chpater one introduction 1.1 background of the study
TRANSCRIPT
1
CHPATER ONE
INTRODUCTION
1.1 Background of the Study
The relative advantage(s) of foreign direct investment (FDI) as a productivity-
enhancing package is now widely acknowledged. This is evidenced in the new
attention being given to the drive for foreign direct investment (FDI) especially in
developing economies.
For a developing country, the inflow of foreign capital may be significant
in not only raising the productivity of a given amount of labour, but also allowing
a large labour force to be employed (Sjoholm, 1999). Domestic consumers may
also benefit from foreign direct investment (FDI) in that when the investment is
cost reducing in a particular industry, consumers of the product may gain through
lower product prices, hence another industry that raises this product benefit from
the lower prices. This creates profits and stimulates expansion in the second
industry. Additionally, if the investment is product improving or product
motivating, consumers benefit in the form of better quality products or new
products. For most countries, taxes on foreign profits or royalties from
concession agreements constitute a large proportion of total government revenue.
This externality is the spillover effect from FDI.
According to Taylor and Sarno (1997), FDI responds to economic
fundamentals, official policies and financial market imperfections.
Development economists have identified a strong association between
investment and economic growth. It has been observed that the expansion of
private investment should be the main impetus for economic growth in
developing countries. Barro (1991) and Barro and Sala-I-Martin (1992) predict
that output can only grow through increased factor accumulation and/or through
2
technical progress. However, most growth models have come to ascribe the rate
of growth of an economy as being determined by the accumulation of physical
and human capital, the efficiency of resource use and the ability to acquire and
apply modern technology. Since investment determines the rate of accumulation
of physical capital, it thus become an important factor in the growth of productive
capacity and contributes to growth of the economy. Hence, increasing foreign
private investment is an important channel for increasing aggregate investment.
Obwona (2001) noted other benefits of FDI as:
(i) The provision of managerial knowledge and skills including organizational
competence and access to foreign markets;
(ii) It enables the transfer of technology to occur from developed economies;
and
(iii) It provides an array of goods and services to residents in the recipient
country. Furthermore, private FDl may also serve as a stimulus to additional
investment in the recipient country through the creation of external
pecuniary economies such as infrastructures.
The acknowledged benefits of the FDI seems to be more than the demerits,
and this seems to explain the current move of developing countries, seeking to
attract FDIs by removing the structural barriers and encouraging foreign
investors. Such encouragement includes offers of incentives such as income tax
holidays, import duties exemptions, and subsidies to foreign Firms.
In an apparent shift of long-held stance against FDI, the Nigerian
government, like other developing nations introduced the Structural Adjustment
Programme (SAP) comprising a package of economic policy measures in 1986.
The programme incorporates trade and exchange reform reinforced by monetary
and fiscal measures, which were geared towards diversifying the mono-export
base of the economy by stimulating domestic production and encouraging use of
3
improved inputs for local production. To reinforce the gains of the economic
policy measures and further encourage foreign participation in the economy, the
Nigerian Investment Promotion Decree was promulgated in 1995 “to encourage,
promote and coordinate foreign investment and enhance capacity utilization in
the productive sector of the economy.” It also provides an opportunity for foreign
participation in Nigerian enterprises up to 100 percent ownership. To achieve
these objectives, the decree established the Nigerian Investment Promotion
Commission (NIPC) in conjunction with the foreign exchange (monitoring and
miscellaneous provisions) decree No. 17 of 1995 that establishes the
Autonomous Foreign Exchange Market (AFEM).
The composition of Nigeria’s Gross Domestic Product (GDP) shows that the
economy is agrarian in structure with agriculture accounting for 40.4 per cent of
GDP between 1989 and 1998. The low capacity utilization of the manufacturing
sector, estimated at below 30 per cent, is a major factor responsible for the
sector’s low contribution to the economy. The available production capabilities in
the Nigerian economy, the amount of investment goods and other resources
required to exploit the opportunities opened up by the SAP are so enormous that
a large component of external financing is needed. However, the policy indicates
Nigeria’s high preference for FDI as against any other type of foreign capital
inflow for financing development programmes.
1.2 Statement of the Problem
The consensus in the literature seems to be that FDI increases growth
through productivity and efficiency gains by local firms. The empirical evidence
is not unanimous. However, available evidence from developed countries seems
to support the idea that the productivity of domestic firms is positively related to
the presence of foreign firms (Globeram, 1979; Imbriani and Reganeti, 1997).
4
The results from developing countries are not so clear, findings of some
economists said that there is positive spillovers (Blomstrom, 1986; Kokko, 1994;
Blomstrom and Sjoholm, 1999) and others such as Aitken et. al. (1997) reporting
limited evidence. Still others find no evidence of positive short-run spillover from
foreign firms. Some of the reasons adduced for these mixed results are that the
envisaged forward and backward linkages may not necessarily be there (Aitken
et.al. 1997) and that arguments of Transnational Corporations (TNCs)
encouraging increased productivity due to competition may not be true in
practice Aitken et al. (1999). Other reasons include the fact that TNCs tend to
locate in high productivity industries and, therefore, could force less productive
firms to exit (Smarzynska, 2002). Cobham (2001) also postulates the crowding
out of domestic firms and possible contraction in total industry size and/or
employment. However, crowding out is a more rare event and the benefit of FDI
tends to be prevalent (Cotton and Ramachanclran, 2001). Furthermore, the role of
FDI in export promotion remains controversial and depends crucially on the
motive for such investment (World Bank, 1998). The consensus in the literature
appears to be that FDI spillovers depend on the host country’s capacity to absorb
the foreign technology and the type of investment climate (Obwona, 2004).
The review shows that the debate on the impact of FDI on economic
growth is far from being conclusive. The role of FDI seems to be country
specific, and can be positive, negative or insignificant, depending on the
economic, institutional and technological conditions in the recipient countries.
In essence, the impact of the FDI on the growth of any economy may be
country-by-country and period specific. As such there is need for country specific
studies in FDI.
Nigeria has the potential to become Sub-Saharan Africa’s largest economy and a
major player in the global economy because of its rich human and material
5
resources. With its large reserves of human and natural resources, Nigeria has the
potential to build a prosperous economy, reduce poverty significantly, and
provide the health, education, and infrastructure services its population needs.
However this has not been achieved because all major productive sectors have
considerably shrunk in size with the over dependence on oil. Income distribution
is so skewed that the country is one of the most unequal societies in the world,
with 50% of the population having only 8% of the national income (chart I ) .
Chart 1 – Income Distribution 1970-2000
Source: Sala-i-Martin and Subramaniam 2003
The income disparity contravenes the principle of optimality. For this reason, this
study seeks to provide answers to the following questions:
1. What is the extent and trends of FDI inflows in the various sectors of the
Nigerian economy?
2. Do shocks transmit from FDI-sectoral-inflows cause changes to economic
growth?
6
1.3 Objectives of the Study
The broad objective of this study is to identify impact of various sectors of FDI
inflow and its dynamics on the growth of Nigeria economy.
The specific objectives are:
(1) To examine the extent and the trends of FDI inflows in the various sectors
of the Nigerian economy
(2) To trace how shocks transmission from FDI-sectoral-inflows cause change
on Nigeria economic growth.
1.4 Hypotheses of the Study
These hypotheses will be tested in order to validate this study.
Ho: The magnitude of various sectors of FDI is not significant to stimulate
economic growth in Nigeria.
Ho: There is no transmission of shocks from FDI-sectoral inflows on economic
growth in Nigeria.
1.5 Significance of the Study
One of most salient features of today’s globalization drive is conscious
encouragement of cross border investments; especially by transnational
corporations (TNCs) and firms that many countries (especially developing
countries) and continents now see attracting FDI as an important element in their
strategy for economic development. Hence, the study that addresses the issue of
economic development draws the interest of academician, both foreign and local
investors as well as government. This study will help policy-makers to formulate
suitable policy action and its implementing strategies that are capable of
attracting foreign investors. The study is also useful contribution to literature on
FDI. Because of controversies among Economists, some Economists are of the
option that FDI crowds-out domestic investment while some Economists suggest
7
otherwise. Our study will help to add value to this debate and also good to
explain economic problem.
1.6 Scope of the Study
There are two forms of foreign investment namely foreign direct
investment and portfolio investment, but this study is restricted to foreign direct
investment as the topic suggested. This study covered the period of 1972 to 2009.
The choice of the period is based on data availability and to have adequate
observations for annual time series analysis.
8
CHAPTER TWO
LITERATURE REVIEW
2.0 Theoretical Literature
2.1 Motives For Foreign Direct Investment
Some recent contributions that characterize motives of FDI have included
technology seeking in the motives of FDI. For instance, in the case of firms in the
US that seeks a spillover of new technology in information technology or
biotechnology. Dunning (1993. 1997) describes FDI motives as primarily
resource seeking; market seeking; efficiency seeking; or strategic-asset-seeking.
These motives are outlined below:
(1) Resource-seeking investment (for materials or skilled labour) is usually
directly tied to the presence of natural resources or their processing. This is
generally seen as locationally-fixed investment, although processing activities
may be more mobile than extraction activities. Governments are generally seen to
have significant bargaining power over Multi-National Corporations (MNCs)
where this type of investment applies. Policy approaches to mineral rights and
licenses are likely to be significant issues in this kind of investment. The
investment by the Canadian firm (Placer Dome in South Africa’s mining sector)
may be seen as falling under this motive. Surprisingly, Estrin (2003) finds that
resource seeking has not been, or become the dominant motivation for entry into
South Africa. Only about a quarter of FDI in South Africa could be viewed as
resource seeking. It also appears that firms have made the strategic decision
about whether production is primarily destined for export or for the home market
before entering, as the proportions of exports do not alter greatly through time.
Resource seeking FDIs in South Africa are relatively more focused on the global
market, compared with FDI in a number of emerging countries (Estrin, 2003).
