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Impact of Foreign Direct Investment on Economic Growth in Nigeria

Author

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  • Oyegoke, Ebunoluwa O.
  • Aras, Osman Nuri

Abstract

In most developing countries, Foreign Direct Investment (FDI) serves as a means of earning foreign reserves via investments, businesses and foreign aids from advanced countries. FDI is considered a valuable source of finance and capital formation, Technology-Transfer and know-how, as well as a viable medium for trade among countries. The Spillover effect also allows for the transfer of innovations and invention to the receiving countries, one of which Nigeria belongs. According to the requirement for accelerated growth in association with the Sustainable Development Goals is not completely clear, however, for economies to experience sustainable and inclusive development, cross-border trade is paramount. Presently, Nigeria is the first host economy of FDI in Sub-Saharan Africa, and the third in the continent. Recently, Nigeria has witnessed several trade policies which aim at diversifying the economy away from oil revenue. These policies are focused on improving the industrial sector, and of course, results in austerity. In 2018, the total FDI inflow to the country was around USD 1.9 billion, while in 2017, FDI inflow was around USD 3.5 billion, showing a decrease due to the consequence of the austerity measures imposed in 2018. At the third quarter of 2019, the FDI was only 3.37% (USD 200.08 million) of the total capital inflow for the period. Traditionally, FDI is designed to improve the recipient economies thereby enhancing economic growth and development, it is in this view that many developing countries attract foreign investors with the hope of strengthening their economy by increasing the foreign investment portfolio. However, most empirical analysis of the impact of FDI on economic growth advises otherwise, hence, a controversy. According to the existing literature, some empirical results found a negative relationship between FDI and economic growth, while others opined that as FDI increases, it results in a boost of output productivity, hence a positive relationship between the variables. Therefore, this study contributes to the existing literature by investigating the effects of FDI both on the owner, and the host country, using Nigeria as a case study.

Suggested Citation

  • Oyegoke, Ebunoluwa O. & Aras, Osman Nuri, 2021. "Impact of Foreign Direct Investment on Economic Growth in Nigeria," MPRA Paper 108348, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:108348
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    References listed on IDEAS

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    1. Amna Muhammad Gudaro & Imran Umer Chhapra & Salman Ahmed Sheikh, 2012. "Impact Of Foreign Direct Investment On Economic Growth: A Case Study Of Pakistan," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 8(2), pages 22-30.
    2. Nuno Carlos LEITÃO & Saeed RASEKHI, 2013. "The impact of foreign direct investment on economic growth: the Portuguese experience," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(578)), pages 51-62, January.
    3. repec:agr:journl:v:1(578):y:2013:i:1(578):p:51-62 is not listed on IDEAS
    4. Gudaro, Amna Muhammad & Chhapra, Imran Umer & Sheikh, Salman Ahmed, 2012. "Impact of foreign direct investment on economic growth: A case study of Pakistan," MPRA Paper 51069, University Library of Munich, Germany.
    5. Amna Muhammad Gudaro & Imran Umer Chhapra & Salman Ahmed Sheikh, 2012. "Impact Of Foreign Direct Investment On Economic Growth: A Case Study Of Pakistan," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 8(2), pages 8-3.
    6. World Bank, 2020. "Doing Business 2020," World Bank Publications - Books, The World Bank Group, number 32436, December.
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    Cited by:

    1. Sunday Anderu Keji, 2023. "Industrial output growth and foreign direct investment in Nigeria," Future Business Journal, Springer, vol. 9(1), pages 1-13, December.
    2. Elias A. Udeaja & Nathan Audu, 2023. "Asymmetric Effect of External Debt and Foreign Capital Flows on Economic Growth: New Evidence from Nigeria," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 9(3), pages 345-368, July.

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    More about this item

    Keywords

    Foreign Direct Investment; Economic Growth; Sustainable Development Goals; Nigeria.;
    All these keywords.

    JEL classification:

    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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