An Analysis of Incentives for Foreign Direct Investment (FDI) and its Effects on Economic Growth: The Case of Nigeria.

By

Abbas Ghamloush

E-mail: abbas.ghamloush@online.liverpool.ac.uk

Dept. of International Accounting and Finance, University of Liverpool Online

Dissertation Advisor:

Dr. Quach Manh Hao

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Acknowledgements:

I would like to thank my advisor Dr. Quach Manh Hao for his patience and support throughout my thesis study. Beside my advisor, a special thanks goes to my cousin Mr. Ali Fouani who guided me finding the thesis topic in addition to his quality contribution in the qualitative section of the thesis study.

My sincere thanks goes to my employer, Fouani Nig Ltd, as I would never have been able to complete my Msc study without their continuous motivation, love, and support. More important is offering me an acceptance to study an online programme knowing that studying at office may affect my productivity at work.

Finally, I would like to thank my parents, three brothers, and my sister. All of them provided me with spiritual support and encouragement required to complete this amazing journey.

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Table of Contents

Page

TITLE PAGE……………………………………………………………………………………………………………………………………. 1

ACKNOWLEDGEMENTS……………….………………………………………………………………………………………………….2

CHAPTER

I. Introduction

I.1. Research Aim, Questions, and Objectives……………………………………………………………. 4

I.2. Feasibility of the Study……………………………………………………………………………………….. 6

I.3. Justification of the Topic…………………………………………………………………………………….. 6

II. Literature Review

II.1. Relation between FDI and GDP…………………………………………………………………………… 8

II.2. Determinants of FDI…………………………………………………………………………………………… 12

III. Methodology and Data

III.1. The Linear Regression

Model……………………………………………………………………………… 17

III.2. Unit Root

Analysis……………………………………………………………………………………………… 20

III.3. Ordinary Least Squares

Regression…………………………………………………………………….. 20

IV. Discussion of Results

IV.1. Unit Root Test

Analysis………………………………………………………………………………………. 22

IV.2. Hypothesi

s………………………………………………………………………………………………………… 24

IV.3. OLS Test

Analysis………………………………………………………………………………………………. 24

IV.4. FDI Determinants

Analysis…………………………………………………………………………………. 27

V. Conclusion and Recommendations……………………………………………………………………………….. 31

VI. References……………………………………………………………………………………………………………………. 32

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1. Introduction

1.1- Research Aim, questions, and objectives:

Foreign Direct Investment (FDI) is a critical part of international economic system. Several studies have noted the importance of FDI since early 1980s (Obinna, 1983; OECD, 1998; Adams, 2009, and Carp, 2012). Most of the developing countries look at FDI as a catalyst for development; this explains the rapid growth of FDI in the last two decades all over the world. UNCTAD defined FDI as an investment made to acquire lasting or long-term interest in enterprises operating outside the economy of the investor. Others classified FDI as an investment to acquire 10% of voting stocks of a lasting management and at least 10% of equity shares in an enterprise operating in a country other than investor’s own country (World Bank, 2007). Countries can receive finance beyond national border; therefore it is an important source of external fund. Other advantages of FDI on targeted country are not limited to advances in technology, improve quality of products, reduce unemployment rate, and sustain economic growth. Different reasons contribute towards the attraction of FDI into several countries. Investment promotion, fiscal and financial incentives, tax incentives, and regulatory incentives are examples of the main measures that can be taken by a potential host country. FDI in traditional markets o markets with high risks and no formal managerial rules is usually very beneficial to the recipient economy as it brings new way of management and creates new professions which contributes positively towards raising productivity of human capital. For instance, human capital enhancement resulting from education and training effort is not carried out by government in Nigeria. However, it is mainly carried out by multinational companies (MNC). For example, when MTN came into a primitive market like Nigeria in 2001, it brings along in addition to technology, new technical knowledge and management techniques which served as the base for better skill levels of the workforce. Indeed it is a mutual benefit for both Nigeria and MTN. For MTN, it becomes the biggest mobile operator in Nigeria and West Africa only few years after inception in 2001. Therefore, Nigeria provided the market size factor. On the other hand, Nigeria adopted the required technology for further development in addition to human capital enhancement at no cost for the government.

According to UNCTAD report released in June 2014 in relation to FDI in Africa, FDI to Africa is increasing due to intra-African flows which is led by South-Africa, Nigeria, and Kenya. The share of announced cross-border investments increased to 18 percent between 2009 and 2013; however, this percentage was less than 10% between 2003 and 2008. Intra-African investment is significant for small African countries as a source of foreign capital especially non-oil exporting countries. According to the same report, FDI inflow to Africa reflected a 4 percent increase in 2013 up to $57 billion. This increase in FDI inflow is mainly driven by two main factors: investment seeking (regional & international) and

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infrastructure investment. Africa is continuously attracting FDI inflow due to high expectations of sustained population and economic growth. FDI inflow to Southern Africa increased in 2013 to 13 billion dollars from 6.5 billion dollars in 2012. This is driven mainly by the increase of FDI inflow to South Africa and Mozambique. FDI inflow to North Africa remained high at 15.5 billion even after 7% decline in FDI inflows to the region. In East Africa, FDI inflows increased by 15% to $6.2 billion due to increase in flows to both Kenya and Ethiopia. FDI flows to West Africa declined by 14% with a total amount of $14.2 billion. This is mainly driven by the decrease in FDI flows to Nigeria. The aim of this paper is to have an idea about the main incentives of FDI in Nigeria, in addition to determining the relation between FDI and economic growth (GDP) in Nigeria. The government in Nigeria has been giving a special attention for FDI through offering a number of incentives that welcomes foreign investors in most of the sectors except some key ones (such as the military and oil sectors). The incentives offered by the government to foreign investors are not limited to the ability of foreigners to own 100% enterprise, tax relief, no need for import license, and repatriation of foreign capital investment (UNCTAD, 2006). More important, the Nigerian laws provide required protection of foreign investment. For instance, it allows depreciation for capital assets. Moreover, it has provisions against nationalization and compulsory purchase of company assets. One of the main attractions in Nigeria to foreign investors is the great demand for goods and services as FDI increased from $2 billion in 2003 to $8.8 billion in 2011.

The Nigerian economy is dominated by the oil sector; so government is trying to diversify the economy through providing protection and incentives to foreign investment. According to 4 th quarter 2014 Foreign Trade Report of the National Bureau of Statistics (NBS), the Nigeria’s exports rise by 20 percent from N14,245.3 billion in 2013 to N17,203.9 billion in 2014. However, this figure is still dominated by crude oil where it contributes for 74.4 percent of the value of total domestic export trade. According to the same report, a total of US$20.750 billion net capital was imported in 2013. This capital was divided into different types of investment such as FDI (equity), FDI (others), portfolio investment (equity, bonds, and money market instruments), and other investments such as trade credits, loans, and currency deposits. Portfolio investment occupied the first position with 34 % of total capital imported into the country during 2014 4th quarter. The second position is occupied by FDI with 30% of total capital imported during the same period. The report also showed the top 5 capital importation by business type. Shares had the largest portion of total capital imported in 2014 to Nigeria. Telecommunication occupied the second position; while financing, manufacturing/production, and oil & gas occupied the third, fourth, and fifth place respectively. By country of origin, the United Kingdom continue to hold the largest share of capital imported by business type in the last quarter of 2014 according to the National Bureau of Statistics. The US provided the second largest source of capital for the quarter under study, while Saudi Arabia and Egypt provided respectively the third and fourth largest source of capital imported.

The favorable economic environment in Nigeria is the main driver that contributes towards attracting private capital inflow. According to the World Investment Report published by UNCTAD in 2014, FDI increased in all major economies (developed, developing, and transition economies) during 2013. FDI flows to West Africa in 2013 was recorded at $44 billion. Nigeria was one of the countries in West Africa that had FDI inflow above 3 billion dollars along with South Africa, Mozambique, Egypt, Morocco, Ghana, and Sudan. The heart of the debate is the motives that drives foreign investors to export capital into Nigeria and whether FDI inflow into Nigeria reflects positive economic effects. The relation between FDI and economic growth in Nigeria is still not clear after numerous studies in this area (Adelegan, 2000;

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Adams, 2009; Carp, 2012; Olusanya, 2013; Olayiwola & Okodua, 2013). In the first quarter of 2013, the Real Gross Domestic Product (GDP) grew by 6.56 percent in correspondence with the same quarter in 2012 according to the Central Bank of Nigeria (CBN). This was mainly drive by the growth in non-oil sector such as hotels, real-estate services, construction, and solid minerals to mention few. This clearly shows how non-oil sector contributes to be a major driver in the Nigeria economy.