9
More than three-quarters of investors in South Africa export at least a small
proportion of their output (Meyer et al, 2002).
(2) Market-seeking investment (i.e., investment that is producing for the local
market) seeks to access individual or regional markets. South Africa’s
manufacturing base is widely diversified which suggests that there may be more
limited opportunities for market. The disparities in income between the Southern
African Development Community (SADC) countries may also work against the
regional market motive. Historically low growth (off a low base) in SADC
countries may also militate against the significance of this factor, unless higher
growth levels can be achieved and sustained. There is a perception that the
association of South Africa with regions such as the European Union can enhance
other emerging market’s prospects. South Africa has not necessarily benefited
from its association with SADC. The “FDI Confidence Audit” conducted early in
2000 by management consulting firm. Kearney reinforced this perception. It
concluded “South Africa’s first challenge is to define its identity as an investment
destination distinct from the rest of Africa” (Kearney, 2000). This suggests an
important potential role for South Africa, both in terms of its leadership role in
SADC and in the marketing of the region. For market seeking investors coming
into South Africa, technology, brands and management are the sources of
competitive advantage (Estrin, 2003).
(3) Efficiency-seeking or cost-reducing investment is undertaken by Multi-
National Corporations to provide more favourable cost bases for their operations.
For example, source factories may provide specific components in ‘globally
rationalized plants’. Efficiency-seeking FDI tends to be located in countries with
skilled, disciplined workforces and good technological and physical
infrastructure. The recent expansion of the Mercedes Benz plant in Port Elizabeth
10
by the foreign parent Daimler Chrysler appears to fall into this latter category.
Incentives which foreign investors get from host country helps to attract FDI
thereby reduce cost of operation of foreign investors. Countries attempting to
outbid competitors in this way may find themselves subject to ‘incentive
inflation’.
(4) Strategic-asset and capability-seeking investment aims at protecting or
advancing the global competitive advantages of the Multi-National Corporations
(MNCs). These kinds of investments tend to be locationally specific For
example, the recent acquisition of Safmarine by the Danish company, A P
Moller, can be seen as falling into this category, earning them access to a
southern shipping line. This category of investment also suggests the need to
expand investor horizons to the African continent, by providing reliable
information.
The second approach for discussing motives for foreign direct investment
examines the “push factor” and highlighted influences that motivate
Multinational Enterprises to seek locate of operations in overseas. A
classification that is particularly useful for our purposes distinguishes between
horizontal and vertical FDI models (Shatz and Venables, 2000; Lim, 2001). In
this context, FDI is classified as either “horizontal or market seeking” or “vertical
or conglomerate” (Moosa, 2002). In horizontal models, the principal motive is to
become more competitive by reducing the cost involved in supplying the market
(for example, tariff and transport costs), moving closer to markets or improving
the ability to respond to local circumstances or preferences. Such investment is
normally aimed at the domestic markets of host countries. Horizontal models
apply to market-seeking FDI as well as strategic-asset and capability-seeking
FDI. Vertical models, by contrast, generally apply to export-oriented flows where
the principle motive is to take advantage of low production costs in particular
11
locations. Such cost factors include primary commodities and other raw
materials, labour, intermediate goods and agglomeration benefits. Vertical
models apply to resource seeking FDI and efficiency-seeking or cost-reducing
FDI. The FDI decision is seen as being undertaken to generate profit by creating
or defending a market or gaining control of inputs (Kenworthy, 1997). Some
authors suggest that significant amounts of FDI should be considered
“defensive;” especially in cases where no immediate profit opportunity exists.
Yet other authors talk about the arrangements between the firms and the host
government as “obsolescing bargain” in which the ultimate terms of the
agreement are made after both sides get to see how profitable things are.
2.1.1 Determinants of Foreign Direct Investment’s Locational Decision
In summarizing the literature on the determinants of FDI location decisions, Lim
(2001) highlights six broad categories of factors: the size of the host market,
distances and transport costs, agglomeration effects (the state of the infrastructure
and the availability of specialized support services), time cost of factors of
production, aspects of the business and investment climate, and trade barriers (the
openness of the economy). It is often suggested that Multinational Corporations
MNCs) invest in a particular location to take advantage of strong economic
fundamentals of the host country (Dunning, 1993, Shapiro and Globerman,
2001). The most important are the market size and the real income levels. Some
econometric studies comparing a cross section of countries indicate a correlation
between FDI and the size of the market (proxied by the size of GDP) as well as
some of its characteristics (for example, average income levels and growth rates).
Some studies report GDP growth rate to be a significant explanatory variable,
where GDP is found not to be significant probably indicating that the current size
of national income is very small. Increments of GDP may have less relevance to
FDI decisions than growth performance, as an indicator of market potential.
12
Location theory would base the incentive on the reasons for the foreign investor
deciding to choose the host country, whereas industrial organization theory
would focus on successful competition between domestic producers and foreign
firms. In terms of location specific incentives factors such as access to local and
regional markets, availability of relatively cheap factors of production,
competitive transport and communications costs, the opportunity to circumvent
import restrictions and incentives offered by the host country will lead to
increased FDI (Cherry, 2001:10). Motives for FDI will hence include: (I) The
need for a secure and cheaper source of regularly required inputs; (2) The desire
to defend or expand markets or service existing clients in a particular foreign
region; (3) The wish to rationalize production into a network of the most efficient
production bases supplying the largest possible worldwide market; (4)
Investments in education, training and research; (5) Investments in transport and
communications (6) Other strategic reasons.
The relationships between FDI and each of these factors may be summarized as
follows (Lim, 2001:13-18):
The size of the host market appears to be key determinants of FDI. Surveying the
empirical evidence, Lim refers to several surveys and cross-section econometric
studies that found positive correlations between FDI and the size of the market
(proxied by GDP) and between FDI and other characteristics of the extent of the
market (for example, average income levels and GDP growth rates).
From an empirical perspective, the relationship between FDI and transport costs
is not robust, possibly reflecting the reality that such costs are likely to stimulate
horizontal FD1 and discourage vertical FDI. There is strong evidence suggesting
that foreign investment benefits from agglomeration effects: enterprises tend to
cluster around certain locations in order to benefit from linkages with others.
Several studies have uncovered positive relationships between the extent of FDI
13
and proxies of the quality of infrastructure, the degree of industrialization in
particular countries and existing stocks of FDI. The latter relationship indicates
that the presence of other foreign investors in a specific area is a powerful
stimulus to more FDI.
According to Lim, several studies have found that low labour costs
stimulate FDI. However, studies on relationship is between FDI and the quality
of labour (proxied by educational attainment); this suggests that the real influence
on FD1 may well be in unit (productivity-adjusted) labour costs.
Empirical results on the relationship between FDI and fiscal investment
incentives are mixed. It is possible that potential investors sometimes harbour
doubts about the permanence of such incentives, or expect that generous
incentives would be recouped in future by means of higher taxes? Lim (2001:19)
stated that appropriate fiscal regime for FDI should perhaps highlight a tax
system with low rates, and does not discriminate between foreign and domestic
investors, and which has corporate tax rates that are similar to those prevailing in
capital exporting countries”. Marr (1997) also argues that removing restrictions
and providing good operating conditions generally benefit FDI flows more than
offering investment incentives.
Studies on the relationship between FDI and the business or investment
opportunity generally distinguish two sets of factors: political and
macroeconomic stability, and other institutional factors that includes the
regulation of economic activity, the quality of the bureaucracy, the security of
property rights, the enforceability of contracts, labour regulations and
performance requirements such as mandatory joint partnerships and domestic-
content requirements. There is a strong negative relationship between FDI,
political risk and aspect of macroeconomic instability such as excessive budget
deficits, high inflation, exchange-rate instability and high levels of external debt.
14
The discouraging affects on FDI of political and macroeconomic instability stems
in large part from the irreversible nature of most investment expenditures
(Pindyck, 1991). Empirical evidence on the link between FDI and the other
institutional variables is less robust. Lim argues that this counter-intuitive finding
probably reflects the difficulty of measuring the investment impact of the
regulatory, bureaucratic and judicial environment.
Studies on the relationship between FDI and trade barriers (openness) also
yield conflicting findings. As is the case with transport costs, different types of
FDI are likely to be affected differently by trade barriers. A priori, one would
expect horizontal FDI to be stimulated by trade barriers, while vertical FDI is
likely to be discouraged by protectionist regimes.
It has been suggested twice in this section, the impact of FDI on some of these
determinants depend on whether the prospective investments are of the horizontal
or vertical types (cf. Lim, 2001:12-13). On the whole, horizontal and vertical FDI
are likely to be affected similarly by agglomeration effects, labour costs and the
state of the business and investment environment. The size of the host market
would be a much more important determinant of horizontal FDI (which is aimed
more at host-country markets) than of vertical FDI (which tends to be export
oriented). High transport costs would encourage investment if the focus market is
that of the host country (horizontal FDI), but discourage export-oriented
investment (vertical FDI). To the extent that horizontal FDI is motivated more by
the size and growth of the host market than with lowering production costs. Trade
openness should stimulate vertical FDI, which often requires substantial flows of
inputs in and out of the host country. Trade barriers are likely to encourage
horizontal FDI aimed at capturing already huge markets, but their growth-
sapping effects may discourage investment in markets where profitable operation
depends on continued expansion.
15
The recent proliferation of regional economic integration arrangements suggests
that cognisance should also be taken of their possible effects on FDI. Lim
(2001:18) argues that regional integration is likely to stimulate interregional FDI,
both in the static sense of increasing the size of the market and in the dynamic
sense of making the region a more attractive investment decision by increasing
efficiency and growth. The impact of intra-regional FDI is less certain (Lim,
2001:18). Regional integration can increase FDI by making it easier to operate
across regional borders, or reduce FDI by eliminating differences in tariff
regimes and other aspects of the business environments of the countries within
the region.
