FDI IN NIGERIA

FDI in Nigeria

Abstract

This study examines the impact of the foreign direct investment on the economy of Nigeria growth especially in the US multinational corporations between the years of 1986-2008.

Table Of Content

CHAPTER I: INTRODUCTION4

Background4

Aims and objectives6

Scope of the study6

Research Questions8

CHAPTER II LITERATURE REVIEW9

Literature Review9

Trends and Patterns of Foreign Capital Flows to Nigeria12

CHAPTER III: METHODOLOGY18

Measurement of Specific Variables and Data Sources19

Model Specification19

Techniques of Analysis20

Empirical Results20

Unit Root Test21

Correlation Matrix21

Granger-causes FDI23

Regression Results23

CHAPTER IV: DISCUSSION26

Nigeria in the Global Context26

Linkages to the Global Economy35

Nigeria's Recent Economic Development42

Challenges for Nigeria47

CHAPTER V: CONCLUSION50

Conclusion50

REFERENCES52

Chapter I: Introduction

Background

Nigeria long has been known as the premier oil producer on the African continent, but more recently it is also becoming known as the financial hub of the region, thanks to steady economic and political progress under President Umaru Yar'Adua, who took office in May last year. Despite the many challenges presented by the countries underbuilt social and economic infrastructure in nonoil sectors, at least — the country is now in a better position than ever before to resolve these problems. Once again, hopes run high.

Nigeria boasts huge oil reserves — estimated to be the 10th largest in the world — and gas reserves of some 180 trillion cubic feet. One important new foreign investment in the gas sector is a floating liquid natural gas plant by Norway's Flex LNG, which will sell up to 1.5 million metric tons per year to Mitsubishi Corp., starting in 2011. As oil revenues flow, domestic and foreign financing for growth in nonoil sectors is opening up quickly. That's helping to drive a stunning expansion of nearly 9 percent this year in gross domestic product.

While oil still represents about 40 percent of Nigeria's GDP, the government is focused on building out the country's transportation, water, tourism and housing sectors, with emphasis on public-private partnership (PPA) financing. Finance Minister Shamsudeen Usman calculates that over the next six years, the government will need to spend $10 billion a year to meet its growth goals under its Vision 2020 plan.

Measuring the effects of foreign direct investment (FDI) on economic growth occupies a substantial body of economic literature. Many theoretical and empirical studies have identified several channels through which FDI may positively or negatively affect economic growth. 2 However, probably due to relatively small level of foreign direct investment to Africa, when compared with other regions, e.g. Latin America and Asia, not many studies have been reported on the effects of FDI on economic growth. Moreover, most existing studies were based on economies where large share of FDI is concentrated on the manufacturing industries. No known study to our knowledge has been focused on an economy where extractive industries take the lion share of inward FDI as in the case of Nigeria. , 3

Several factors suggest that the indirect benefits of FDI may be less in extractive especially oil industries. One, extractive sector (such as oil subsector) is often an enclave sector with little linkages with the other sectors. Two, the transfer of technology between foreign firms and domestic ones ...