For this reason, this paper will address below research questions:

a- What is the effect of FDI on Nigerian economic growth GDP?b- What are the main determinants of foreign direct investment in Nigeria?

The paper is mainly quantitative where it tries to identify the impact of FDI inflow on Nigerian economic growth represented by GDP. The researcher tries to prove a strong relation between FDI and GDP. The model will mainly study the relation between the 2 variables for a period of 43 years (1970-2013); however, some attention will be given to other macroeconomic factors such as interest rate (INTR), exchange rate (EXR), and inflation (INF). The relation between FDI and GDP will be implied from a regression model. The output of this model will then be confirmed through a survey which is shared with senior managers of foreign companies operating currently in Nigeria.

1.2.Feasibility of the study

The author is a manager in a foreign company operating currently in Nigeria. Indeed, the management is enthusiastic about the project where it provided a list of variable contact list for MDs and CEO’s of foreign companies in Nigeria. Moreover, several senior managers confirmed their willingness to be interviewed for the study if needed. A survey about the determinants of FDI in Nigeria is shared with 50 MDs and CEOs of companies working in Nigeria. This will serve as a primary source of data.

The secondary source of data which is related to financial figures of FDI in Nigeria is collected from the official website of Central bank of Nigeria in addition to other financial sources such as banks operating in Nigeria. The author will extract 5 sets of data assigned to the five variables under study (FDI, GDP, EXR, INF, & INTR) for the period between 1970 and 2011. The data related to FDI, GDP, INF, and INTR will be collected from the National Bureau of Statistics published in the website of Central Bank of Nigeria. Data related to exchange rate will be collected from FCMB bank. These time series sets will be entered in statistical and econometric forms where the output result will be applied on a linear regression equation to identify the impact of different independent variables on the dependent one GDP.

1.3.Justification of the topic:

The topic is related to MSC module, International Accounting and Finance. The author looks briefly into the impact of FDI inflow on economic growth in general. The author wants to get a better understanding on this relation specifically in Nigeria. Moreover, the author will look at some of the factors that limit FDI inflow to Nigeria in addition to the factors that contribute positively on increasing the flow of FDI to Nigeria.

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The desired research is expected to fill a number of gaps in the area of study. Up till now, there is no clear correlation between FDI inflows and Nigerian economic growth. Few studies separated between FDI inflow into service sector and FDI into manufacturing sector. Some researches resulted in a positive correlation, others resulted in negative ones. The author expects to contribute more on this correlation through empirical analysis. Moreover, there is no clear idea on the major incentives of FDI inflow into Nigeria. Akinlo (2004) argues that labor force is the top incentive that contributes towards FDI inflow; others argue that the market size is main incentive. The author expects to contribute more on this topic through the undergoing research especially that some interviews will be conducted with owners and managers of biggest foreign companies in terms of revenues and importation.

The author plans to submit the final dissertation draft to the employer’s management. It is hoped that the conclusions to be drawn from the research will give a better understanding for the author’s company on how to get the best out of the investment in Nigeria from market seeking to strategic asset seeking. Further, it is hoped that this study will serve as a bridge for further research on the relation between FDI and growth of economy in Nigeria especially that this relation is still not clear; future research may include below topics:

a- Impact of FDI inflow on the development of stock market in Nigeria.b- Impact of the Nigerian level of human capital on attracting FDI into Nigeria.c- How is Nigeria affected by FDI flow increase or decrease to West Africa?

Finally, the author believes that the final results of this dissertation will be significant on macro-level basis. Because several macroeconomic variables are being analysed in this dissertation, suggestions might be made to policy makers on laws and regulations which might be too heedless resulting in manipulation of law or too strict which results in discouraging business from bringing capital into Nigeria.

2. Literature Review:

MNC and foreign investments have grown abruptly after the Second World War; the expansion of FDI really took off during the 1960s (Nayak & Choudhory, 2014). As a result of this expansion, several theories tried to explain FDI. However, there is no single theory that can explain all types of foreign direct investment, nor it can explain an investment made by a country into a specific region. Therefore, the two main factors to be considered when applying an FDI theory are type and origin of investment. The early theories of FDI are based on perfect competition. MacDougall (1958) established one of the earliest theories of FDI based on perfect competitive market assumptions. Kemp (1964; cited in Nayak & Choudhory, 2014) elaborated the theory of McDougall. Expecting a two-nation model and costs of capital being equivalent to its peripheral profitability, MacDougall and Kemp both expressed that when there was free development of capital from a contributing nation to a host nation, the minimal efficiency of capital had a tendency to be leveled between the two nations. This is on the grounds that in the long haul the contributing nation gets higher income from its speculation abroad.

Other theories of FDI are based on imperfect markets; such theories discuss that there is no need of FDI in a world characterized by perfect competition. FDI based on imperfect market was developed based on different approaches. The industrial organization approach was developed by Hymer (1976). According to Hymer’s theory which was developed in his 1960 doctoral

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dissertation, a firm operating abroad has some disadvantages when compared to domestic firms; these are not limited to language, consumer’s preference, and legal system requirements. Moreover, a foreign firm is always facing the risk of foreign exchange rate. Therefore, abroad operation is only profitable when these disadvantages are off-set by the firm specific advantage such as availability of superior technology with the firm, brand name, patent, economies of scale, expertise skill, and cheaper sources of goods and services. Monopolistic approach is the second form of FDI based on imperfect markets; this approach is an extension to Hymer’s theory and was developed by Kindleberger (1969). Kindleberger argued that even though when firms have some firm-specific advantages such as brand name or superior technology; they are only useful in the case of imperfect market. It is better for a firm to exploit its monopolistic power in a foreign country than sharing its advantages with potential customers. Another explanation of FDI based on market imperfection was formulated by Kinckerbocker (1973). In the economic literature, it has been declared that market size and utilization of abundant factors available in the host country are the two main attractions when choosing a particular location. Kinckerbocker added a third motive: firms might invest in a country to match a rival’s move. In other words, firms might invest in the same country where competing firms are investing.

Beside FDI theories based on perfect and imperfect market competition, Aliber (1970; cited in Nayak & Choudhory, 2014) introduced another theory of FDI based on strength of currency. This theory is based on the difference between currency in source and host country. Aliber argued that countries with strong currency are more likely to attract FDI than countries with weak currency. This hypothesis was proved to be consistent with UK, US, and Canada.

Another theory of FDI is related to international trade; Smith (1776) made one of the early attempts to provide a theory that explains international trade. Smith explained that trade flows between nations occur when a nation has a flat out favorable position in the production of one commodity and hindrance in the creation of another commodity. This theory was elaborated by Ricardo (1817) based on comparative advantage. He argued that a country will export a commodity assigned to a comparative cost advantage and it will import another commodity assigned to least cost advantage.

The effect of foreign direct investment (FDI) inflow on Nigerian economic growth is an ongoing discussion that continuously appears on national press as well as in academic literature. In economies where poverty reductions are unattained, required investments are also unattained. There is a positive correlation between level of saving and investment. Therefore, it is argued that FDI serves as a bridge to fill the gap between savings and investments. Nigeria is one of the countries where the saving rate is very low; this reflects the importance of FDI in this country.

2.1. Relation between FDI and GDP:

Africa has been globally the most underdeveloped region in the long term; very low income and lack of basic human needs prevented Africa from exerting a significant influence on international economic order. However, many African countries are now seeing high FDI inflows which contributes toward rapid GDP growth. Eva (2015) analyzed FDI inflows to Africa and its effect on the current African economic situation. The study was based on international reports published by certified organizations in order to shed light on the relation between GDP growth

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and FDI inflows in Africa. Although the findings of the study pointed out some positive forms of relation between FDI and GDP in Africa; however, these foreign investments failed to improve African’s living conditions in most African countries. The additional capital brought into Africa plays a significant role in creating new employment, supplementing domestic savings, integrating Africa into the global world economy, bringing new technologies, and encouraging efficiency of domestic roles. All these factors are significant in sustaining the growth of African economy. However, the author differentiated between economies of Sub-Saharan Africa (SSA) and North Africa where the last is more developed. Due to rapid and huge FDI inflows into Sub-Saharan African countries, its GDP growth in 2010 was growing at a rate 2 times higher than that of advanced countries. Moreover, this rate is expected to be three times higher in 2015 due to the strong growth trend in SSA. Based on this, Africa will remain a major recipient of FDI in the coming years especially in low income countries assigned to SSA.

