Correlate of foreign direct investment and economic development evidence from Nigeria
DOI:
https://doi.org/10.22364/hssl.31.1.03Keywords:
Nigeria, Foreign Direct Investment (FDI), Exchange Rate, Economic DevelopmentAbstract
Foreign Direct Investment (FDI) and other macroeconomic variables such as the exchange rate, economic openness, and public sector investment are significant macroeconomic variables that drive economic growth and development. As a result, every government’s ability to sustain and maintain a balance among them is critical to long-term development. The study's goals were to establish the impact of foreign direct investment on Nigeria's economic development, as well as the impact of the exchange rate on Nigeria’s economic development. The ex-post facto research design was used in this study, as well as secondary data. The explanatory variable was Foreign Direct Investment, and the control variable was the exchange rate. The study spans the years 1981 through 2019. The explanatory variable was Gross Fixed Capital Formation (GFCF), which is a proxy for economic progress, and the model was estimated using the Auto Regressive Distributed (ARDL) Model. The data for this study came from the World Bank Data Base's World Development Indicators of 2019 and the Central Bank of Nigeria's Statistical Bulletin of 2019. According to the study, a 1.4 unit increase in foreign direct investment leads to a 1.4 unit increase in gross fixed capital creation. In addition, a unit increase in the exchange rate causes a 0.03-unit fall in gross fixed capital formation, and vice versa. According to the findings, there is a negligible positive link between FDI and GFCF, but a strong negative relationship between the exchange rates (EXR) and GFCF. As a result, the report suggests that FDI inflows be used to fund capital projects that are not for current consumption, such as good road networks, train lines across the country, and stable electricity supply. Without a doubt, this would lower the cost of doing business in Nigeria and boost profitability. According to our findings, while FDI alone cannot lead to economic growth and development, when other factors such as a favorable climate and simplified pre-investment procedures are available, more FDI will be drawn to key economic sectors, contributing to economic growth and development.
References
Acquah, A. M., Ibrahim, M. (2020). Foreign direct investment, economic growth and financial sector development in Africa. Journal of Sustainable Finance and Investment, 10 (4), 315–334. https://doi.org/10.1080/20430795.2019.1683504
Adediran, O., George, E., Alege, P., Obasaju, O. (2019). Is there any relationship between monetary policy tools and external credit-growth nexus in Nigeria? Cogent Economics & Finance, 7, 1625100. https://doi.org/10.1080/23322039.2019.1625100
Agyemang, O., Gbettey, C., Gatsi, J., & Acquah, I. (2019). Country-level corporate governance and foreign direct investment in Africa. Corporate Governance, 19 (5), 1133–1152. https://doi.org/10.1108/CG-07-2018-0259
Akinlo, A. E., Aremo, G. A. (2013). The effect of trade liberalisation on some selected poverty indicators in Nigeria (1980–2009): Generalised Method of Moments (GMM) approach. American Journal of Economics, 3 (5), 199–209.
Akiri, S. E., Vehe, B. M., Ijuo, A. O. (2016). Foreign Direct Investment and Economic Growth in Nigeria: An Empirical Investigation. IIARD International Journal of Economics and Business Management, 2 (5), 1–12.
Akpo, E. S., Hassan, S. (2015). Institutional quality matter: an empirical investigation of foreign direct investment in Nigeria. E-Journal of the Social Science Researches, 3 (1), 60–73.
Alfaro, L. (2017). Gains from foreign direct investment: Macro and micro approaches. The World Bank Economic Review, 30 (1), 2–15. https://doi.org/10.1093/wber/lhw007
Amoo, E. O. (2018). Introduction to special edition on Covenant University’s perspectives on Nigeria demography and achievement of SDGs-2030. Africa Population Studies, 32 (1). http://aps.journals.ac.za/pub/article/view/1170 [Google Scholar]
Anetor, F. O. (2019). Economic Growth effects of Private Capital inflow: A Structural VAR approach for Nigeria. Journal of Economics and Development, 21 (1), 18–29.
Antwi, S., Mills, E. F. E. A., Mills, G. A., Zhao, X. (2013). Impact of foreign direct investment on economic growth: Empirical evidence from Ghana. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3 (1), 18–25.
Arrow, K. (1962). Economic welfare and the allocation of resources for invention. Princeton University Press, pp. 609–626.
Bermejo Carbonell, J., Werner, R. A. (2018). Does foreign direct investment generate economic growth? A new empirical approach applied to Spain. Economic Geography, 94 (4), 425–456. https://doi.org/10.1080/00130095.2017.1393312
Boianovsky, M. (2017). Optimum saving and growth: Harrod on dynamic welfare economics. Oxford Economic Papers, 69 (4), 1120–1137. https://doi.org/10.1093/oep/gpx015
Bitzer, J., Gorg, H. (2009). Foreign direct investment, competition and industry performance. World Economy, 32 (2), 221–233. https://doi.org/10.1111/twec.2009.32.issue-2
Brick, J. M. (2014). Explorations in Non-Probability Sampling Using the Web. Proc. Stat. Canada Symp. 2014.
CBN Annual Report and Statement of Accounts for the year ended 31st December, 2012.
CBN Statistical Bulletin (2012a).
CBN Statistical Bulletin (2012b).
CBN. (2005). Annual report and statement of accounts. Author.
CBN Statistical Bulletin (2013).
CBN Statistical Bulletin (2018).
Choi, Y. J., Baek, J. (2017). Does FDI really matter to economic growth in India? Economies, 5 (2), 20–32. https://doi.org/10.3390/economies5020020
Creswell, J. W. (2009). Educational research Planning, conducting and evaluating quantitative and qualitative research. 2nd ed. Upper Saddle River, N.J: Pearson Education.
