An Econometrics Analysis of Foreign Direct Investment on Economic Growth in Nigeria.

Abstract

This study investigates the Econometrics analysis of foreign direct investment (FDI) on economic growth in Nigeria for the period of 1985-2010. it examines the importance of foreign direct investment (FDI) as a source of financing for development in Nigeria and investigates the channels through which it benefits the economy. An extended Cobb Douglas production function is used whereby investment is disaggregated into two different types' namely, domestic private investment and foreign direct investment for more comparative analysis. This research work is similar to numerous empirical studies and conclusions in Nigeria on FDI and its importance to economic growth. The study employs recent techniques in time series econometrics namely Co- Integration, Error Correction Model (ECM) to determine the long and short run term impact of foreign direct investment on economic growth as well as the ordinary least techniques to estimate our equation for the period under study. The funds that FDI overall contribution is significant and has a negative effect on Nigeria's economic growth. This is based on the fact that Nigeria has not been able to absorb the knowledge and technical spillover effect of foreign direct investment inflow into the country. However FDI fails to augment human capital development due to the low level of existing human capital in the country and there is need for more emphasis on training to enhance its potential to contribute to economic growth, factors such as political and macroeconomic instability, low growth, weak infrastructure, poor governance, inhospitable regulatory environments, and ill-conceived investment promotion strategies, are identifies as responsible for the poor FDI record in Nigeria. Examining the constraints to improve contribution of FDI to the growth process, the study concludes that it will require an appropriate mix of proactive government policies to direct FDI to priority sectors of the economy; effective enabling environment to make Nigeria an attractive FDI host.