Tekin (2011) investigated foreign direct investment in some of the least developed countries and analyzed its relation to economic growth and exports through panel granger causality analysis. In countries like Sierra Leone, Haiti, and Rwanda, the findings indicate a unidirectional causality from exports to GDP. However, in Angola, Zambia, and Chad, the findings indicate a unidirectional causality from GDP to exports. Regarding the relation between FDI and economic growth, the results show that FDI is causing GDP in Togo and Benin while GDP is causing FDI in Gambia, Malawi, Madagascar, and Burkina Faso. Therefore, there is a significant relation between FDI and economic growth in only 6 countries out of 18 least developed countries. The main reason for this result could be due to the very low levels of FDI in national incomes assigned to countries under study. Although FDI is on a rising trend in these countries, the share of FDI in GDP remains very low. It is also noted that FDI is concentrated in few countries mainly the ones that are rich in mineral resources. Moreover, in all countries studied, there were no single case where FDI caused a significant negative effect on real GDP. The study also examined the relation between FDI and exports where it was concluded that there is a granger causality from FDI to real exports in Yemen, Mauritania, Haiti, Niger, Chad, and Togo; moreover, a granger causality from real exports to GDP is identified in Haiti, Senegal, Zambia, Madagascar, Malawi, and Rwanda.

Usman & Ibrahim (2012) investigated the impact of FDI and monetary union on economic growth in the Economic Community of West African States (ECOWAS). A common currency in ECOWAS sub-region is a desire since the group was found in 1975. However, lot of challenges is avoiding the group from achieving this target. Regarding monetary union, the authors depend on comprehensive evidence from the European Union to show how common currency in ECOWAS can play an important role in stimulating the flow of FDI in the sub-region. The research concluded a positive relation between FDI and economic growth in the ECOWAS. Alege & Ogundipe (2013) investigated the relationship between FDI and economic growth in ECOWAS sub-region. Using the System-GMM panel estimation, the authors approached the study covering the period 1970-2011. The benefit of System-GMM is that it allows including explanatory variables in the studied model. For this reason, the authors included quality of institutions and role of human capital as explanatory variables in the model. In contrary to the previous studies, this study showed insignificant and also negative impact of FDI on economic growth of the ECOWAS countries. Adamu (2014) studied also the impact of FDI on economic growth in the ECOWAS. The author estimated the regression coefficient for all the countries under the regional group for the period 2000-2009. FDI was found to be positively related to economic growth.

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Rachdi & Saidi (2011) investigated the impact of portfolio investment and foreign direct investment on economic growth. The empirical study is based on 100 countries from both developing and developed economies for the period 1990-2009. The author used three economic and statistical estimators (GMM, WG, and GLS) to investigate the impact of FDI inflow on economic growth. The results of the three estimators reflected positive and significant impact of FDI on economic growth for developing (69 countries) and developed (31 countries) economies. Moreover, the results showed insignificant and negative impact of portfolio investment on economic growth of developing economies. However, the same coefficient is positive and significant in developed economies.

Obadan (1982) studied the Nigerian economy for the period 1973-1990 and he discovered a positive relationship between FDI and GDP. The author revealed that the economy was growing at an annual average rate of 1.85%; the foreign capital contribution to this rate is around 54%. Shiro (2006) analyzed the impact of FDI inflow on the Nigerian economy for the period between 1970 and 2005 as well as analyzing the ability of the government to attract sufficient FDI inflow that is adequate to accelerate the pace of economic growth in the country. Econometric and statistical methods were used to determine the dependence of Nigerian economy (GDP) on FDI inflow. Major economic indicators such as gross fixed capital formation (GFCF) and index of industrial production (IIP) were added to the research in order to study their relation to FDI. Results of the research reflect positive relation between FDI and each of the other variables (GDP, GFCF, and IIP). However, results show that contribution of FDI inflow to Nigerian economic growth is not significant. Therefore, more FDI should be attracted to the country through improving the economic climate for foreign investors. This climate can be found through political stability in addition to laws and regulations that ensure the rights of foreign investors. The author added that the domestic investors are the key for foreign investors. The Nigerian government has very little incentives for domestic investors. Therefore, encouraging domestic investors first is a must in order to attract adequate capital to Nigeria.

Edomiekumo (2009) examined causal relationship between FDI and GDP in Nigeria between 1970 and 2007. The author proved through Granger causality that the direction of causality between the two variables is from FDI to GDP. That is, when FDI inflow increases in Nigeria, there is more economic development in the country. Moreover, empirical evidences in the study showed that GDP has its own impact also on FDI. Therefore, FDI causes GDP and vice versa.

Osinubi (2010) analyzed the significance and direction of foreign private investment on GDP in Nigeria between 1970 and 2005. The study found that foreign private investment has positive impact on GDP. That is, all other variables held constant, 1 unit increase in FDI will lead to 0.00059 increase in GDP.

Umoh, Jacob, & Chuku (2012) investigated the relationship between FDI and GDP in Nigeria between 1970 and 2008. In order to check if there is bi-directional relationship between FDI and GDP, single and simultaneous equation systems were employed. The result of this paper showed that FDI has positive impact on GDP. Moreover, the study showed that GDP has also positive impact on FDI. In other words, GDP and FDI are jointly determined.

Ogbonna et al. (2012) also examined the relationship between FDI and economic growth in Nigeria by using granger causality regression equation. The authors found that the relationship between the two variables is statistically insignificant. However, FDI still has a positive impact on GDP.The authors included some other variables in the regression equation such as gross

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fixed capital formation, exchange rate, consumer price index, and net exports. The study showed that these variables have impact on GDP.

Inekwe (2013) examines the relation between FDI, employment rate, and economic growth in Nigeria. The study examined this link in both manufacturing and servicing sector. The results of the study showed that there is a positive relation between FDI and economic growth plus a positive relation between FDI and employment rate in the servicing sector. Moreover, the results also showed a negative relationship between FDI and economic growth plus a positive relation between FDI and employment rate in the manufacturing sector.

Oregwu & Onuoha (2013) looked at some factors that may affect FDI inflow to Nigeria such as GDP, openness of trade, inflationary levels, communication, and transport. The data of these variables was interpreted for ten years (2001-2010). The result of the analysis showed that there is no direct correlation between Nigeria’s GDP growth and FDI inflow. According to the study, this result is a sign that economic growth in Nigeria is brought up by the oil sector; unfortunately, it is not enough to attract the required FDI in Nigeria. Moreover, openness of trade is not significant for FDI inflow. This is because foreign sector is not adding value to the manufacturing sector and this is proved in the World Bank Report (2001) where it shows that the percentage share of manufactured goods in Nigeria’s exports is 1% with 99% share for primary commodities. The study concluded that there is no direct correlation between FDI and GDP.

Onwunmi (2012) analyzed the relation between FDI and economic growth in Nigeria. The result of the analysis didn’t provide much support for the positive relation between FDI and GDP. The author didn’t ignore the importance of FDI to Nigerian economy; however, the analysis of the study showed that FDI as a single variable didn’t exert independent growth effect in Nigeria for the period of study.

Akinlo (2004) investigated the relation between FDI and Nigerian economic growth in Nigeria for the period 1970-2001. The results according to the error correction model (ECM) shows that FDI doesn’t have a significant effect on economic growth. However, it supported the argument that extractive FDI might not be growth enhancing as much as manufacturing FDI. Therefore, the challenge for Nigeria is to attract the right form of FDI which will contribute toward the economic growth of Nigeria in addition to providing a balanced economy. Moreover, the results of the study showed that the labor force have a significant effect on economic growth. Therefore, the author recommended expansion of labor force to raise the stock of human capital in the country. This study showed that export is a very important factor and has a significant positive effect on growth of the Nigerian economy. The findings of this study matched with that of Inekwe(2013) who discussed that FDI into service sector has less significant effect than manufacturing FDI on Nigerian growth.

Ayanwale & Bamire (2004) examined the relationship between FDI and firm level productivity in Nigeria. The study found a positive and significant impact of foreign investment on domestic investments. Domestic firms are main factors that contribute to the success of foreign ones. However, the productivity level of foreign firms remains higher than that of domestic ones. This is because foreign firms are larger in size and more export oriented in addition to higher expertise staff.

Nurudeen, Wafure, & Auta (2011) also examined the relation between FDI and economic growth in Nigeria for the period 1970-2008 which is similar to the study of Akinolo (2004) in

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terms of the period of study and the methods used to examine the link in question. The analysis of annual data was analyzed using the error connection technique and ordinary least squares. The result of the analysis shows that the Nigerian market size (GDP) has a significant negative effect on FDI. Moreover, the results reflected negative effect of inflation on FDI inflows.

