Is FDI always good? An evaluation of the impact of flows into Nigeria

Abstract

It is generally assumed in the literature that Foreign Direct Investment (FDI) is always good for an economy. Consequently, policy makers in developing countries, particularly in Africa, use their limited resources to pursue FDI at all costs. In this work, we question whether this conventional wisdom always stands. Using data on FDI and capital flows into Nigeria over time, we try to show that FDI has been concentrated in service and extractive sectors with weak linkages to the rest of the economy. Consequently, Nigeria has hardly reaped any meaningful gains despite being host to a huge proportion of FDI to developing countries. Instead, employment and development of the real sector are regularly undermined by the nature and timing of the flows. To make FDI more meaningful, we recommend more targeting in terms of sectoral direction of FDI as well as strengthening of the regulatory framework that forces FDI to be more responsive to the growth needs of the host.