2.1.2 SECTORAL ANALYSIS OF FDI INFLOW IN NIGERIA
Although there has been some diversification into the manufacturing sector in
recent years, FDI in Nigeria has traditionally been concentrated in the extractive
industries. Table 1 shows the sectoral composition of FDI in Nigeria from 1970-
2001. Data from the table reveal a diminishing attention to the mining and
quarrying sector, from about 51% in 1970-1974 to 30.7% in 2000/01.
On the average, the stock of FDI in manufacturing over the period of analysis
compares favourably with the mining and quarrying sector, with an average value
of 32%. The stock of FDI in trading and business services rose from 16.9% in
1970-1974 to 32.6% in 1985-1989, before declined to 8.3% in 1990-1994.
However, it subsequently rose to 25.8% in 2000/01.
Table 1: Sectoral composition of FDI in Nigeria, 1970-2001 in percentage Year Mining
& quarrying
Manufactu-ring
Agriculture Transport & communication
Building & Construction
Trading & business
Miscellaneous service
1970-1974 51.2 25.1 0.9 1.0 2.2 16.9 2.7
1975-1979 30.8 32.4 2.5 1.4 6.4 20.4 6.1
1980-1984 14.1 38.3 2.6 1.4 7.9 29.2 6.5
16
1985-1989 19.3 35.3 4.1 1.1 5.1 32.6 5.2
1990-1994 22.9 43.7 2.3 1.7 5.7 8.3 15.4
1995-1999 43.5 23.6 0.9 0.4 1.8 4.5 25.3
2000-2001 30.7 18.9 0.6 0.4 2.0 25.8 21.5
1970-2001 30.3 32.2 1.7 1.1 4.7 19.1 10.9
Source: CBN Statistical Bulletin (various Issues)
Agriculture, transport and communications, and building and construction
remained the least attractive hosts of FDI in Nigeria. If the report from the
privatization programme (CBN 2004: 72) is anything to go by, however, the
transport and communication sector seem to have succeeded in attracting the
interest of foreign investors, especially the telecommunication sector. Nigeria is
currently described as the fastest growing mobile phone market in the world.
Since 2001, when the mobile telecommunication operators were licensed, the rate
of subscription has gone up and does not show any sign of abating; in fact, MTN
(Nigeria) the leading mobile phone operator - has acquired another line having
oversubscribed the original line. The four operators - MTN, V-mobile, Glo and
M-tel - are currently engaged in neck and neck competition that has forced the
rates down and in the process fostered consumer satisfaction. The effect of this
development is yet to be translated to the rest of the economy.
Our study goes further to give basic statistics on FDI in Nigeria. The period of
analysis is broken into two, separated by the official change of attitude
manifested in the establishment of the Industrial Development Coordination
Committee in 1988. The figures in the table thus present the analysis of FDI
inflow before and after the establishment of the Committee.
The mean figures for the FDI inflow after the policy shift are in all cases greater
than before, sometimes in multiples. Nominal FDI after the shift was about 339
times more than before, while the real FDI was seven times more than the value
17
before. However, the mean figure for manufacturing FDI and mining and
quarrying FDI dropped after the policy shift, suggesting a change in sectoral
allocation of FDI inflows.
De Gregorio, (2003) notes that one of the features of FDI is that it tends to be
relatively stable. In other words, when a crisis erupts, FDI cannot flee the country
as easily as more liquid forms of capital such as portfolio flows and debt. A
simple way to illustrate this point is to examine the persistence of different flows
by estimating the coefficient of variation and the autocorrelation coefficient for a
series of annual flows. The coefficient of variation measures the volatility or
otherwise of a variable.
The coefficient of variation for the nominal FDI is 315.96%, which is rather low
when compared with figures such as 23,366% for Korea, 3,719% for Indonesia,
1,123% for Argentina, 1,110% for the United States and 1,043% for France, as
computed by Claessens et al. (1995) for the period 1973.1 to 1992.1. The figures
for the other variables were even lower, thus suggesting relatively less volatile
nature.
2.2 Empirical Literature
In the face of inadequate resources to finance long-term development in
Africa and with poverty reduction looking increasingly bleak, attracting FDI has
assumed a prominent place in the strategies of African countries. The experience
of a small number of fast-growing East Asian newly industrialized economies has
strengthened the belief that attracting FDI could bridge the resource gap of low-
income countries and avoid further build-up of debt while directly tackling the
causes of poverty (UNCTAD 2004).
While FDI has been flowing to different regions of the world in growing
proportions, Africa has been receiving the least of global FDI inflows. African
18
countries, like many developing countries need a substantial inflow of external
resources in order to make up for the savings and foreign exchange gaps
associated with a rapid rate of capital accumulation. Africa also needs growth to
overcome widespread poverty and Africa’s development crisis is unique as it is
the poorest region in the world and remains mired in debt (Sachs 2004).
Since FDI can create employment and act as a vehicle of technology transfer,
provide superior skills and management techniques, facilitate local firm’s access
to international markets and increase product diversity, FDI can therefore be an
engine of economic growth and development in Africa although its need cannot
be overemphasized (Ngowi 2001; Mckinsey 2005).
The evidence on growth and poverty reduction looking at two countries that have
huge reduction in poverty such as China and India, a vast majority of the worlds
poor live in these countries achieved significant reductions in poverty during
1980 - 2000 when they grew rapidly by opening up to foreign investment
(Bhagwati and Srinivasan 2002).
Sachs (2004) argues that Africa is actually suffering from poor governance as in
Zimbabwe and widespread war and violence as in Angola, Congo, Liberia, Sierra
Leone and Sudan. To overcome many of the constraints on productivity, Africa
will require a sustained program of targeted investments. According to the 2005
World Development Report, governments need to improve their country’s
investment climate in order to increase the opportunities and incentives for
enterprises, both domestic and foreign, and to invest productively (Snowdon
2005).
Africa’s natural resources account for the uneven spread of FDI inflows across
the continent and the 24 countries in Africa classified by the World Bank as oil
19
and mineral-dependent have on average accounted for close to three-quarters of
annual FDI flows over the past two decades (UNCTAD 2005). In spite of the
abundance of natural resources in Africa, the investment response has been poor
even with economic reforms aimed at creating an investor-friendly environment.
Collier and Patillo (1999) argue that investment is low in Africa because of the
closed trade policy, inadequate transport and telecommunications, low
productivity and corruption.
Cantwell (1997) has suggested that most African countries lack the skill and
technological infrastructure to effectively absorb larger flows of’ FDI even in the
primary sector. Lall (2004) sees the lack of “technological effort” in Africa as
cutting off horn the most dynamic components of global FDI flows in
manufacturing.
The low level of FDI to Africa is also explained by the reversible nature of
liberalization efforts and the abuse of trade policies for wider economic and
social goals. Others have singled out unfavourable and unstable tax regimes
(Gastanaga et al. 1998), large external debt burdens (Sachs 2004; Borensztein
1990), the slow pace of public sector reform, particularly privatization (Akingube
2003) and the inadequacy of intellectual property protection as erecting serious
obstacles to FDI in Africa. However, considering the importance of a good
business climate, a study of African competitiveness found that, in terms of
business environment, Sub-Saharan Africa (SSA) does not fare badly relative to
other developing regions (Lall 2004) and also, corporate tax rates in Africa do not
appear to be at variance with those in other regions (Hanson 2001).
However, Lyakurwa (2003) has stressed macroeconomic policy failures as
deflecting FDl flows from Africa. According to Lyakurwa, irresponsible fiscal
and monetary policies have generated unsustainable budget deficits and
20
inflationary pressures, raising local production costs, generating exchange rate
instability and making location of FDI in certain region too risky. In addition,
excessive levels of corruption, regulation and political risk are also believed to
have further raised costs, adding to an unattractive business climate for FDI.
Ngowi (2001) points out that the main factors preventing an increased inflow of
FDI in Africa is that most countries are regarded as high risk because they are
characterized by a lack of political and institutional stability. Additional factors
that are cited as hindrances to prospective FDI include poor access to world
markets, price instability, high levels of corruption, small and stagnant markets
and inadequate infrastructure. Morrisset (2000) suggests that the most important
features of African countries successfully attracting FDI are strong economic
growth and aggressive trade liberalization. Other important factors include
privatization programs, the modernization of mining and investment codes, the
adoption of international agreements relating to FDI, a few large priority projects
which have significant multiplier effects, and a high-profile image-building
exhibition involving the head of state.
Collier, 1994; Senbet, 1996 stated that uncertainly may emanate from
macroeconomic variables like exchange rate, resource prices, interest rates,
changes in policies and rules of business transactions. In Africa, economic and
political instability plays a significant role in hampering capital flow along with
other macroeconomic and policy uncertainties.
Apart from firm-specific advantage and motives to internalize externality
benefits, Multinational Corporations (MNCS) determine the location of
production according to host country characteristics (Grossman and Razin, 1984,
1985). Host countries characteristic are most important, as it is the main focus of
21
those investing in developing countries where most economic and political
stability indicators are highly volatile.
The study by lucas (1990) found three factors for a slow capital inflow to capital
scarce countries namely: differences in human capital, external benefits of human
capital, and capital market imperfection, which lucas labeled as political risk.
Result with respect to the relationship between the level of FDI and GDP
per capital in Africa are mixed. Schneider and Frey (1985), Tsai (1994) and
Lispsey (1999) report positive correlations, while Edwards (1990) Jasperson et al
(2000) found the relationship to be negative. Other studies (Loree, and Gosinger,
1995; Hansman and Fernandez- Arias; Wie 2000) could not uncover a statistical
significant relationship between these variables. Findings on the relationship
between labor costs and FDI are also mixed. (Jenkins and Thomas, 2002: 7).