Olusanya (2013) also analyzed the relation between FDI and economic growth in Nigeria. However, this study examined the relation from a different perspective; it differentiated between a pre and post deregulated economy. The analysis was divided into three periods: 1970 to 1986, 1986 to 2010, and 1970 t 2010. The results of the study showed that between 1970 and 1986 (the pre-deregulation era), there is causality relationship from FDI to GDP which means that FDI is caused by GDP. While in post deregulation era, the result of the analysis showed that there is no causal relationship between FDI and GDP. The overall conclusion from this study is that there is a one-way relationship between FDI and GDP and this relation is from GDP to FDI.

Oyatoye et al. (2011) concluded their study with a positive relation between FDI and GDP for the period under study (1987-2006). The authors stated that this relation is not only positive, but also significant as 1 Nigerian Naira (NGN) increase in FDI will lead to NGN 104.749 increase in GDP. Therefore, the study recommended that government should provide more encouragement to foreign investors as FDI will also enhance exportation of goods which in turn will improve GDP in Nigeria. These findings totally disagree with other studies who concluded their studies with insignificant relation between FDI inflow and economic growth in Nigeria such as Orgerwu & Onuoha (2013) and Olusanya(2013).

All of the above studies answered the first research question on the relation between FDI and economic growth from a different perspective. The purpose of these researches is almost the same; however, each research has its own characteristic regarding country(s) under research, period of the research, or even the econometric and statistical method used. Regardless of these characteristics, some researchers concluded their studies with a significant (positive or negative) relationship between FDI and economic growth, other researchers concluded their studies with an insignificant relation between FDI and GDP. Obadun (1982), Shiro(2006), Edomiekumo (2009) and Adamu (2014) concluded their studies with a significant and positive impact of FDI inflow on economic growth. Nurudeen, Wafure, & Auta (2011) found that there is a significant and negative impact of FDI inflow on GDP. Alege & Ogundipe (2013) come to an end that there is insignificant but negative impact of FDI inflow on economic growth. Ogbonna et al. (2012) & Onwunmi (2012) reached to a conclusion that FDI inflow has insignificant but positive impact on FDI inflow.

2.2.Determinants of FDI

Over the past few decades, authors all around the globe investigated the potential determinants of foreign direct investment. Dua & Garg (2015) analyzed some of the macroeconomic determinants of FDI in India. The results of the study indicate that higher domestic return, higher domestic input, good infrastructure, and depreciating exchange rate are important determinants of foreign direct investment. Moreover, credit worthiness has also a positive impact on FDI. However, macroeconomic instability affects FDI inflow negatively. Theoretically, openness of trade has positive impact on FDI; however, the results of the revealed the opposite. The negative contribution for openness of trade on FDI inflow to Nigeria means that FDI to inflow is tariff jumping as explained by the authors. Another important result in this study showed that an

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increase in FDI inflow to other emerging countries reduce FDI inflow to India. This shows the level of competition between different emerging economies. De los Santos (2014) analyzed the importance of multinational corporations (MNC’s) in the flow of foreign direct investment between nations. For this purpose, the author collected data from Chile and analyzed how FDI will affect the economic growth and development in the country. The empirical results of the study suggest that the growth in Chilean economic activity serves as a main attraction for foreign investors. Moreover, the avoidance of overvaluation of Chilean exchange rate (Chilean peso) played an important role in attracting FDI inflow to Chile. Moreover, the empirical results showed high ratio of payments on the external debts to exports which exerts a negative significant effect on FDI inflow into Chile. Nevertheless, the author stated that MNC serves as a bridge for fast and easy attraction of foreign investment.

Malhotra, Russow, & Singh (2014) tried to evaluate the determinants of foreign direct investment in four emerging markets: Brazil, Russia, India, and China for the period between 1995 and 2012. The study was based on both economic and non-economic variables. Ten economic variables and ten institutional variables were analyzed. Economic variables analyzed are: budget balance as percentage of GDP, change in real wages, current account as percentage of GDP, current account as percentage of XGS, debt service as percentage of XGS, GDP per head of population, inflation, international liquidity, real GDP growth, and unemployment rate. Institutional variables analyzed are: bureaucracy quality, corruption, ethnic tensions, external conflict, government stability, internal conflict, law and order, military in politics, religious tensions, and socio-economic conditions. The results of the study showed that both two types of variables exert a significant impact on FDI flows to countries under study. The study also showed that high GDP results in more FDI inflow to the countries under study.

Williams (2015) investigated FDI in Latin America and the Caribbean (LAC) using a sample of 68 developing countries in order to compare and contrast FDI determinants in LAC and non-LAC countries. Data collected from these countries for the period between 1975 and 2005. The results of this study suggest that the stock of infrastructure is a main attraction to LAC countries unlike non-LAC countries. Moreover, high debt contributes negatively to FDI inflows in non-LAC countries. Constraints on the executive also has negative impact on FDI inflows to non-LAC countries. Therefore, this study noted differences between determinants of FDI inflow to LAC and non-LAC countries in three main dimensions.

Sankaran (2015) analyzed the determinants of FDI in the Dominican Republic for the period between 1993 and 2012. The empirical analysis of the study revealed a number of significant factors that affects the FDI inflow. These factors are not limited to market size, infrastructure, labor force, trade openness, secondary education, and natural resource extraction. Based on these factors, the author stated a number of recommendations such as investing in infrastructure, transportation, communication, and education. Moreover, policy makers should implement trade policies which is outward-oriented. The author also included other variables in the analysis. Although results showed that these variables are statistically insignificant; however, they helped explain how FDI inflow into Dominican Republic is affected by other factors. For instance, the credit variable shows that decreased loan availability can lead to led FDI inflow into the country, and vice versa. Moreover, the debt service variable shows that FDI inflow increases when budget policy is more conservative.

Villaverde & Maza (2015) studied the determinants of FDI in the EU regions for the period 2000-2006. The findings of the study showed that technological progress and competitiveness are

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considered as main FDI inflow determinants in the EU region. Beside technological progress, labor market characteristics and economic potential have a positive impact on FDI location patterns. On the other hand, market size and labor regulation doesn’t have neither positive nor negative impact on FDI inflows to EU. The author discussed that factors like market size play noteworthy roles in developing markets and not in developed ones. This study obtained interesting results regarding FDI drivers. EU is one of the main recipient of FDI in the world; it’s main FDI drivers completely differs from other main recipients (such as West Africa) of FDI. High competitiveness, technological progress, and economic potential are main drivers of FDI in EU. However, market size and infrastructure are considered as main determinants of FDI in a lot of developing countries.

Armandei (2013) analyzed the impact of corruption on FDI inflow in 10 Central and Eastern European countries. GDP was taken as control variable to examine this relation. The author collected data for the period 2000-2012 from UNCTAD for FDI and from Transparency International for Corruption Perception Index. The majority of literature on this subject shows a negative impact of corruption on FDI; this was confirmed again in this study. However, the negative significant relation is less than what is expected. This shows that foreign investors conduct a complex systematic analysis for the business environment before they decide to invest or not. The results of the study also showed a significant positive relation between GDP and FDI. Therefore, it can be concluded that although market potential is high in Central and Eastern European countries, this can be diminished by other critical factors related to stability of regulatory system. In order to attract more FDI into countries under study, the author recommended reforms of public administration which serves as a bridge to minimize systematic corruption in the country.

Ivanova and Masarova (2013) discussed the importance of road infrastructure in the Slovak Republic and its impact on FDI and GDP. Time series and correlation analysis were used in this analysis and also to determine the competitiveness of the country. The period of study is from 2000 until 2011. Based on correlation analysis results, a strong significant positive relation exists between infrastructure and GDP. Moreover, the study showed a downward tendency assigned to the competitiveness of the Slovak Republic even when economic growth rate was at is highest (the year 2007). Therefore, the relation between country’s competitiveness and economic growth is paradoxical. This can be explained by the mono structural car production in the Slovak industry. Therefore, Slovak government should provide required incentives to small and medium enterprises as they play an important role in creating competitive advantage, increasing employment rate level, and growth of economy. Such type of support has been acknowledged as a crucial condition which contributes towards the diversification of the Slovak economy. Moreover, a special attention should be given to road infrastructure in order to make Slovakia more accessible in Europe. Nevertheless, connecting eastern and western parts of Slovakia is vital; the study showed how infrastructure is one of the most important determinants of FDI inflow into Slovakia.

Abdulai (2007) investigated foreign direct investment determinants and the relation between FDI and economic growth in sub-Saharan Africa. Most countries in sub-Saharan Africa has recovered recently from long period of stagnation; therefore, they are in need of FDI not only to accelerate economic growth and development, but also for bringing new skills and technology. The author concluded his study that political and economic stability are main factors that contribute towards attracting foreign investors. Moreover, all public resources should be

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managed in accountable and transparent perspective. According to the author, inflation contributes negatively to FDI inflow into sub-Saharan African countries. Therefore, policy makers should give special attention to this factor and continuously implement policies that reduce inflation. Government budgetary deficits is another macroeconomic factor that affects the level of FDI inflow. Therefore, reducing government budgetary deficits is another major task for policy makers in order to reserve additional resources which can be used in developing physical and financial infrastructures which in turn reflects in more FDI inflow.