Coccia, M. (2019). Theories of the evolution of technology based on processes of competitive substitution and multi-mode interaction between technologies. Journal of Economics Bibliography, 6 (2), 99–109. https://doi.org/10.1453/jeb.v6i2.1889
Dinh, T. T. H., Vo, D. H., Nguyen, T. C. (2019). Foreign direct investment and economic growth in the short run and long run: Empirical evidence from developing countries. Journal of Risk and Financial Management, 12 (4), 1–16.
Domar, E. (1957). A Soviet model of growth. Essays in the theory of economic growth. Oxford University Press.
Easterby-Smith, M., Thorpe, R., Jackson, P. R. (2011) Management Research. 3rd ed. London, SAGE Publications
Egbunike, F. C., Emudainohwo, O. B., Gunardi, A. (2018). Tax revenue and economic growth: A study of Nigeria and Ghana. Signifikan: Jurnal Ilmu Ekonomi, 7 (2), 213–220. https://doi.org/10.15408/sjie.v7i2.7341
Emmanuel, I. J. (2016). Effect of Foreign Direct Investment on Economic Growth in Nigeria. European Business and Management, 2 (2), 40–46.
Eltis, D., Emmer, P. C., Lewis, F. D. (2016). More than profits? The contribution of the slave trade to the Dutch economy: assessing Fatah-Black and Van Rossum. Slavery & Abolition, 37 (4), 724–735. https://doi.org/10.1080/0144039X.2016.1242905
Evans, O., Kelikume, I. (2018). The effects of foreign direct investment, trade, aid, remittances and tourism on welfare under terrorism and militancy. International Journal of Management, Economics and Social Sciences, 7 (3), 206–232. http://dx.doi.org/10.32327/IJMESS.7.3.2018.14
Flora, P., Agrawal, G. (2017). FDI and economic growth nexus for the largest FDI recipients in Asian emerging economies: a panel co-integration analysis. International Business Strategy, 1(2): 261-275.
Giwa, B. A., George, E. O., Okodua, H. (2019). Causal nexus between foreign direct investment, capital intensity, labour quality and economic growth in Nigeria. Proceedings of the 33rd International Business Information Management Association Conference, IBIMA 2019, Grenada. Spain: Education Excellence and Innovation Management through Vision 2020, pp. 7282–7289.
Harrod, R. F. (1948). Towards a Dynamic Economics: Some recent developments of economic theory and their application to policy. London: MacMillan and Company.
Hanson, U. Efanga, U. Ekanem, B., Umoh, E. (2020). Foreign Direct Investment Inflows and Its Impact on the Performance of the Nigerian Economy (1981–2017) – Global Scientific Journals (GSJ), 8 (2), (February, 2020) Edition – GSJ Journal Publication.
Masipa, T. S. (2018). The relationship between foreign direct investment and economic growth in South Africa: Vector error correction analysis. Acta Commercii, 18 (1), 1–8. https://doi.org/10.4102/ac.v18i1.466
Malikane, C., Chitambara, P. (2017). Foreign direct investment, democracy and economic growth in Southern Africa. Africa Development Review, 29 (1), 92–102. https://doi.org/10.1111/1467-8268.12242
Michal, B. P. (2011). Nonprobability sampling. Encyclopedia of survey Research Methods 2008. SAGE.
Nigerian Statistical Bulletin. (2017). Central Bank of Nigeria.
Pandya, V., Sisombat, S. (2017). Impacts of foreign direct investment on economic growth: empirical evidence from Australian economy. International Journal of Economics and Finance, 9 (5), 121–131.
Peprah, P. A., Hongxing, Y., Pea-Assounga, J. B. B. (2019). Regional Foreign Direct Investment Potential in Selected African Countries. International Journal of Economics and Finance, 11 (10), 66–76. https://doi.org/10.5539/ijef.v11n10p66
Shuaib, I. M., Dania, E. N., Imaogene, I., Pogoson, O. O. (2015). The Impact of Foreign Direct Investment (FDI) on the Growth of the Nigerian Economy. International Journal of Research in Business Studies and Management, 11 (3), 121–143.
Sokang, K. (2018). The Impact of Foreign Direct investment on Economic Growth in Cambodia: Empirical Evidence. International Journal of Innovation and Economic Development, 4 (5), 31–38.
UNCTAD (2019). World Investment Report, 2019. New York: United Nations Publications.
UNCTAD (2018) United Nations Conference on Trade and Development. World Investment Report. https://unctad.org/en/PublicationsLibrary/wir2018_en.pdf
Uwubanmwen, A. E., Ogiemudia, O. A. (2016). Foreign Direct Investment and Economic Growth: Evidence from Nigeria. International Journal of Business and Social Science, 17 (3), 1–15.
Voica, M. C., Panait, M., Haralambie, G. A. (2015). The Impact of Foreign Direct Investment on Sustainable Development. Petroleum-Gas University of Ploiesti Bulletin, Technical Series, 67 (3), 605–613.
World Bank (2000) world Debt Tables: External finance for developing countries 1 (Analysis and summary tables Washington D.C. the World Bank.
World Bank (2002). Globalization, Growth and Poverty: Building an inclusive Word Economy. A World Bank Policy Research Report. New-York. Oxford University Press.
World Bank (2010). Foreign Direct Investment, Net #Inflow (BoP, Current US$) /data/table. Data, WorldBank.org. http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD. Retrieved 2012-11-17.
World Development Indicator. (2017). World Bank.
World Bank, 2. (2020). Doing Business 2020. License Creative Common Attribution CC: World Bank. Washington DC: World Bank Group.
Zekarias, S. M. (2016). The impact of foreign direct investment (FDI) on economic growth in Eastern Africa: Evidence from panel data analysis. Applied Economics and Finance, 3 (1), 145–160.