Empirical research finds relative labor costs to be statistically significant,
particularly for foreign investment in labor-intensive industries and for exports-
oriented subsidiaries. When the cost of labor is relatively insignificant the skill of
the labor force are expected to have an impact on decisions about FDI location.
The lack of engineers and technical staff in many Africa countries are reported as
holding back potential against foreign investment, especially in manufacturing. It
lessens the attractiveness to investing in such productive sectors. Other
determinants of FDI include the availability of infrastructure and other resources
that facilitate the efficiency of production specialization, trade policies, political
and macroeconomic stability. Poor infrastructure is both an obstacle and an
opportunity for foreign investment. For the majority low-income countries, it is
often cited as one of the major constraints.
22
For sub-Saharan Africa as a whole, Bhattachanya et al. (1995) identify GDP
growth as a major factor; only three sub-Saharan African low-income countries
have been among the nine main recipients of FDI flows in recent years. One of
them is Nigeria; only Nigeria is close to being classified as a large market (using
UNCTAD’S benchmark of $36bn GNP). Angola and Ghana (with GNP of
$8.9bn and $5.5bn in 1995 respectively), received larger proportional FDI flows
in 1995 than Nigeria. This might indicate that small market size need not be a
constraint in the case of resource endowed and export-oriented economics.
Evidence points to the fact that extractive industries in the low-income Africa
countries continue to attract foreign investors as they have always done.
When the majority of low-income countries that do not attract large FDI are
examined, evidence tends to suggest that their small domestic markets are the
main deterrents to FDI inflows. In South Africa, more than half of all investors
initially only serve the domestic market. It is attributable to the higher proportion
of investors in the service and construction industries (Meyer et al 2002).
On the other hand it is also the potential for attracting significant FDI if host
governments permit more substantial foreign participation in the infrastructure
sector. Recently telecommunications in Africa countries and airlines have
attracted FDI inflows from South Africa (Vodacom and MTN). South Africa
telecommunications have also strongly benefited from an inflow of FDI
following sectoral privatization. However, other basic infrastructures such as
road building have attracted little FDI inflows and remain unattractive because of
the low potential return and high political risk of such investments.
The presence of natural resources such as mineral, ores, petroleum, natural gas,
coal, and other raw materials may also act as location specific advantage in
23
attracting FDI to host countries. For a discussion of FDI attraction to natural
resource extraction see Asiedu (2002), Elbadawi and Mwenga (1997) and Pigato
(2000)
The location of FDI may be influenced by various incentives offered by the host
government, these could be fiscal incentives, or incentives related to market
performance or monopoly rights. However, much of the empirical evidence
supports the motion that specific incentives such as lower taxes have a major
impact on FDI, particularly when they are seen as compensation for counting
comparative disadvantages. On the other hand, removing restrictions and
providing good business operating conditions are generally believed to have a
positive effect (Marr, 1997).
Asiedu (2002) identified the following possible determinants of FDI to African
countries: (1) the return on investment in the host country, proxied by the inverse
of real GDP per capital,
(2). Infrastructure development, proxied by telephones per 1000 people. (3). The
extent of openness of the host country.
(4). Political risk, proxied by the average number of associations and revolution.
(5). Financial depth, measured by the ratio of liquid liabilities to GDP.
(6). The size of the government consumption to GDP.
(7). Economic stability, proxied by the overall inflation rate, and.
(8). The attractiveness of the host country’s market, proxied by the growth rate of
GDP. Her findings suggest that the factors determining FDI to African differ on
important respects to those operating in other countries. In contrast to other
developing countries, infrastructure and the return on capital do not influence
24
FDI to African countries, while openness to trade also has a smaller FDI-
stimulating effect in Africa than elsewhere.
More generally, there seems to be an adverse regional effect for sub-Saharan
Africa in the sense that Africa countries receive less FDI than countries in other
parts of the world purely by virtue of their geographical location.
For a developing country, the inflow of foreign capital may be significant not in
only raising the productivity of a given amount of labour, but also allowing a
large labour force to be employed (Sjoholm, 1999).
Barro (1991) and Barro and Sala-I-Martin (1992) predicted that output could only
grow through increased factor accumulation and/ or technical progress. However,
most growth models have come to ascribe the rate of growth of an economy as
being determined by the accumulation of physical and human capital, the
efficiency of resource use and the ability to acquire and apply modern
technology. Since investment determines the rate of accumulation of physical
capital, it thus becomes an important factor in the growth of productive capacity
and contributes to growth of the economy. Hence, increasing foreign direct
investment is an important channel for increasing aggregate investment.
Obwona (2001) noted other benefit of FDI as:
1. The provision of managerial knowledge and skill including organizational
competence and access to foreign market.
2. It enables the transfer of technology to occur from development
economies; and
3. It provides an array of goods and services to residents in the recipient
country.
25
4. Furthermore, FDI may also serve as a stimulus to additional investment in
the recipient country through the creation of external pecuniary economics
such as infrastructures.
Anyanwu (1998) noted that the FDI in Nigeria shows a great deal of sensitively
to changes in domestic investment, changes in domestic output or market size,
indigenization policy and change in the openness of the economy.
Studies examining the macroeconomic effects of exchange rate on FDI centered
on the positive effects of an exchange rate depreciation of the host country on
FDI inflows, because it lowers the cost of production and investment in the host
countries, raising the profitability of foreign direct investment. The wealth effect
is another channel through which a depreciation of the real exchange rate could
make it easier for those firms to use retained profits to finance investment abroad
and to post collateral in borrowing from domestic lenders in the host country
capital market (see (Froot (1991) and Razin (2001)).
Loungani, Mody, Razin and Sodka (2008) employ a gravity model of bilateral
FDI and portfolio capital flows in order to explain determinants of the mobility of
financial capital across countries. The authors identify three main categories of
variables that significantly explain FDI inflows in the data. First, a positive
correlation between the industry specialization into the source countries and FDI
flows into the destination countries is shown to exist. Second, the case of
communication between the source country and the destination country (as
measured by telephone densities in each country) is found to have positive effects
on the size of FDI flows. Third, countries with higher debt-equity ratios of
publicly companies attract less FDI inflows.
26
Hecht, Razin and Shinar (2002) found in similar samples that the effect of FDI
inflows on domestic investment is significantly larger than either equity or loan
inflows. They provide also evidence that FDI inflows promote efficiency: the
effect of FDI on GDP growth is higher than the effect of other inflows, after
controlling for the effect of capital accumulation on GDP growth.
27
CHAPTER THREE
METHODOLOGY
3.1 RESEARCH METHODOLOGY
Our study employed descriptive method using multiply bar chart to enumerate sectoral trends of FDI inflows in Nigeria and Vector Error Correction model (restricted vector autoregressive model) to examine the extent of FDI inflows in the various sectors of Nigerian economy. Vector Error Correction model (VECM) summarizes the dynamic behaviour of the entire macro-economy with few restrictions from economic theory beyond the choice of variables included in the model. Sims (1980) is the original proponent of this type of model. It is based on the representation of an economic structure without following known theory. This is closely tied to the structuralists approach which argue that developing economies exhibit particular characteristics that sometimes are devoid of any economic theory. As such, modeling developing economics required that the structure of the economy be mimicked irrespective of any theoretical underpinning. The choice of this model was because of its unique features to bring out dynamics behaviour of our variables. In the model, every variable is seen as endogenous variable that each endogenous variable is explained by its own lagged values and lagged values of all other endogenous variables in the model.
3.2 Model Specification
The econometric form of our model is specified as: RGDPt = B11 + B12 Σ∆BUCOt-i + B13 Σ∆MIQUt-i + B14 Σ∆AGRIt-i + B15 Σ∆COMTt-i +
B16 Σ∆MAPRt-i + B17 Σ∆TBSEt-i + B18Σ∆SEMIt-i + Σ U1t
BUCOt = B21 + B22 Σ∆RGDPt-i + B23 Σ∆MIQUt-i + B24 Σ∆AGRIt-i + B25 Σ∆COMTt-i +
B26 Σ∆MAPRt-i + B27 Σ∆TBSEt-i + B28 Σ∆SEMIt-i + Σ U2t
28
MIQUt = B31 + B32 Σ∆BUCOt-i + B33 Σ∆RGDPt-i + B34 Σ∆AGRIt-i + B35 Σ∆COMTt-i
+ B36Σ∆MAPRt-i + B37 Σ∆TBSEt-i + B38 Σ∆SEMIt-i + Σ U3t
AGRIt = B41 + B42 Σ∆MIOUt-i + B43 Σ∆RGDPt-i + B44 Σ∆COMTt-i + B45 Σ∆MAPRt-i +
B46 Σ∆BUCOt-i + B47 Σ∆TBSEt-i + B48 Σ∆SEMIt-i + Σ U4t
COMTt = B51 + B52 Σ∆AERIt-i + B53 Σ∆RGDPt-i + B54 Σ∆MAPRt-i + B55 Σ∆BUCOt-i +
B56 Σ∆MIQUt-i + B57 Σ∆TBSEt-i + B58 Σ∆SEMIt-i + Σ U5t
MAPRt = B61 + B62 Σ∆AERt-i + B63 Σ∆RGDPt-i + B64 Σ∆BUCOt-i + B65 Σ∆MIGUt-i +
B66 Σ∆COMTt-i + B67 Σ∆TBSEt-i + B68 Σ∆SEMIt-i + Σ U6t
TBSEt = B51 + B52 Σ∆AERIt-i + B53 Σ∆RGDPt-i + B54 Σ∆MAPRt-i + B55 Σ∆BUCOt-i +
B56 Σ∆MIQUt-i + B57 Σ∆COMTt-i + B58 Σ∆SEMIt-i + Σ U5t
SEMIt = B61 + B62 Σ∆AERt-i + B63 Σ∆RGDPt-i + B64 Σ∆BUCOt-i + B65 Σ∆MIGUt-i +
B66 Σ∆COMTt-i + B67 Σ∆TBSEt-i + B68 Σ∆MAPRt-i + Σ U6t
Where RGDP the Real Gross Domestic product as a proxy for Economic Growth
BUCO = FDI inflow on Building and Construction sector
MIQU= FDI inflow on Mining and Quarrying sector
MAPR = FDI inflow on manufacturing and processing sector
AGRI = FDI inflow on Agriculture, fishery and forestry sector
COMT = FDI inflow on communication and transportation sector
TBSE = FDI inflow on Trading and Business Services sector
SEMI = FDI inflow on Miscellaneous service Sector
U1 = Error term
3.2.1 Estimation procedure
This VAR – model can be specified as in order of n
29
Yt = AtYt-1 ………….. +AnYt-n + B xt-1 + et --------------- 3.2.1
Where Yt = K – vector of non-stationary, 1 (1) variables
Xt = d – Vector of deterministic variables
et = Vector of Innovation
Eqn 3.2.1 can be written as
∆Yt = πYt-1 + Σ πi∆ Yt-i + Bxt + Et
Where πi = Σ Aj
In accordance with the Granger’s representation theorem, if the coefficient matrix
π has reduced rank, r < k there exist K x r matrices α and β each with Rank r in a
way that π = αβ and B1yt, is stationary. In this case, r is the number of co-
integrating vector. With the help of Johansen co-integration method, we estimate
the π matrix is an unrestricted form of vector autoregressive (VAR) and test
whether we can reject the restriction in the reduced rank of π. It is pertinent to
note that the co-integrating vector is not identified unless we impose some
arbitrary normalization.