Sichei & Kinyondo (2012) tried to find out the major determinants of FDI in Africa using a data sample of 45 African countries. The data collected from these countries is over the period 1980 to 2009. The study used panel data analysis instead of OLS as it provides more accurate results when analyzing several countries in the same model. The results of the panel data analysis are not limited to natural resources, investment agreements with international countries outside the region, and agglomeration economies. The link of African economies generates improved economic outcomes as well as increasing the wellbeing of the population. The important results of this study show that FDI inflow to Africa is not attracted only by natural resources; this places a responsibility on all African governments to reform its national and international institutions which contributes in increasing the level of foreign capital in Africa. Kudaisi (2012) investigated major determinants of FDI in 16 West African countries. In addition to the growth rate of GDP, the author examined empirically other indicators which are not limited to openness of the economy to regional & international trade, inflation rate, exchange rate stability, natural resources, availability of labor, and government policy in attracting foreign capital. Empirical results of this study show that natural resources and availability of labor (mainly cheap one) are the major determinants of FDI inflow into West African countries. Another significant factors that contribute foreign capital are market size and official exchange rate.

Adefeso & Agboola (2012) used Residual-Based Engle-Granger-Dickey-Fuller Co-integration test in order to investigate the long-run determinants of FDI in Nigeria. The study revealed that the oil sector and market size are the main two variables that attract FDI inflow into Nigeria. Each 1% change in oil sector and market size will determine respectively 79% and 67% change in the mean of inflows of FDI in the long run. Other important variables attracting FDI inflow were revealed in this study; these are not limited to degree of openness and tax. The findings of this study will be confirmed or denied when concluding this paper.

Umoh, Jacob, & Chuku (2012) also discussed some of the most important factors attracting FDI inflow into Nigeria. They implied that openness to regional and international trade is very essential to increase FDI inflow to the country. This can be achieved through policies development which ensure greater private participation in the economy. Both domestic private participation and foreign private participation contributes towards a higher level of openness in the economy. The authors also discussed that privatization is a very important factor that encourages FDI. Therefore, it is advised to down-size government enterprises. In addition, authors give a special attention to the importance of political stability in attracting FDI capital into the country. The authors explained that political stability and GDP are interconnected. In other words, in periods where Nigeria had unstable political situations; economic development which is assigned to investment was reduced. Moreover, a poor economic performance may lead to unstable political situation (such as government collapse).

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Abubakar & Abdullahi (2013) also inquired about the determinants of FDI into Nigeria between 1981 and 2010. They analyzed several factors that may contribute to FDI inflow such as natural resources, openness of trade, and inflation. On the ground level, it is supposed that these variables contributes positively to FDI inflow; however, it is shown that market size, openness of trade, and natural resources do not attract FDI into Nigeria in the long run according to the results of Johansen cointegration test. On the other hand, market size and inflation affect positively FDI in the short run according to the results of Granger causality test. These results confirmed the findings of Adefeso & Agboola(2012) on the determinants of FDI inflow.

Rachdi & Saidi (2011) suggests a set of policy implications to attract FDI. These implications are not limited to reducing level of corruption and enhancing political stability. Onwunmi (2012) tried to find out the major determinants of FDI in Nigeria. The author found that laws and regulations is a main driver for FDI inflow increase. Such laws offer foreign investors the required protection. The authors also stated that political stability is the one of the major drivers of FDI inflow into Nigeria. The study also showed that bad infrastructure available affects negatively of FDI inflow. The author concentrated on two main factors (political stability & laws and regulations) as major determinants for FDI in Nigeria; this is to be confirmed in this study as these two factors are also taken into consideration as major drivers of FDI inflow into Nigeria.

Oregwu & Onuoha (2013) also analyzed some of the barriers that may slow FDI inflow. The authors showed that high level of inflation drives away foreign investors because when inflation and overhead costs are summed together, it will prevent high return on investment. Beside inflation, other factors were considered in the study such as real GDP and electricity consumption. These variables has negative values of parameters in the equation model. Based on that, the authors recommended some actions that are not limited to improving electricity supply hours in the country. Moreover, policies in the country should be reconsidered, and incentives for foreign investors should be expanded. The authors added that the cost of doing business is generally high in Nigeria. Thus, reducing the cost of doing business is one of the main concerns.

Nurudeen, Wafure, & Auta (2011) investigated also the determinants of FDI in Nigeria. Based on the results of the study, the authors revealed four main determinants of FDI in Nigeria: market size, political stability, laws & regulations, and exchange rate depreciation. Based on this, the authors stated several recommendations that contribute towards more attraction of FDI inflows into Nigeria; these recommendations are not limited to employing policies by government to further open the economy, investing more in the country’s infrastructure by government which will contribute towards less cost in doing business, encouraging production activity. Nevertheless, the authors recommended that the Nigerian economy should be ready for further depreciation of the Nigerian Naira currency which will attract more FDI inflow in the form of merger and acquisition. Privatization in a transparent manner is also essential towards the growth of the economy.

Ugochukwu, Okore, & Onoh (2013) also analyzed the relation between FDI and economic growth in Nigeria for the period between 1981 and 2009. The analysis of the results showed that FDI has a positive and insignificant effect on Nigerian economic growth for the period under study. Unlike the other studies above, this one added Gross Fixed Capital Formation (GFCF) in order to check how domestic investments contribute toward the growth of the Nigerian economy. The results of the analysis showed that GFCF contributed positively and significantly on economic growth for the period under study. Also, it was found that exchange rate positively

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and significantly affects the growth of the economy. On the other hand, it was found that interest has a positive but insignificant effect on economic growth for the period under study. Therefore, this study matches with the findings of other studies such as Orgerwu & Onuoha (2013) and Olusanya (2013) regarding the significant positive relation between FDI and GDP.

The second research question of this dissertation is related to the major determinants of foreign direct investment. According to the above studies, major determinants of FDI can change between countries. Some countries may attract foreign capital because of market size and cheap labor, other countries attract foreign capital because of natural resources it gets. Moreover, there are some determinants of FDI which are not assigned to a specific country; these are not limited to political stability, laws & regulations, and openness of trade.

The purpose of this review was to find the impact of FDI on economic growth in addition to the major determinants of FDI; mainly the case of Nigeria. Different periods and different statistical methods were observed to find out how these characteristics may affect the findings of each research. It is clear from the researches reviewed that most of them concluded a positive impact of FDI inflow on economic growth. Along with this, it is also clear that political stability and openness of trade are major determinants that contribute towards attracting FDI into a specific country. The relation between FDI inflow and GDP is still being debated, and continues to be problematic subject in most countries around the globe including Nigeria.

3. Methodology and Data

The study is mainly quantitative and builds on existing research to determine the impact of FDI inflow on Nigerian economic growth. This section describes methodologies used in order to determine the relationship between FDI and economic growth (GDP) in Nigeria over the 1970-2011 period. Other variables were added to the empirical formula under study; these variables are interest rate, exchange rate, and inflation. The annual data of GDP, interest rate, and inflation rate were obtained from Annual Statistical Bulletin published on the Central Bank of Nigeria website. As of FDI and exchange rate data, they were collected from FCMB bank head quarter. In order to test the hypothesis on different relationships between FDI inflow and economic growth in Nigeria, the researcher used two statistical methods: unit root test and ordinary least squares method (OLS). These methods were used because most financial and economic time series are assigned to a non-stationary in the mean or a trend; this makes the data unreliable for econometric analysis. The researcher used two statistical packages in order to apply the methods: XLSTAT and E-views software systems.

3.1. The Linear Regression Model:

The author proceeded the study by specifying the variables of the empirical model which expresses the hypothesis under study: a positive and significant impact of FDI inflow on Nigerian economic growth represented by GDP. The basic equation for the model is provided below:

GDP= f(FDI,EXR,INF,INTR) (equation1)

Where:

GDP: Gross Domestic Product

FDI: Foreign Direct Investment

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EXR: Exchange Rate

INF: Inflation

INTR: Interest Rate

In reference to the proposed relationship in equation 1, some of the above literature provided substantial support for the positive and significant impact of FDI inflow on economic growth; however, some other literature provided more support to the opposite argument. In this regard, some researchers argue that FDI affects domestic firms in the short term only (Suliman & Elian, 2014). Financial local conditions of a host country such as capital and bank markets is a major determinant for the relation between FDI inflow and economic growth. In other words, a developed host country’s financial system might be a must for a positive relation between FDI and economic growth. The lack of financial development infrastructure have many negative effects that are not limited to increasing information acquisition costs, slowing down the adaptation of new technology, less liquidity, and making trading transactions more difficult and more time consuming (Hermes & Lensink, 2003; cited in Suliman & Elian, 2014). All these difficulties can be eased with a well-developed financial infrastructure. Based on this perspective, FDI has insignificant impact on economic growth if the host country is not ready for the investment in terms of financial structure and especially the banking sector.

