THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN NIGERIA
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CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Over the years countries of the world have mutually helped each other in growing and developing. This has been made possible through the instrument of international trade. This trade is necessitated by the fact that no country is an island therefore is naturally endowed with all her needed resources.
In line with this trade between the advanced countries and the developing countries is necessary so that the advanced countries with their technical knowledge can transform the raw materials of the developing nations into finished goods.
The advantage of foreign capital investment especially foreign direct investment cannot be over emphasised, some of which include the acquisition of relevant and required technology, employment, inflow of foreign direct investment, manpower and human capital development, increased foreign exchange to the host countries and international accreditation and relevance.
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In Nigeria context successive government supported by the strong industrial and academic forces have identified this machinery of international trade as an important tool for growth and development. Using some e measures like giving credit consideration provision, basic infrastructure and right environment for production and investment, quality tax concession and favourable lending rates.
A compares of the results between the impact of FDI on economic growth and domestic investment has been made between the East and West African countries. The overall results indicate that FDI promotes economic growth that higher foreign direct investment promotes economic growth rate. Foreign direct investment is also found to crowd in domestic investments likely attributed to technology transfer and related spill overs effects comprising East and West African countries. It is found that the positive effect of FDI on growth is driven by West African countries while the negative effect of FDI on domestic investment is led by East African countries.
Over the last decades, the macro-economic performance of Nigeria can be described as being chequered. The average GDP growth rate of 3.95% achieved between 1970 – 2008 translates into a low growth rate of 1.49% in per capita income terms. This rate of growth in per capita terms is insufficient to reduce in a significant ay the level of poverty which remains the primary goal of developing policies in Nigeria. Ajayi (2006) notes that the savings rate of Nigeria is lower than that of most countries and far lower than the required investment that can induce growth rates that are capable of alleviating poverty.
Recent studies however show that Foreign Direct Investment is what is needed to bridge the gap of savings and investment that exists in African and in nigeria particularly. Prior to the 1970‟s FDI was not seen as an instrument of economic development the perception of FDI as parasitic and retarding the development of domestic industies for export promotion had engendered hospitality to multi –national companies and their direct investments in many countries.
However, the consensus now is that FDI is an engine of growth as it provides the much needed capital for investment, increased competition in the host countries industries and aids local firms to become more productive by adopting more efficient technologies or by investing in human and or physical capital. Foreign Direct investment contributes to growth in a substantial manner
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