Impact of Foreign Direct Investment on Power Sector of Nigeria: 2000-2011

Abstract

Foreign direct investment is increasing in importance in the global economy due to the additional resources they pooled for development in the host country. The objective of this study is to ascertain the impact of foreign direct investment (FDI) on power sector in Nigeria using co-integration test, error correction model and time series data as research design. The result indicated that, most of the variables used were significantly related to the power sector output of the country. From the analysis of our study it was found that Foreign Direct Investment as macro-economic variables as well as openness to trade; infrastructural development; inflationary rate had a significant influence on power sector output in Nigeria. The result has an important implication in terms of policies that will attract foreign direct investment to the power sector of the country. We therefore recommend that, having seen that there is long-run relationship between foreign direct investment (FDI) inflow and power sector output in Nigeria and FDI in Nigeria induces the nation’s power sector growth. There is need to encourage FDI in Nigerian power sector and since FDI has the highest potential for contributing growth, it needs to be properly channeled and integrated into the mainstream of the nation’s power sector.