The expectation of this study is not limited to a positive impact of FDI inflow on the Nigerian economy as discussed by some of the existing theories; this will either be accepted or rejected later in the study after the statistical evaluation of the analytical model through ordinary least square regressions.

Economic growth is measured by gross domestic product (GDP). The whole data assigned to this variable is secondary and is collected form the Statistical Bulletin of the Central bank of Nigeria. After the Nigerian presidential election in 2015, lot of economic shocks affected the growth in the country. For instance, the price of oil dropped below 50 USD/barrel in Aug 2015. It is worth mentioning again that 90% of the Nigerian economy depends on the oil sector. The drop in oil price is not only affecting Nigeria, but all oil producing countries. The projected growth for Africa is 2014 was 5%; however, this figure has been revised by the International Monetary Fund (IMF) and adjusted at 4.5% in 2015 due to the shrink in oil prices. The slowdown in Nigerian economic growth is going to continue in 2015 until there’s clarity in policy direction after the election of the new government.

FDI is measured on a net basis (FDI inflow minus FDI outflow) of the Nigerian economy. Most countries identify foreign direct investment as investors who own 10% ownership of an enterprise. However, some countries use different criterion in their economy to identify direct investment (IMF, 2001). According to the same report published by International Monetary Fund concerning how countries measure FDI, some countries include enterprises in which the investor owns less than 10% but has an effective voice in management.

Inflation is included in the regression analysis due to its effect on foreign investors. In terms of justification, interest rates are usually low in periods of low inflation; this make it more appealing for foreign investors to borrow money at low interest rates and invest in the host country. Therefore, governments always strive for a low inflation level in order to boost economic growth. High levels of inflation make it less appealing for both domestic and foreign investors to invest in. Therefore, high levels of inflation is often a negative contribution for economic growth. Empirically, there is a mix in

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research results regarding the relation between inflation and economic growth. Ajilore (2006) found that when inflation level is below 6%, there exists a significant positive relationship between inflation and FDI in Nigeria for the period 1970-2003. Thus, 6% represents the inflation threshold level for this period. Any inflation level above the threshold level slows down the Nigerian economic growth according to the study. Omoke (2010) discussed that there is no co-integrating relationship between inflation and Nigerian economic growth. Osuala (2013) analyzed the relation between inflation and economic growth in Nigeria for the period 1970-2011 and concluded the research with a significant positive impact for inflation on economic growth; that is, a 1 % increase in inflation leads to 0.01% growth for Nigerian economy.

The author measured interest rate with prime lending rate collected from the Central Bank of Nigeria statistical bulletin. The prime lending rate is the one bank applies on the most credit-worthy customers. Based on this definition, one would expect an inverse relation between interest rate and GDP. In terms of justification, when interest rate is low, foreign investors are more attracted to collect loans and invest in the host country which in turn contributes positively to the growth of the economy. However, not all empirical studies agree with this statement. Obamuyi (2009) found a significant relationship between interest rate and economic growth in Nigeria for the period 1970-2006. Ikechukwu (2011) analyzed the relation between interest rate and economic growth in Nigeria for the period 1970-2005 and found interest rate to be a poor determinant of economic growth. The author considered that most loans given in Nigeria are used in un-productive purposes (such as buying hosues, cars, etc.); he added that loans should be re-directed to productive purposes for interest rate to resume its role in boosting the Nigerian economic growth.

Openness of the economy is not included in the regression analysis; however, it is discussed in the qualitative section of the thesis (the survey part). Trade openness indicator is measured by the ratio of total trade to GDP (Zenith Bank, 2015). The debate on effect of trade openness on economic growth is increasing among governments of less developed countries like Nigeria (Nduka, 2013). Empirical evidence on the relation between trade openness and economic growth has been mixed although there is a common thinking that trade openness accelerates economic growth. Nduka (2013) analyzed the relation between trade openness and economic growth. He found that a 1 % increase in trade openness leads to 5% increase in economic growth (holding other variables constant). There are several constraints assigned to Nigeria’s potential in international trade such as high cost of doing business, poor infrastructure, and most important the lack of favorable international trade practices (Oduh, 2012). In order to overcome these problems and many others, Nigeria decided to reform its international trade policies and practices through economic partnership arrangements such as ECOWAS-CET and EU-ACP. Such economic agreements will open the Nigerian economy to external shock and boost the economic growth of the country.

Equation 1 can’t be estimated in its current form, it needs to be written in its econometric form as shown in equation 2 below:

GDP= β0 + β1FDI + β2EXR + β3INF + β4INTR + µ (equation 2)

Where:

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β0: intercept

βt: coefficient of regression

µ: error term

The regression coefficient (βt) shows how the rate of change of the dependent variable (GDP) is affected by a unit change in independent variables (FDI, EXR, INF, & INTR). Although the researcher included some important factors that may affect GDP; however some other factors may still have influence on GDP. This is the reason why noise or error term (µ) is incorporated in the equation.

3.2.Unit Root Analysis

Before estimating the regression model, it is important to determine whether the time series is stationary or not. Most time series are characterized by non-stationarity in the mean which reflects a trending behavior. Typical examples of non-stationary time series are exchange rate and other macroeconomic factors like real GDP. A non-stationary time series is unreliable for econometric analysis as it may indicate a relationship between two variables for a non-existing one. In such case, a non-stationary data needs to be transformed into stationary for trend removal. The stationary time series is characterized by constant mean and constant variance over time; however, non-stationary time series is characterized by variable variance and mean. First differencing and time-trend regression are ones of the most common methods used for de-trending. First differencing method is useful when the time series is integrated of order one I(1). One the other hand, time-trend regression is useful on stationary time series I(0). Said and Dickey (1984) augmented a method that test for unit root in autoregressive-moving average. The method is known as Augmented Dickey-Fuller Test (ADF).

XLSTAT software is used to determine whether the time series of variables being analyzed is stationary or not. The procedure involved choosing between two approaches to verify whether a series is stationary or not. The first approach is KPSS which considers the null hypothesis H0 as stationary. The second approach is unit root test such as Augmented Dickey-Fuller test for which the null Hypothesis considers the data tested as non-stationary. The researcher used the ADF test in order to verify if data being analyzed is stationary. The author also used E-views software to verify whether data is stationary or not where the same ADF test approach was used.

3.3.Ordinary Least Squares Regression

Ordinary Least Squares (OLS) regression is a technique used to model the relation between a dependent variable and explanatory variable(s). The model can be applied on single or multiple explanatory variables. This type of relationship between dependent variable (Y) and explanatory variable (X) can be explained on the basic level through line of best-fit (least squares regression line) where the value of Y can be predicted by X. Mathematically, the straight line equation is :

Y=α + βx

Where:

α: intercept

β: regression coefficient (slope)

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This equation is applied assuming that the relationship between dependent variable and explanatory variable(s) is linear.

Below is a graphical representation example for the least squares regression of two variables: GDP (dependent variable) and FDI (explanatory variable):

-2,000,000,000 0 2,000,000,000 4,000,000,000 6,000,000,000 8,000,000,000 10,000,000,0000.00

50,000,000,000.00

100,000,000,000.00

150,000,000,000.00

200,000,000,000.00

250,000,000,000.00

300,000,000,000.00

350,000,000,000.00

400,000,000,000.00

450,000,000,000.00

f(x) = 30.3744806683866 x + 12398842917.9495R² = 0.73164550859404

Least Squares Regression Line

FDI Explanatory Variable

GDP

Depe

nden

t Var

iabl

e

OLS estimator can be used only if certain assumptions are considered. The reliability level of the OLS estimation output depends on the accuracy of these assumptions. The researcher used Gauss-Markov assumptions which includes five major assumptions discussed below (Christensen & Lin, 2013):

Assumption 1: the dependent variable is a linear function of a set of independent variables in addition to the error component.

Assumption 2: it is assumed that the error term values of all observations is equal to zero (i.e. E(µi)=0).

Assumption 3: The third assumption is known as homoscedasticity. This assumption implies that uncertainty in the model is identical across observations where variance is the same for all error terms.

