The research investigates the determinants of foreign direct
investment (FDI) in Nigeria over the period for 1980-2007. Cochrane Ocutt
method of regression was utilized in the study. The findings indicate that
exchange rate (economic factor) and political instability are the crucial
determinants of FDI in Nigeria.
Domestic market size (represented by GDP), openness to trade and
inflation are insignificant determinants of FDI.
The regression model however, showed a significant fit with
f-value of 36. 521 and adjusted R2 of 0.93 at 0.05 confidence level. It was
also observed in the result that the behaviour of GDP and inflation to FDI is
contrary to theoretical and empirical expectation of positive and negative
The findings suggest that policy measures, primarily directed at
efficient exchange rate management and minimal political risk, would promote
FDI flow in the country.
TABLE OF CONTENTS
CHAPTER ONE: BACKGROUND OF STUDY
Objective of the
Hypothesis of the
Significant of the
Scope to the
Limitation of the
Methodology of the
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual frame
2.2 Foreign investment policy in
2.3 Trend and composition of foreign
2.4 Determinants of foreign
2.5 Foreign investment inflows volatility
and its impact
2.6 Foreign investment and economic
development in Nigeria
CHAPTER THREE: RESEARCH MODEL SPECIFICATION
3.1 Theoretical Framework and Model
FOUR: PRESENTATION AND ANALYSIS OF
4.3 Analysis of regression
FIVE: SUMMARY, CONCLUSION AND
5.1 Summary of
Growth in neoclassical theory is brought about by increase in the
quantity of factors of production in the efficiency of their allocation. In a
simple world of two variables, labour and capital, it is often presumed that
low income countries have abundant labour but lees capital. This situation of
domestic savings in these countries places constraints on capital formation and
hence growth. Even where domestic input in addition to labour are readily
available and no problem of input supply, increased production may be
influenced by scarcity of imported inputs upon which the production processes
in low income countries are based.
International capital flows (ICF) readily becomes an important
source or means of enhancing developing countries to overcome their capital
flow in foreign private investment (FPI) other components are:
Official flows from bilateral sources (e.g. developed and OPEC countries) and
multilateral sources such as the World Bank and its two affiliates: The International
Development Assistance (IDA) and the International Finance Corporation (IFC) on
concessional and non-concessional terms.
Commercial loans including exports credit: Economic theory suggests that
capital will move from countries where it is abundant to countries where it is
scares. This pattern of movement will be informed by the returns of new
investment opportunities which are considered higher in cases where capital is
The result capital relocation will boost investment in the
recipient countries and bring about enormous social benefits. With the advent
of the third millennium era, globalization has continued to accelerate. In the
areas of international trade and finance, many factors including accelerated
privatization and economic liberalizations have also pushed globalization in
almost every nation in the world. One important economic consequence of
globalization for developing countries has been massive and unprecedented
inflows of foreign capital during the final decade of the 20th century.
However, Private Capital Inflows (PCI) wrested primacy place from
public flows, seizing the pre-eminent finance for developing countries.
According to Weitz and Lijane (1998), while official flows totaled $56billion
in 1990, compared to $44billion in private flow by 1996, public flows had
declined to $41billion and private flows grew to 244billion.
UNCTAD figures show that in 1997, FDI inflow amounted to US
$400billion and in 1998 rose to an unprecedented level of US $440billion (Mallampally
and Sauvant, 1999). Although GDP have become widely dispersed among recipient
countries in recent years, the distribution is still skewed with Asia receiving
the lion’s share of FDI flows going to developing countries and Africa
According to Mallam Pally and Sauvant, among developing countries
the distribution of the World FDI inflows is uneven. In 1997 for example
developing Asia received 22%, Latin America and Caribbean 14% and Africa 1%.
Another perspective on the skewness of distribution is obtained when it is
realized that in 1995, 81% of global FDI flows to developing countries went to
12 countries while 89% of all portfolio flows to almost the same dozen
countries (Weizt and Lijane, 1998). Therefore, the challenge to attract more
inflows of foreign investment in developing countries particularly those
Sub-Saharan Africa has increased in recent years due to the accelerating
process of globalization.
According to Weitz and Lijane (1998). Opening of a country
requires investment for connecting the necessary infrastructure such as roads,
telecommunication, power plants and financial system. Given the low income and
low savings in many African countries, the investment- savings gap has widened
and little hope of closing without the active involvement of private sector,
both domestic and foreign.
1.2 STATEMENT OF PROBLEM
Nigeria is believed to be a high risk market for
investment because of factors such as bad governance, unstable
macroeconomic policies among others. Since the enthronement of democracy in
1999, the government of Nigeria has taken a number of measures necessary to woo
foreign investors into the country. These measures include the repeal of laws
that are inimical to foreign investment growth, promulgation of investment
laws, oversea trips of image laundry such as “re-branding” campaign, among
Despite the plethora of incentives, the performance of foreign
investment in terms of quantum is still very unimpressive and indeed
disappointing in Nigeria. Therefore the questions raised are:
What are the major determinants of foreign investment inflow?
What is the likely impact of foreign direct investment on economic development
What is the policy framework of attracting foreign investment by the government?
OBJECTIVE OF THE STUDY
The study specifically seeks:
To evaluate the determinants of foreign investment in Nigeria.
To trace the impact of foreign investment in Nigeria.
To review the trend of foreign investment inflows in the country overtime.
To examine the issue of foreign investment volatility.
HYPOTHESIS OF THE STUDY
The following hypotheses have been formulated and shall be tested
for conclusive result on the determinants of foreign direct investment (FDI).
The hypothesis of this study holds that:
H0 (Null Hypothesis): That Nigeria’s
foreign investment has no significant impact on the development of the Nigeria
hypothesis): That foreign investment inflow has a significant impact on the
development of the Nigerian economy.
SIGNIFICANCE OF THE STUDY
Given the unprepossessing growth rate of the Nigeria economy
especially as she is interested in becoming one of the 20th largest
economies in the world by the year 2020, the study will focus on discovering
the factors that will extend and enlarge the frontiers investment flows in the
This research will serve as a good guide for monetary authorities
and authorized players in the external sector as it will portray at a glance
the state of foreign investment in Nigeria. There is no doubt that academics
will also find it useful for further research.
1.6 SCOPE OF THE STUDY
The primary objective of this paper is to find the main
determinants of foreign investment in Nigeria. In the process, a special effort
is made to analyze the nexus between policy environment and foreign investment
inflow in Nigeria, and explain the pattern of foreign investment flows since it
is not possible to include all.
1.8METHODOLOGY OF THE STUDY
The source of collection of data for this study will be secondary
source such as the Central Bank of Nigeria (CBN) publication and statistical
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