3.2.2 Battery Tests
In this section, we test for the order of integration and co-integration among the
variables in the model.
3.2.3 Unit Root Test
We employ Augmented Dickey Fuller (ADF) to test for the order of
integration. The choice for this test is made because it is more reliable and robust
than the Dickey Fuller (DF) test. It also eliminates the presence of auto-
correction in the model. ADF unit root test is specified as
Yit = αo + α1 Yit-1 + Σ β∆Yit-1 + U -----------------------3.2.3
Where Yi = Variables in the model
n-1
i=1
n
j = i+1
i=1
n
30
αo, α1 and β = Parameters in the model
Ui = Error term
The variable is stationary of the order in which its ADF test statistic is greater in
absolute value than the ADF critical values at different levels of significance.
3.2.3 Co-integration Test
In this section, we determine whether the variables are integrated and
identified the long run relationships. Johansen test of co-integration is a system
approach of VECM. However, Johansen method of co-integration is preferred in
this study as against Engel and Granger co-integration methodology because it
has power to detect more than one co-integration relationships that exist in a
model.
3.3 Justification of the Model
Augmented Dickey Fuller (ADF) test statistic helps to identify the order of
integration. The choice of this test statistics is selected because it is more reliable
and robust than the Dickey Fuller (DF) test. It also eliminates the presence of
autocorrelation in the model.
The co-integration enables us to determine whether the variables are
integrated and to identify the long – run relationships in the variables. Knowing
the number of Co-integrating vectors help us run the vector error correction. The
number of the co-integrating vectors so identified becomes the number of
restrictions placed on VAR to run the vector error correction model (VECM).
VEC model is designed to use with non-stationary series that are co-integrate.
Vector error correction (VEC) model being restricted vector Autoregression
model (VAR), which enable us to know the long – run and short – run behaviour
of variables. This study also made use of these test statistics namely impulse
response and variance decomposition. The impulse responses trace out the
31
responsiveness of the dependent variables in the VAR to shocks in the error term.
Variance decomposition gives the proportion of the movements in the dependent
variables that are due to their own shocks, versus shocks to the other variables.
The variance decomposition gives information about the relative importance of
each shock to the variables in the VAR.
3.4 Sources of Data
Data are sourced from publications such as CBN statistical bulletin,
statement of accounts, and economic and financial reviews for various years,
statistical abstracts of the federal office of statistics and electronic media.
3.5 Computing Device
Our computing device is Eviews 3.1 because it is user-friendly-computer
application package that handles time – series data more efficiently.
32
CHAPTER FOUR
Presentation and Analysis of Results
4:1 FDI Sectoral Trends in Nigeria
This chart below illustrates FDI sectoral trends in Nigeria. The sectoral spread of
FDI included in the study were basically the key sectors namely miscellaneous
service sector, trading and business sector, building and construction sector,
transportation and communication sector, agricultural sector manufacturing
sector, and mining sector.
33
Between 1975 to 1979, average of 771 million dollar FDI inflow on mining
sector comes to Nigeria annually and was growing up till 2009 without any
decline. Extraction crude oil dominate in mining sector because of high demand
0
2 00 0 0
4 00 0 0
6 00 0 0
8 00 0 0
10 00 0 0
12 00 0 0
14 00 0 0
16 00 0 0
18 00 0 0
Average Values of Sectoral Spread of
FDI
FDI Sectoral Trends in Nigeria
1975-1979 771 906 67 37 175 527 168
1980-1984 678 1874 126 70 388 1168 384
1985-1989 1911 3451 127 112 478 2423 495
1990-1994 48231 10345 488 372 1208 1751 9672
1995-1999 58317 26533 1209 609 1792 1792 29312
2000-2004 61578 52756 1209 2137 4448 6334 46807
2005-2009 99223 178875 1209 9170 9605 14046 81783
Mining & Quarrying sector(M)
Manufacturing
Sector(M)
Agricultural
Sector(M)
Transsportation
&
Building &
Constructi
Trading & Business Sector(M)
Miscellaneous
Service
34
of Nigeria crude oil in international market due to its reduce quantity of sulphur
content. Most of the FDI in Nigeria goes into the oil and extractive sectors and
the economic structure remains highly undiversified, with oil accounting for 95%
of exports (USAID 2003). However, the Nigerian government has acted to
stimulate non-oil businesses through the promotion of Small and Medium
Enterprise (SME). These efforts and the momentum provided to the nation by the
return of a democratic government are reflected in the “Improvement and
Optimism Indexes’ compiled by the World Economic Forum’s Africa
Competitiveness Report (2000-2001), which ranks Nigeria fourth among 12
African countries in terms of improvement and first, in terms of “optimism”
(AFDB/OECD 2003; Ariyo 2004).
The policy (SME) provides relatively conducive environment for FDI inflow in
the Nigeria in such a way that manufacturing sector that amount to 906 million
dollar in 1979 rise to 1874 million dollar in 1984 and even surpassed the value
for mining sector in 2009 (see the chart). Our chart illustrate and gives evidence
why Nigeria is considered as second recipient of FDI in Sub Sahara Africa after
Angola. FDI inflow was high on mining and manufacturing sectors giving reason
to believe that most of the FDI inflow in Nigeria was for resource-seeking and
market-seeking investment. Agriculture sector, transport and communication
sector, building and construction sector remained the least attractive hosts of the
FDI in Nigeria. These are weaknesses in infrastructure provision, a lack of
personal and property security, poor governance and corruption.
Without continuous efforts in these areas, Nigeria will not go far on their efforts
to develop through the help of the FDI. Nigeria was ranked below average in the
2005. Transparency international Business Confidence Survey among African
countries stated that such a poor environment for business makes it difficult for
Nigeria to increase the rate of FDI inflows. While these factors are in a sense
35
intangible in the business climate, their impact is real in terms of its effect on
foreign investment and consequently on the growth of the economy.
Other elements like the complex regulatory environment, policy instability, the
predominance of state owned enterprises, and layers of business regulation at the
state and local level, all contribute to corruption by providing opportunities for
patronage and intervention in private business affairs (AFDB/OECD 2003;
World Bank 2002). In spite of this, the table above indicates that Nigeria still
ranks amongst the top FDI receiving countries in Africa.
However with the transition to democracy and intense competition for FDI by
other developing countries, the Nigerian administration now shows a welcoming
attitude to investors. The government has aimed its most generous incentives at
the sectors that present the greatest obstacles to economic development,
particularly infrastructure. Nigeria is becoming investor-friendly, with some laws
allowing for 100% foreign ownership of businesses and unhindered repatriation
of capital. In addition, the government has put in place a range of incentives
designed to lower the cost of doing business and to offset the higher-cost
operating environment arising from factors such as deficient infrastructure.
Various industries have been afforded ‘pioneer status’, giving start-ups a five-
year tax holiday. There are 69 industries benefiting from this incentive, including
mining, large-scale commercialised agriculture, food processing, manufacturing
and tourism. Manufacturers that add value to imported inputs are eligible for a
five-year 10% local VAT concession. Manufacturers using a prescribed
minimum level of local raw materials, for instance, 70% for agro-allied industries
and 60% for engineering industries, are entitled to a five-year 20% tax
concession. Investors can take advantage of an infrastructure incentive that
permits a 20% tax deduction of the cost of providing infrastructure facilities that
should have been provided by the government. Such facilities include access
36
roads, pipe-borne water and electricity supply. There is a generous tax allowance
on research and development (R&D), with up to 120% of expenditure being tax
deductible, provided that such R&D activities are carried out in Nigeria and are
related to the business from which profits are derived. In the case of research into
the use of local raw materials, the tax-deductible allowance rises to 140%. The
government is also targeting investment into some economically disadvantaged
areas, extending the tax holiday available to ‘pioneer status’ industries to seven
years and adding a 5% capital depreciation allowance. Additional tax breaks are
available for labour-intensive modes of production. (Financial Times 2005).
According to the World Bank, Nigeria’s macroeconomic performance over the
last two years has been commendable. The economic reform efforts are showing
positive results including:
• In 2005, growth continued to be strong at 7% for the economy as a whole and
8% for the non-oil sector. In the first quarter of 2006, the Nigerian economy grew
by 8.3%.
• Year-on-year inflation fell from 28% in August to 12% by December 2005.
• A Fiscal Responsibility Bill has passed and has gone for critical second
readings in both the Senate and House.