Assumption 4: error term is not correlated; this means that the observations of dependent variable are not correlated.

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Assumption 5: The last assumption in Gauss-Markov theorem is that independent variables are uncorrelated with the error term. Given the values of independent variables, error terms are expected to have zero conditional mean. Mathematically, this assumption can be written as:

E(U)= 0

Where:

E: expectation operator

U: matrix of error terms

OLS is considered one of the best linear unbiased estimators under the condition that above assumptions are met. OLS method is applied on E-views econometrics and statistical package. The first step is to identify dependent variable and independent variables. In this case, GDP is the dependent variable, while FDI, EXR, INF, & INTR are the independent variables. The data for all the variables were imported into the software and the OLS test was applied. The values of slope (β0), constant, error term, and coefficients of regression were obtained. The slope describes the change in the dependent variable per unit of independent variable. The output of OLS test showed t-statistics and p-value for the coefficients of all independent variables. If p-value is less than or equal the critical value, then the null hypothesis is rejected. The output also shows R-squared value. This is the coefficient of determination which is the fraction of variation in dependent variable that is explained by the regression model. R-squared is considered as a secondary importance in this study because the main goal of this research is not to make accurate predictions; however, it is to identify how each of the independent variables affect the dependent variable which can be known through p-value.

4. Discussion of Results:

The procedure to test the relation between different variables involved two steps. The author begins by testing the existence of unit root for all variables followed by regression analysis.

4.1. Unit Root Test Analysis:

Table 1(a): Summary Statistics:

Variable Minimum Maximum Mean Std. deviationGDP (US$) 9181769911.500 411743801711.600 66569649550.574 86316393557.778Exch. Rate 0.550 151.050 45.187 57.662Inflation(%) 3.500 72.800 19.531 16.734Interest Rate (%) 6.000 31.650 15.071 6.698FDI (US$) 189164800.000 8841953000.000 1844951082.927 2427586461.521

Table 1(a) presents a basic descriptive statistics for all the variables under study. During the period of study, the GDP value recorded a minimum value of USD 9,181,769911.50 in 1971 and a maximum value

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of USD 411,743,801,711.60 in 2011 while FDI value ranged between USD 189,164,800 in 1984 and maximum of 8,841,953,000 in 2011. Exchange rate currency had a minimum value of 0.550 NGN per one USD in 1880 and a maximum of 151.050 in 2011. Inflation rate ranged between a minimum of 3.5% in 1972 and 72.8% in 1992. Moreover, interest rate value fluctuated between a minimum of 6% in 1977 and a maximum of 31.65 in 1993.

Table 1(b): Dickey-Fuller test (ADF-Stationary- k:3)

FDIExch. Rate GDP Inflation Int. Rate

Tau (Observed value) -0.610 -1.774 3.769 -2.575 -1.957Tau (Critical value) -0.636 -0.626 -0.625 -0.625 -0.625 p-value (one-tailed) 0.952 0.677 1.000 0.280 0.591Alpha 0.05 0.05 0.05 0.05 0.05

Test Interpretation:

H0: There is a unit root for the series.

Ha: There is no unit root for the series. The series is stationary.

In table 1(b) below, if p-value (one-tailed) is greater than the significance level alpha=0.05, then the null hypothesis (unit root exists) can’t be rejected. The computed p-value for all the variables is greater than the significance level alpha=0.05, one cannot reject the null hypothesis H0 for all the variables under study. Therefore, differencing method is applied using also XLSTAT software in order to obtain a stationary time series. Below table shows Dickey-Fuller test results after the transformation of data:

Table 2: Dickey-Fuller test (ADF(stationary) / k: 3 / Box-Cox(Random component)):

GDP Inflation Int. Rate FDITau (Observed value) -3.620 -3.689 -1.218 -2.616Tau (Critical value) -0.508 -0.508 -0.508 -0.454p-value (one-tailed) 0.043 0.038 0.84 0.259Alpha 0.05 0.05 0.05 0.05

As we can see from table 2 above, two variables (GDP & inflation) have passed the differencing method on XLSTAT and time series was confirmed stationary. This means that both time series assigned for GDP and Inflation are integrated of order 1, I (1). The two other variables (Interest Rate and FDI) are still

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reflecting non-stationary time series even after applying the differencing method through XLSTAT software. Moreover, differencing method through XLSTAT is not applied on exchange rate variable. For this reason, Eviews software version 9 is used in order to obtain a stationary data for the remaining variables.

Table 3: ADF Test through EVIEWS9 Software (Exchange Rate variable):

Null Hypothesis: D(EXCHANGE_RATE) has a unit rootExogenous: ConstantLag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -5.116188  0.0002Test critical values: 1% level -3.615588

5% level -2.94114510% level -2.609066

*MacKinnon (1996) one-sided p-values.

The absolute value of t-Statistic shown in table 3 above is greater than all test critical values; therefore, one should reject the null hypothesis. Exchange Rate data is stationary at the first difference level.

Table 4: ADF Test through EVIEWS9 Software (Interest Rate variable):

Null Hypothesis: D(PRIME_LENDING_RATE____) has a unit rootExogenous: ConstantLag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -7.027059  0.0000Test critical values: 1% level -3.605593

5% level -2.93694210% level -2.606857

*MacKinnon (1996) one-sided p-values.

Table 4 above shows that the absolute value of t-Statistic is greater than all test critical values; therefore, one should reject the null hypothesis. Interest rate data is stationary at the first difference level.

At this stage, it is confirmed that all variables are stationary at the first difference level. Regression model can now be estimated.

4.2.Hypothesis

Below is the hypothesis to be tested in this model:

H0: FDI inflow has no significant impact on the growth of the Nigerian economy.

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H1: FDI inflow has positive and significant impact on the growth of Nigerian economy.

4.3.OLS Test Analysis

Before applying OLS test, equation 2 should be linearized by applying logarithm to both sides of the equation:

LogGDP= β0 + β1*LogFDI + β2*LogEXR + β3*LogINF + β4*LogINTR + µ (equation 3)

Table 5: OLS Regression

Variable Coefficient Std. Error t-Statistic Prob.

C 1.115521 0.048136 23.17436 0

LOG(EXCH__RATE) -0.064314 0.019035 -3.378779 0.0025

LOG(FDI) 0.269636 0.083807 3.217324 0.0037

LOG(INFLATION) -0.203955 0.066421 -3.070643 0.0052

LOG(INT_RATE) -0.119833 0.342019 -0.35037 0.7291

R-squared 0.600353 Mean dependent var 1.006389

Adjusted R-squared 0.533745 S.D. dependent var 0.232763

S.E. of regression 0.158937 Akaike info criterion -0.685028

Sum squared resid 0.606265 Schwarz criterion -0.449288

Log likelihood 14.93291 Hannan-Quinn criter. -0.611197

F-statistic 9.013249 Durbin-Watson stat 1.707018

Prob(F-statistic) 0.000136

LogGDP= β0 + β1*LogFDI + β2*LogEXR + β3*LogINF + β4*LogINTR + µ (equation 3)

Therefore, equation 3 can be written as:

LogGDP= 1.115 + 0.269*LogFDI – 0.064*LogEXR – 0.203*LogINF – 0.119*LogINTR

Table (5) shows the summary output of the linear regression model. The coefficient shows the relationship between explanatory variables and the dependent variable. The higher the coefficient, the more is the strength of explanatory variable has to the dependent variable (GDP). The coefficient β1 is equal to 0.269 according to above table. This means that 1% increase in FDI leads to 0.27 percent increase in GDP (considering all other variables are constant).

β2 coefficient (EXR) is -0.064. This shows that Naira exchange rate between 1970 and 2011 has insignificant and negative effect on FDI inflow to Nigeria. In other words, a 1% increase in Naira exchange rate leads to 0.06% decrease in GDP of Nigeria (considering all other variables are constant).Although there is no strong direct relation between the independent variable (exchange rate)

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and the dependent variable (GDP) according to the study, it is necessary to plan for an improvement in exchange rate management in the very near future due to shrinking oil prices. The continuous reduction in oil prices will put more pressure on the Nigerian Naira currency. High dependence on oil sector will continue to prevent Nigeria from having a realistic exchange rate by matching foreign exchange demand with supply (Gabriel, 2014).

β3 coefficient (inflation) is equal to -0.2. This reflects that a 1% increase in inflation rate leads to 0.2% decrease in Nigerian GDP (holding other variables fixed). Therefore, inflation has significant and negative impact on FDI inflow to Nigeria. The Nigerian governments strive to keep inflation rate at an acceptable level through different monetary and fiscal policies. Unfortunately, these policies failed to keep inflation rate at desired levels. This failure is due to many factors such as bad management, corruption, and policy inconsistency to mention few. Government should exert additional effort to increase the level of output in Nigeria as it is the best positive contribution towards reducing inflation rate. Economy’s output is a variable that has strong impact on inflation rate. Prices of goods and services are highly assigned to productivity level which can be increased through good management along with the required monetary and fiscal policies.

