicates that, for every one percent increase in foreign direct investment (FDI), there will be a corresponding increase of 1.6 in gross domestic product (GDP). This shows that foreign direct investment has a significant positive effect on Gross Domestic Product. There is a negative relationship between EDS and GDP. This implies that an increase in external debt stock (EDS) will bring about a decrease in gross domestic product (GDP). The relationship between official exchange rate (ExR) and GDP is significant. This result indicates that each component of the explanatory variables has variant impact on the dependent variable. This implies that the estimated model can be used for policy analysis as well as for economic inference. The study recommended that improving the currently bad image of the country is the key to reversing the dismal FDI trend of the country and Africa at large. This requires an increase in Political stability, Macroeconomic stability and the protection of property rights as well as the rule of law.

1.2             Statement of the Problem

Nigeria like most highly indebted poor countries has low economic growth and low per capita income, with domestic savings insufficient to meet developmental and other national goals. Nigerian exports are mainly primary commodities with export earnings too small to finance imports capital intensive goods which are comparably more expensive (Siddique, Selvanathan and Selvanathan, 2015).

Compounding the problem is Nigeria’s drift to mono economy with the discovery of oil. The oil sector generates about 95% of foreign exchange earnings and about 80 percent of budgetary revenue. The inability to diversify her revenue sources coupled with corruption and mismanagement compels Nigeria to have inadequate fund for growth and developmental projects such as roads, electricity pipe borne water and so on that could create an enabling environment for foreign direct investment (FDI).

Nigeria as a developing nation has adopted a number of policies such as the Structural Adjustment Programme (SAP) of 1986 to liberalize her economy and boost Gross Domestic product (GDP) growth. In a bid to ensure the implementation of these policies the government embarked upon massive borrowings from multilateral sources which resulted in a high external debt service burden and by 1992 Nigeria was classified among the heavily indebted poor countries (HIPC) by the World Bank.

FDI is assumed to be beneficial, but, inherent problems in Nigeria such as capital flight, poor governance, macroeconomic instability, corruption, weak exchange rate, and weak export base among others make the effects of foreign direct investment on economic growth in the country to be demanding empirical answers. Hence, this study is motivated to empirically investigate how inflows from FDI affect the growth of the Nigerian economy.

1.3             Aims and Objectives of the Study

The general aim of this study is examine the effect of foreign direct investment on economic growth in Nigeria. The specific objectives are.

(a)              To investigate the impact of foreign direct investment on gross domestic product in Nigeria.

(b)              To find out the impact of exchange rate on gross domestic product in Nigeria.

(c)              To examine the effect of external debt on economic growth in Nigeria.

(d)              To analyse the determinants of foreign direct investment in Nigeria.

1.4    Research Questions

This study was guided by the following research questions:

        i.            What is the impact of foreign direct investment on gross domestic product in Nigeria?

     ii.            To what extent does exchange rate impact on gross domestic product in Nigeria?

   iii.            What is the effect of external debt on economic growth in Nigeria?

   iv.            What are the determinants of foreign direct investment in Nigeria?

1.5       Research Hypotheses

The research was intended to test the following hypotheses:

Hypothesis One

H_o:      There is no significant effect of foreign direct investment on gross domestic          product in Nigeria.

Hypothesis Two

H_o:  There is no significant effect of exchange rate on gross domestic product in   Nigeria

Hypothesis Three

H_o:      There is no significant effect of external debt on economic growth in Nigeria.

1.6       Significance of the Study