• The National Assembly is discussing a Public Procurement Reform Bill.
• A bank consolidation program was implemented strengthening the financial
sector and enhancing its ability to provide credit to the private sector.
• The import tariff regime has been liberalized reducing the number of tariff
bands from 19 to 5 and lowering the average tariff from about 29% to 12%.
With the deregulation of the telecommunication sector, Nigeria’s
telecommunications sector is no in a rapid growth mode. According to the
Nigerian Communications Commission (NCC), there is enormous growth
potential in the market, as demand for telecom service has been high because of
37
market liberalization and massive telecom investments. Over recent years, all
branches of the telecom industry have generated considerable growth and the
telecom industry has emerged as a main motor of the country’s economy. It is
only the oil sector that has seen more investment and telecom is now seen as the
most lucrative branch for investment in Nigeria’s economy.
As a result, Nigeria presently boasts Africa’s largest and most promising telecom
market. Even though Nigeria is trailing other countries in terms of providing
phone technology at an affordable price and doing so reliably, the market has
taken significant strides in its development.
4:2 Presentation of Results
In this section we discuss the necessary tests that were carried out on the data
before estimating the models for the study. These tests are the unit root test and
the Johansen co-integration test.
4:2:1 Results of Unit Root Test
It has been observed that macroeconomic data usually exhibit stochastic trend
that can be removed through differencing. We applied Augmented Dickey Fuller
(ADF) test to eliminate the presence of autocorrelation in the model, to detect the
stationarity of the variables at different levels of significance and to identify the
order of integration of the variables in the model. The result is illustrated with the
aid of table 4:2.
Table 4.2 Unit root test Variables ADF
statistic
Lag Mackinnon
critical
Value (1%)
Mackinnon
critical
Value (5%)
Order
integration
Stationarity
position
AGR1 -5.981 1 -3633 -1.249 Level 2 Stationary
BUCO -4.308 1 -3.628 -2.947 Level 1 Stationary
38
COMT 4.119 1 -3.628 -2.947 Level 1 Stationary
GDP -3.861 1 -3.628 -2.947 Level 1 Stationary
MAPR -3.945 1 -3682 -2.947 Level 1 Stationary
MIQU -3.323 1 -3.628 -2.947 Level 1 Stationary
SEM1 -3.925 1 -3.628 -2.947 Level 1 Stationary
TBSE -5.946 1 -3.628 -2.947 Level 1 Stationary
In the table 4.2, the variables that were tested with unit root are shown, the
values for Augmented Dickey Fuller (ADF) statistics are presented, the lag level
of each variable was identified, the Mackinnon critical values at 1% and 5% level
of significant were pointed out. The order of integration of each variable was
enumerated, and finally the stationarity position of each variable was also stated.
FDI inflow on agriculture, fishing and forestry sector (AGRI) was not
stationary at level and at first level. At that time, the values of ADF were 0.860
and -2061 respectively. It was stationary after the second level of integration with
ADF value (-5.5891) while the conventional 5% Mackinnon critical value is -
2.949 hence the variable is stationary at second level.
FDI inflow on Building and Construction sector (BUCO) is stationary at level 1
and lag 1 and its ADF value and 5% Mackinnon critical value are -4.308 and -
2.947 respectively. FDI inflow on Mining and Quarrying sector (MIQU) is
stationary at level 1 and lag 1 and its ADF value and 5% Mackinnon critical
value are -3.323 and -2.947 respectively. FDI inflow on Service Miscellaneous
sector (SEMI) is stationary at level 1 and lag 1 and its ADF value and 5%
Mackinnon critical value are -3.925 and -2947 respectively. Gross Domestic
product (GDP) is stationary at level 1 and lag 1 and its ADF value and 5%
Mackinnon critical value are -3.861 and -2947 respectively. FDI inflow on
Manufacturing and Processing sector (MAPR) is stationary at level 1 and lag 1
39
and its ADF value and 5% Mackinnon critical value are -3.945 and -2.947
respectively. FDI inflow on Trading and Business sector (TBSE) is stationary at
level 1 and lag 1 and its ADF value and 5% Mackinnon critical value are -5.946
and -2.947 respectively.
4:2:2 Co-integration Tests
To find out the number of co-integrating vectors, we applied the approach of
Johansen and Juselius (1990) that contains Likelihood ratio test statistic, the
maximum Eigen value and the trace statistics. Empirical evidence has shown that
Johansen co-integration test is a more robust test than Engel-Granger (EG) in
testing for co-integrating relationship. The co-integrating relationship was
estimated under the assumption of linear deterministic trends. The result is shown
in table 4.2.2
Series: GDP, MIQU, MAPR, AGRI, COMT, BUCO, TBSE, SEMI:
Lags internal 1 to1
Eigen value Likelihood ratio 5% critical value 1% critical value
0. 9913 490.0443 156.00 168.36
O. 9579 319.0913 124.24 133.57
0.8936 204.9955 94.15 103,18
0.8065 124.3316 68.52 76.07
0.7248 65. 1965 47.21 54.46
0.2429 18.7462 29. 68 35.65
0.1968 8.7270 15. 41 20.04
0.0229 0.8373 3.76 6.65
The Likelihood ratio test detects five co-integrating equation(s) at 5%
significance level. We compared likelihood ratio at 5% and 1% critical values
40
and verified that there are five co-integrating relationship among them are Gross
Domestic Product (GDP), FDI inflow on mining and quarrying sector (MIQU),
FDI inflow on manufacturing and processing sector (MAPR), FDI inflow on
Agriculture forest and fishing sector (AGRI), and FDI inflow on communication
and transportation sector (COMT). While FDI inflow on building and
construction sector (BUCO), FDI inflow on trading and business service sector
(TBSE) and FDI inflow on service miscellaneous sector (SEMI) do not have co-
integration relationship.
The values for likelihood ratio for fine co-integrating variables are 490.0443,
319.0913, 204.9955, 124.3316 and 65.1965 respectively while their 5% critical
values are 156.00, 12424, 94.15, 68.52 and 47.21 respectively.
With these, we verified five co-integrating relationship exist in our model.
4.3 VECM RESULTS
Vector error correction method (VECM) indicates evidence of long run causality
from the explanatory variable to the dependant variables.
VECM was estimated and the result is presented in table 4:3
Variables Coefficients Std Errors t. statistics
D(GDP (-1)) -0.001742 0.00061 -2.84975
D(GDP (-2)) 0.62674 0.03132 2.00119
D(MIQU (-1)) -5.445770 2.027521 -2.39353
D (MIQU (-1)) -0.176925 0.05682 -3.11376
D (MIQU (-1)) -.0.176974 0.05342 -2.97479
D (MIQU (-1)) -1.10974-3 0.50342 -2.20441
D (MIQU (-2)) -3.411204 1.45913 -2.33783
41
D (MIQU (-2)) 0.055306 0.00865 6.39161
D (MIQU (-2)) -0.107796 0.0.03644 -2.95817
D (MIQU (-2)) -0.180559 0.03878 -4.65624
D (MIQU (-2)) -1.515433 0.32285 -4.69389
D(MAPR(-1)) 6.065038 2.03655 2.97810
D(MAPR(-1)) -0.077905 0.01208 -6.45059
D(MAPR(-1)) 0.159303 0.05086 3.13218
D (MAPR(-1)) 0.136089 0.05412 2.51443
D (MAPR(-2)) 3.939031 0.06926 3.68392
D (MAPR(-2)) -0.021534 1.00634 -3.39612
D (MAPR(-2)) 0.097372 0.02670 3.64642
D (MAPR(-2)) 0.115582 0.2842 4.06743
D (MAPR(-2)) 0.981404 0.236659 4.14818
D (MAPR(-2)) 0.73547 0.34187 2.15138
D (AGRI(-1)) -84.13276 24.8387 -3.38717
D (AGRI(-1)) -42.83213 13.5878 -3.15225
D (AGRI(-1)) -63.0031 19.634 -3.2038
D(COMT(-1)) -162.7592 54.3026 -2.99174
D(COMT(-1)) 1.851675 0.32203 5.75008
D(COMT(-1)) -5.505782 1.35614 -8.34809
D(COMT(-1)) -3.542061 1.44315 -2.45440
D(COMT(-1)) -52.78666 12.0151 -4.39335
D(BUCO(-2)) -10.16779 3.73132 -2.72499
D(BUCO(-)) -9.865049 4.57311 -2.15719
D(BUCO(-2)) -11.74330 2.50169 -4.69415
D(TBSE(-2)) 0.051299 0.00993 5.16544
D(TBSE(-2)) -0.930132 0.37054 -2.53177
42
D(TBSE(-1)) 2.900226 0.95392 3.04033
D(TBSE(-1)) 0.130754 0.01399 9.34889
D(TBSE(-1)) -0.134749 0.06268 -2.14988
D(TBSE(-1)) -1.894815 0.52183 -3.63107
D(SEMI(-1)) 0.762283 1.67924 2.37592
D(SEMI(-1)) -0.073205 0.02462 -2.97334
D(SEMI(-1)) 0.229879 0.10368 2.21713
D(SEMI(-1)) 0.237221 0.11034 2.1500
D(SEMI(-1)) 3.273454 0.91862 3.66347
D(SEMI(-2)) -0.059878 0.02020 -2.96403
D(SEMI(-2)) 3.330461 0.75376 4.41849
In table 4:3, it shows the Gross domestic product (GDP) is explained by its own
lagged values for year one and two and lagged values of FDI inflow on
agriculture, (AGRI) and mining (MIQU) sectors. The values of t – statistics for
both lag one and two are -2.84975 and 2.00119 respectively and it is statistically
significant.
The VEC estimation pointed out that FDI inflow on mining and quarrying
sector is explained by its own lagged values for year one and lagged values of
FDI inflow on manufacturing and processing sector, communication and
transportation sector, building and construction sector and trading and business
services sector. The values of t-statistics for lag period of one year for the
dependent variables are -239353, -3.11376, -2.9749, -2.20441 respectively.
