FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA

Background of the study: Many policy makers and academics argue that foreign direct investment (FDI) can have robust positive effects on a host economy’s development. In addition to the direct capital financing it supplies, FDI can be a source of valuable technology and know-how and enhances linkages with local firms, which can help to boost growth in an economy. Based on these arguments, industrialized and developing countries have offered incentives to encourage foreign direct investments in their economies (Melnyk, Kubatko and Pysarenko, 2014). Foreign Development Investors are mostly invited by transition and developing countries in a hope that through this international activity, the positive experience from developed countries will come to their domestic economies (Silvio, and Ariel, 2009). Thus, as foreign direct investment flow increases in an economy, export volume of that economy increases (Pulatova, 2016). For a developing country like Nigeria, foreign direct investment is considered as a way of transferring technology and capital from other developed and even developing countries to the domestic economy. According to Yu, Ning, Tu, Younghong and Tan (2011) FDI is considered to be one of the major channels of technological transfer. Melnyk, Kubatko and Pysarenko (2014) believe that when foreign direct investment comes to a domestic country (in specific business), that firm receives a competitive advantage due to the usage of new knowledge, experience, ways of production and management. Adding that current successful economic growth of developing countries is explained by "catch up effect" in technological development with developed countries. Lahiri and Ono (1998) observe that higher efficiency of foreign firms may help lower prices and hence increase consumers’ surplus. Furthermore, FDI raises employment by either creating new jobs directly or using local inputs, thus, creating more jobs indirectly. According to Koojaroenprasit (2012), FDI is an important factor which contributes to economic growth through technology transfer. Capital accumulation and augmentation of human capital through education, trainings, and new managements are also prescribed to FDI inflows (Buckley, Clegg, Wang and Cross, 2002). Muntah, Khan, Haider and Ahmad (2015) opined that foreign direct investment contributes significantly in the human resource development, capital formation and organization and managerial skills of the people in an economy. Eller, Haiss and Steiner (2006) suggest the level and quality of foreign investment influences the financial sectors’ contribution to growth in emerging markets. The advantage for investors is that investing in developing countries may bring higher gain and profits. Also more productive foreign firms stimulate industry competition, which is often useful for domestic firms. Thus as suggested by Blomstrom and Kokko (1998), domestic firms with foreign investment have high-quality output, driving up production standards in other competitive domestic firms. The presence of foreign firms in the economy with their superior endowments of technology and management skills will expose local firms to fierce competition (Chen, Chang and Zhang, 1995). Local firms may also be under pressure to improve their performance and to invest in research and development. Thus FDI enhances the marginal productivity of the capital stock in the host economies and thereby promotes growth (Wang and Blomstrom, 1992). However, Schoors, Roen, Van der Tol and Bartoldus (2002) suggest that FDI can have a negative impact on domestic economies. This could happen through repatriation of profit and market stealing effect. Also, Stanisic (2008) did not find any positive correlation between FDI inflows and economic growth. Gorg and Greenwood (2002) conclude that the effect of spillovers from foreign-owned to domestically owned firms are mostly negative.

​​​​​​​STATEMENT OF THE PROBLEM

The Nigerian economy is believed to be associated with high risk market and dividing growth because of factors such as bad governance, unstable macroeconomic policies among others. Despite the plethora of incentive to stimulate growth which includes the repeal of laws that are immoral to foreign investment growth and the re-branding campaign, among others, the performance of economy in terms of quantum and per capital income is still very unimpressive and indeed disappointing in Nigeria. It is against this back drop that this study, seeks to investigate foreign direct investment and economic growth with the hope of proffering suggestions that could enhance in inflows of foreign investants capable of inducing growth in the economy.