Again, the FDI inflow on mining and quarrying sector is explained by its
own lagged values for the period of year two and lagged values of FDI inflow on
manufacturing and processing sector, agriculture sector, communication and
43
transportation sector, building and construction sector and trading and business
service sector. The value of t- statistic for lag period of year two are -3.11376, -
2.97479, -2.20441,-2.38783, 6.93161, -2.95817, -4.65624, -4.69389 respectively.
It is statistically significant.
The FDI inflow on Manufacturing and Processing sector is explained its
own lagged period of one year and the lagged value of FDI on Agriculture sector,
Communication and Transportation sector, Building and construction sector,
Trading and Business service sector. The values of their t-statistics for lag period
of one year are 2.97810, 6.45059, 3.13218, 2.54143, and 4.19118 respectively. It
is statistical significant. The FDI inflow on Agriculture, fishery, and forestry
sector is explained by its lagged period of one year and lagged value of Mining
and Quarrying sector, Trading and Business services sector and service
miscellaneous sector.
The FDI inflow on communication and transportation sector is explained
by its own lagged period of one year and lagged values of Agriculture sector,
Manufacturing and Processing sector, Building and Construction sector, and
Trading and Business service sector. The values of their t- statistics for lag period
of one year are 5.75008, -8.34809, -2.45440, -4.39335 respectively.
The FDI inflow on Building and Construction sector is explained by its
own lagged period of one year and lagged value of Trading and Business services
sector, Mining and Quarrying sector. The values of t-statistics for lag period of
one year are -215719, -4.6415 respectively.
The FDI inflow on services miscellaneous sector is explained by its own
lagged period of one year and lagged value of Agriculture sector, Communication
and Transportation sector, Building and Construction sector. The values of their
t- statistics for lag period of one year are 2.375592, -2.97334, 2,21713, 2,15000,
3.56347,-2.9640 4.41849 respectively.
44
4:4 The Variance Decomposition and Impulse Reponses Results
These statistics were computed to show the dynamics behaviour variables. The
Variance Decomposition gives information about the proportion movement in the
dependent variables that are due of their own shock, versus shocks to the other
variables. GDP in the period one is only influenced by its own shock while in
period two to period ten; GDP is influenced by the shocks of other variables in
the model. It assumed 100% in the first period and its standard error is 27885.86.
In the second period, the value it assumed was 93% and its standard error is
37138.19. In the tenth period, the value GDP assumed was 70% and its standard
error is 51398.46. It means that transmission of shocks from FDI-sectoral inflows
cause change on Nigeria economic growth.
The results of impulse responses indicate that all endogenous variables converge
to long-run equilibrium in the lag period of eight and diverged to establish
equilibrium in the long run.
4:5 Evaluation of hypotheses
In the section, we tested the two hypotheses in accordance with the analysis of
the results.
4:5:1 Test of Hypothesis one
Ho1 = The magnitude of variable sectors of FDI are not significant to stimulate
economic growth in Nigeria.
The result of vector error correction method denotes that Gross Domestic Product
(GDP) is influenced by the impact of Agriculture, forestry, and fishery sector
(AGRI) and Mining and Quarrying sector (MIQU). Mining and Quarrying sector
(MIQU) has 6 percent influences on Nigeria economic growth while insignificant
45
percent comes from Agriculture, forestry, and fishery sector (AGRI). We reject
the null hypothesis; hence the hypothesis is statistically significant.
4:5:2 Test of Hypothesis Two
H02 = There is no transmission of shock from various sectors of FDI
on economic growth in Nigeria.
The result of variables decomposition shows that GDP in the period one is only
influenced by its own shock while in period two to period ten; GDP is influenced
by the shocks of other variables in the model. It assumed 100% in the first period
and its standard error is 27885.86. In the second period, the value it assumed was
93% and its standard error is 37138.19. In the tenth period, the value GDP
assumed was 70% and its standard error is 51398.46. It means that transmission
of shocks from FDI-sectoral inflows cause change on Nigeria economic growth.
We reject the null hypothesis; hence the hypothesis is statistically significant.
46
CHAPTER FIVE
SUMMARY OF FINDING, CONCLUSION AND RECOMMENDATIONS
5:1 Summary of the Findings
Our study made use of augmented dickey fuller test to detect the order of
integration and stationarity position of the variables. We verified that only FDI
inflow on agriculture, fishery and forestry sector (AGRI) was stationary at level
two and lag one while FDI inflow on communication and Transportation sector
(COMT), FDI on Mining and Quarrying sector (MIQU), FDI on Manufacturing
and processing sector (MAPR), FDI inflow on Miscellaneous Service sector
(SEMI) and Trading and Business services sector (TBSE),FDI on Building and
Construction sector (BUCO), and GDP were stationary at first level lag one.
The Johansen co-integration statistics detected that our model has five co-
integrating equations at 5% significance level. The result of vector error
correction method denotes that Gross Domestic Product (GDP) is influenced by
the impact of Agriculture, forestry, and fishery sector (AGRI) and Mining and
Quarrying sector (MIQU). Mining and Quarrying sector (MIQU) has 6 percent
influences on Nigeria economic growth while insignificant percent comes from
Agriculture, forestry, and fishery sector (AGRI). We reject the null hypothesis;
hence the hypothesis is statistically significant.
The result of variables decomposition shows that GDP in the period one is
only influenced by its own shock while in period two to period ten; GDP is
influenced by the shocks of other variables in the model. It assumed 100% in the
first period and its standard error is 27885.86. In the second period, the value it
assumed was 93% and its standard error is 37138.19. In the tenth period, the
value GDP assumed was 70% and its standard error is 51398.46. It means that
transmission of shocks from FDI-sectoral inflows cause change on Nigeria
47
economic growth. We reject the null hypothesis; hence the hypothesis is
statistically significant.
5.2 CONCLUSION
This study verified that most of foreign direct investments in Nigeria are in
extraction industry that is it is resource-seeking investment. Resource-seeking
investment is usually directly ties to the presence of natural resources or their
processing. On this ground, other motives for foreign direct investment such
market-seeking investment, efficiency- seeking or cost reducing investment and
strategies asset and capacity –seeking investment attract less attention in Nigeria.
In addition, our study emphasized that the cause of skewed income
distribution that the country is one of the most unequal societies is one world,
with 30% of the population having only 8% of the national income due to
unbalanced growth in sectoral inflow of FDI in Nigeria
Again, the problem therefore does not tie so much with the magnitude of
investment in which it is given. We could emphasize that foreign investment
contribute much to the economy primarily to capital supply than to investment
projects. Foreign investment can be very effective if it is directed at improving
and expanding managerial and labour skills. In other words, the task of helping a
“poor beggar” can be made less generous and yet more fruitful if it is directed at
teaching him a trade rather than giving him food to eat. In-conclusion, in order to
further improve the climate for foreign investment in Nigeria these policy
recommendations should be considered.
5:3 Policy Recommendations
48
The following policies are hereby recommended to policy makers and
government, as foreign investment contributes to the growth and development of
Nigeria.
a) The Nigerian government should encourage the inflows of foreign direct
investment and contact policy institutions that can ensure the transparency
of the operations of foreign companies within the economy.
b) In evaluating foreign direct investment, the screening process should be
simplified and improved upon. For example, export investment projects
that consistently generate positive contribution to national income can be
screened separately and swiftly, while projects in import competing
industries should be screened separately.
c) Efforts should be made to engage in joint ventures that are beneficial to the
economy. Joint ventures provide for a set of complementary or
reciprocating matching undertakings, which may include a variety of
packages ranging from providing the capital to technical cooperation. The
government should intensify the policy to acquire, adopt, generate and use
the acquired technology to develop its industrial sectors.
d) Efforts should continue, this time with more vigor at ensuring consistency
in policy objectives and instruments through a good implementation
strategy as well as good sense of discipline, understanding and cooperation
among the policy makers.
e) The Nigerian government needs to come up with more friendly economic
policies and business environment, which will attract FDI into virtually all
the sectors of the economy.
f) The Nigerian government needs to embark on capital project, which will
enhance the infrastructural facilities with which foreign investors can build
on.
49
g) The current indigenization policy should be pursued to the latter as a way
of preventing absolute foreign ownership in the key sector of the economy.
h) The Nigeria government should also carry out the liberalization of all the
sector of the economy so as to attract foreign investors, so that the current
efficiency and growth noticed in the telecommunication sector can also be
enjoyed there.
i) For Nigeria to generate more foreign direct investments, efforts should be
made at solving the problems of government involvement in business;
relative closed economy; corruption; weak public institutions; and poor
external image. It is therefore advised that the government continues with
its privatization programme, external image laundry, seriousness and
openness in the fight against corruption, and signing of more trade
agreements.
50
REFERENCES
Aitken, B., A.E. Harrison and R. Lipsey (1999) “Do domestic firms benefit from
foreign direct investment?” American Economic Review,89:605-18
Aitken, B., G.H. Hansen and A. Harrison (1997) “Spillovers, foreign Investment
and export behaviour” Journal of International Economics 43:103-32
Anyanwu, J.C (1998). “An Economic Investigations of the Determinants of FDI
in Nigeria” proceedings of the 1998 NES Annual Conference, pp 219-
241
Asiedu, E. (2003), “Policy reform and Foreign Direct investment to Africa
Absolute Progress but relative Decline” ,Mimeo Department of
Economics, University of Kansas United States
Asiedu, E. (2001), “Policy reform and Foreign Direct investment to Developing
countries: Is Africa Different?” World Development, 30 pp 107-199
Barro, R.J. & X. Sala-I- Martin (1992) “Convergence” Journal of political
Economy Vol.100: pp223-251.
Barro, R.J. (1991) “Economic Growth in a Cross-section of countries” Quarterly
Journal of Economics, Vol.106: pp407-443.
Bhagwati, J. and Srinivasan, T. N. (2001) Trade and Poverty. American
Economic Review paper and proceedings may
51
Bhattacharya, A; P.J. Montiel & S. Sharma (1995) “private capital inflow to sub-
Sahara Africa: An overview of Trends and Determinants”. (unpublished
paper)
Blomstrom, M. (1986) “Foreign Investment and productive efficiency: the Case
of Mexico” Journal of Economic Survey 12(13) 247-77
Blomstrom, M. and F. Sjoholm (1999). “Technological transfer and spillover:
Does Local Participation with multinationals Matter?” European
Economic Review
Borensztein, E. (1990) “Debt Overhang, Credit Rationing and Investment”
Journal of Development Economic 32 pp 315- 335
Cantwell, J. (1997) “Globalization and Development in Africa”. In Dunning, J
and Hamdani, K. the New globalism and developing courtries UNU
press.
Central Bank of Nigeria (2004) Annual Report and Statement of Account Abuja
Nigeria-www.centbank.org
Cherry, J. (2001) Korean Multinationals in Europe: Richmond Curzon
Claessens, S., M.P. Dooley and A. Warner (1995) “Portfolio Capital Flows-Hot
or cold?” The World Bank Economic Review 9(1): 155-175.
52
Cobham, A. (2001) “Capital Account Liberalization and Impact on the
poor”paper produced for Oxfam and Bretton-wood Project.
Collier, P. and Patillo, C. (1999) Reducing the Risk of Investment in Africa
Mcmillan Collier, Paul. (1994) “The marginalization of Africa”, Center for the study
African Economics, Mimeo
Cotton, L. and U. Ramachandram (2001) “Foreign Direct Investment in
Emerging Economic Development” working paper No 196. Central Bank
of Chile santiago
De Gregorio, Jose (2003) “The role of foreign direct investment and natural
resource in economic development’ working paper No 196 Central Bank
of Chile Santiago
Dunning, J. (1993) Multinational Enterprises and the global economy, Reading
Addison Wesley Publishing Company.
Dunning, J.H. (1999) Re-evaluating the Benefits of foreign Direct Investment in
Alliance capitalism and global business, JH. Dunning: London
Rentledge.
Elbadawi, I.A. & F.M. Mwenga (1997). “Regional Integration and Foreign Direct
Investment in Sub-Saharan Africa” AERC working paper Nairobi
African economic Research consortium.
53
Estrin, S. (2003) “Foreign Direct Investment in Egypt, India, South Africa and
Vietnam: An overview” DRC working paper s No. 17, center for New
and Emerging Markets, University of London.
Froot, K.A. and J.C. Stein (1991) “Exchange Rate and FDI: An Imperfect capital
Market Approach”, The quarterly Journal of Economics 106(4)1191-217.
Globerman, S. (1979) “Foreign Direct Investment and spillover efficiency benefit
in Canadian”. Journal of Economics, 12:42-56
Grossman, G. M. and Risan, AssaF. (1985) “Direct Foreign Investment
and The Choice of technique under uncertainty” ,Oxford Economic papers
37
Grossman, G.M. and Risan, AssaF. (1984) “International Capital
Monuments under uncertainty” The Journal of Political economy.
Vol. 92. Issue 2, 286-306.
Hanson, G.H. (2001) should countries promote FDI? G – 24 Discussion Paper 9. Hausmann, R. & E. Fernandez- Arias (2000), “The wave of capital inflows:
Sea change or Just Another Title?” Inter-American Development
Bank Working Paper 417.
Hecht Joel, Assaf Razin, & Nitsan Shinar (2002), “capital inflows and
domestic Investment: New Econometric Look” Mimeo bank of Israel.
54
Imbriani, C and F. Reganati (1997) “International efficiency spillovers into the
Italian Manufacturing sector” English summary. Economia Internazioale
50 :583-95
Jerome, A. and J. Ogunkola (2004) “Foreign direct investment in Nigeria:
Magnitude, Direction and prospects” paper presented to the African
Economic Research Consortium special seminar series Nairobi April.
Kearney, A.T. (2000) “FDI Confidence Index, Global, Business Policy Global”
Business policy Council, January 2000 Vol. 3
Kenworthy, J.L. (1997) Foreign Direct Investment in Egypt: Problems and
Prospects as part of the development economic Policy Reform Analysis
project for USAID and the Minister of Economy and International
Cooperation. Cairo Egypt.
Kokko, A. (1994) “Technology, market characteristics and spillovers” Journal of
Development Economics vol.43 pp 279-93.
Lall, S. (1983) ‘Is African Industry Competing “QEH working paper 121 Oxford
Queen Elizabeth House.
Lim, E. (2001) “Determinants of and relationship between foreign
Investment and Growth: A summary of Recent Literature” IMF working
paper No. 175 international Monetary Fund, Washington, D.C.
55
Lipsey, R. E. (1999), “The location and characteristics of U.S. affiliates
in Asia,” NBER working paper 6876
Lonugani, P. Ashoka Mody, Assaf, Razin, & Efraim Sadka, (2003); “The Role of
International in driving FDI theory and Evidence” paper presented in the
North American Winter Meeting of the Economic Society on January 3-
5,2003.
Loree, D.W and Guisinger (1995) “Policy and Non-policy Determinants of U.S
Equity Foreign Direct Investment” Journal of business Studies Vol. 26(2)
pp 281- 299. Lucas, Robert E (1990) “Why Doesn’t capital flow from Rich to poor
Countries?” America Economic Review 1990 Vol.80 No.2.
Marr, A. (1997) ”Foreign Direct Investment flows to low incomes Countries “:
An Review of the Evidence ODI Briefing paper(3) September.
Meyer, K.E, Estrin, S. Bhanmick, S. Gelb, S. (2002), “Foreign Direct Investment
in Emerging Markets: A comparative study in Egypt, India, South Africa
and Vietnam: paper presented at the 6th conference of the European
Association for comparative Economic studies(EACES) Forli Italy, June
2002.
Moosa, I.A. (2002) Foreign Direct Investment Theory, Evidence and
Practice. New York, Palgrave.
56
Morrisset, J. (2000) Foreign Direct Investment in African: Policies also
Matter. Transnational Corporations 9(2) p. 107 – 125
Ngowi, H.P. (2001) “Can Africa increase its Global Share of Foreign Direct
Investment?” West – Africa Review 2(2).
Obwona, Marios B. (2001) “Determinants of FDI and their Impact of Economic
Growth in Uganda”. African Development Review 2001. Blackwell
publishers Oxford U.K pp46-80.
Obwona, Marios B. (2004) “Foreign direct investment in Africa” In
Financing pro – poor Growth: AERC senior policy seminar VI, Kampala,
Uganda, 2 – 4 March 2004 seminar papers pp. 60 – 95 Narobi: African
Economic Research Consortium.
Pigato, A. Maria (2000). “Foreign Direct Investment in Africa: Old Tales and
New Evidence”. ARWPS 8, African Region working paper series:
Washington, DC World Bank.
Pindyk, R. (1991), “Irreversibility: Uncertainty and Investment” Journal of
development EconomicsLiterature,39(3) pp1110-1148..
Razin, A. (2002) “FDI flows and Domestic Investment: overview”
Sala-I-Martin, X. and Subramanian, A. (2003) “ Addressing the Natural Resource
Curse: An Illustration from Nigeria” Natioal Burean of Economic
Research, NBER Working Paper No 9804. in edition of Nwankwo, A.
57
2004 “ The Determinants of foreign Direct Investment Inflow (FDI) in
Nigeria” October 15th 2006 Gutman Conference Center, USA.
Shiro, A. (2005) “ The Impact of foreign Direct Investment on the Nigerian
Economy” Department of Finance University of Lagos.
Sachs, J.D. (2004) Ending Africa’s poverty trap Brookings paper on
Economic Activity 1 p.117 – 240.
Schneider, F and B. Frey (1985) “Economic and Political determinants of
Foreign Direct Investment” World Development 13(2) pp.161 – 175.
Senbet, W. Lemma. (1996) “Perspective on African Finance and Economic
Development, Vol. 2 1:1 – 22.
Shapiro, D. and S. Globerman (2001) National Infrastructure and foreign
Direct investment, Mimeco Simon Fraser University.
Sjoholom, Fredrick. (1999). “Technology Gap, competition and Spillovers from
FDI: Evidence from Establishment Data” Journal of Development
Studies, 36 (1) 53-73.
Smarzynska, B.K. (2002) “Does foreign direct investment increase the
Productivity of Domestic firms? In search of spillovers through backward
linkages” policy Research working paper No 29 the World Bank,
Washington, D.C.
Sim, C.A. (1980) “Macroeconomics and Reality” Econometrica, 48 (10) pp48
58
Snowdon, B. (2005) A Global Compact to End poverty: Jeffery Sachs on
Stabilization, Transition and Weapons of Mass Destruction World
Economics 6(4).
Taylor, M.P. and L. Sarno (1997) Capital flows to Developing countries:
Long and short term Determinants. The world Bank Economic Review.
11(31): 451 – 470.
Tsai, P.L. (1994). “Determinants of Foreign Direct Investment and Its Impact on
Economic Growth,” Journal of Economic Development. 19 pp 137-163.
UNCTAD (2000) Capital flows and Growth in African. New York United
Nations.
UNCTAD (2001, 2003) World Investment Report Geneva United Nations
Conference on Trade and Development.
United Nations conference Trade and Development (2005) Economic
Development of Africa: Rethinking the role of foreign direct investment
New York and Geneva.
United Nations Conference Trade and Development (2004) Economic
Development in African, Debt sustainability: Oasis or Mirage New York
and Geneva.
World Bank (1998) World Development Indicator 1999, 2004 CD – Rom.