Finally, β4 is equal to -0.1. This shows that interest rate between 1970 and 2011 has insignificant but negative impact on FDI inflow. Therefore, a 1% increase in prime lending rate leads to 0.1% decrease in GDP of Nigeria. The inverse relation between interest rate and economic growth in Nigeria shows that Nigerian authorities should evolve a strong monetary policy that will grant lending to the real sector economy to boost growth. Thus, the growth of the real sector is a must for the growth of the whole economy as it will increase the output level of the economy. Interest rate is linked somehow to inflation rate. When interest rate increases, the level of saving will decrease and consumers spend less which reflects a slowdown of the economy and drives inflation rate to decrease. In the previous chapter, it was discussed that the large portion of loans is being provided to the private sector where it is not used in productive projects that will help increasing the output level in Nigeria. Therefore, it is essential for Nigerian government along with financial institutions to provide incentives for productive projects in the country. This will contribute toward more diversification of the Nigerian economy. According to African Economic Report (AOE) released in 2015, there are some sectors grabbing the attention of foreign investors; these sectors are not limited to energy & water, transport, and telecommunication sectors. Banks are providing loans for energy and water projects at good rates as these projects are normally co-financed by development institutions according to the same report. Banks are more comfortable dealing with such institutions than with the private sector; this explains why longer-tenor loans are assigned to such projects.

The p-value of the coefficient of the variable LOG (FDI) is 0.0037 which is less than the critical value 5%. Therefore, null hypothesis that FDI inflow has no significant impact on the Nigerian economic growth is rejected. By implication, this shows that FDI inflow has a positive and significant impact on economic growth of Nigeria as stated in hypothesis H1.The most important result obtained from the above analysis is that there is a positive relation between FDI and GDP. This mean that foreign direct investment affects positively on the growth of the Nigerian economy.

Model performance is measured by both R-squared and Adjusted R-squared value. However, the latter is always a bit lower than R-squared value as it represents a more accurate measure for model performance because it is related directly to the number of data. Moreover, the Adjusted R-squared

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value decreases as the number of explanatory variables increases. From Table (5), Adjusted R-squared is equal to 0.53, this means that the model explains approximately 53% of the variation in GDP (the dependent variable), while the remaining 47% is explained by exogenous variables which are not included in the empirical model under study.

The Durbin-Watson statistics tests for autocorrelation in the residuals and its value is between 0 and 4. A value towards 0 means there is positive correlation while a value approaching 4 reflects a negative autocorrelation. A value of 2 indicates that there is no autocorrelation. According to table 5 above, the Durbin-Watson statistics value is 1.7 which means there is no autocorrelation in the sample as the value is approaching 2. This confirms that the data analyzed in the sample is stationary.

4.4.FDI Determinants Analysis

The most common economic problem in developing countries is related to a very low level of national savings which make them in constant need of foreign capital to finance their investments. Most developing countries used to depend on loans from international bank; however, the 1980s debt crisis forced many countries to reform its investment policies in order to attract more foreign capital (Khachoo & Khan, 2012). Foreign capital is not limited to FDI, portfolio investments, and currency deposits. Most countries give a special attention to FDI as it is considered one of the most stable forms of foreign capital due to the fact that it is not assigned to debt risks. In order to determine the factors that affect FDI in Nigeria, a survey was submitted to 50 senior managers in Nigeria to stop on their opinion.

The first question of the survey discussed the most important factors that affect FDI in Nigeria. Among 11 factors, financial laws & regulations, political stability, and GDP recorded higher response percentages than other factors as shown in below table:

Please choose the five most important factors that affect FDI inflow into Nigeria:

Answer Options Response Percent

Response Count

Political Stability 88.0% 44Financial Laws and Regulations 90.0% 45Country's Infrastructure 42.0% 21Interest Rates 48.0% 24Openness to Regional and International Trade 48.0% 24Taxation 44.0% 22Economic Status(GDP Growth) 58.0% 29Access to Capital 22.0% 11Size of Domestic Market 20.0% 10Quality of Labor Force 16.0% 8Proximity to Export Markets 12.0% 6

answered question 50skipped question 0

90% of responders believe that financial laws and regulation is the most important determinant of foreign direct investment; this result confirmed some of the studies reviewed above in chapter 2 such as Rachdi & Saidi (2011) and Umoh, Jacob, & Chukwu (2012). This shows the importance of laws and regulations especially financial ones in contributing towards both economy growth and attracting

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foreign capital. According to the survey, political stability occupied the second place with 88% response rate for most important determinants of FDI inflow to Nigeria. It is argued that even when countries have attractive factors contributing for foreign investment (such as natural resources and market size), the absence of political stability will definitely affect negatively the level of foreign capital in a specific country (Shahzad et al, 2012). GDP growth hold the third highest rate with 58% of responders believe that a growing economy attracts foreign capital to the country regardless whether the foreign capital affects positively or negatively the economic growth. African Economic Report (AEO) released recently a report about FDI in Africa and pointed out that there is a trend toward diversifying FDI in Nigeria and other African countries in 2015. This trend is a reflection of new financial laws and regulations released by different African countries especially after the shrinking of oil prices globally.

44% of responders chose openness to regional and international trade as a main determinant of FDI. This can be explained by Nigeria’s situation which is depending mainly on oil in its exports. According to Foreign Trade Statistics of the National Bureau of Statistics (NBS), Nigeria’s exports increased from 2013 to 2014 by 20.8%; however, Nigeria’s exports is still dominated by crude oil. Therefore, Nigerian government should concentrate on different sectors which can be very profitable for the economy if given the required attention.

The second question of the survey tried to analyze the most important factor that is causing capital outflow from the country. Out of 7 factors presented, unstable political situation occupied the largest portion with 70% response rate followed by corruption with 20% response only. Additional details are shown in the table below:

What is the most important factor that causes capital outflow of the country or at least limits its inflow?

Answer Options Response Percent

Response Count

Corruption 20.0% 10Unstable Political Situation 70.0% 35Crumbling of Infrastructure 0.0% 0Wrong Laws and Policies Followed by Authorities 8.0% 4In-access to Proximate Markets for Exports or Consumption 2.0% 1Consistent Reduction in Opportunity for Market Entry 0.0% 0Emergence of Highly Competitive Market Environment 0.0% 0

answered question 50skipped question 0

It is clear by now that political stability is one of the most important factors to be considered by a country trying to attract foreign capital. However, it is argued that in countries like Nigeria where big portion of foreign investment is dominated by oil sector, political instability may not have a significant negative effect on attracting foreign direct investment. In fact, some studies showed a positive relation between political instability and FDI in Nigeria (Wafure & Nurudeen, 2010). This shows the importance of oil sector in attracting foreign capital to the country. However, the high dependence of Nigerian economy on oil sector lead recently to the depreciation of Naira currency by 31.3% in less than a year

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after oil price recorded a six-year low below 42$/barrel (Bloomberg, 2015). This shows that diversifying the Nigerian economy along with ensuring political stability is a must to attract foreign investors to invest in sectors different than the oil one. . For instance, agriculture was the main sector in the 1960’s contributing for foreign exchange earnings and also employment. This sector was neglected later by the government and this affected clearly its contribution share to GDP. In 1960, agriculture share of GDP was around 60%, it declined to 48.8% in 1970, and 22.2% in 1980 (NBS, n.d.). In 2014, the contribution of agriculture sector to GDP is 23% which is almost the same figure recorded in 1980. This figure is a result of bad management of this sector. Between 1980 and 2011, agriculture’s share of banks’ credit was below than 1% (NBS, 2014). The government then increased this percentage to 5% in a trial to boost this sector and reduce food import. Food and live animals importation occupied the second position with 15.5 percent of total import trade in Nigeria in 2014 where machinery and transport equipment constituted the largest portion of total import trade with 35.4 percent according to Standard International Trade Classification (Zenith bank, 2015). Therefore, additional financial support should be given to this sector to grab a bigger share portion of Nigerian GDP.

The third question considered five factors and whether each has a positive or negative effect on FDI inflow to Nigeria. The five factors considered are: lack of government incentives for foreign investors, corruption, economic downturn in the country, highly competitive market, and country environment (infrastructure, political stability, etc..). The results are shown in the table below:

Please identify whether the below variables affect positively or negatively the current FDI in Nigeria:Effect

Answer Options Affect Positively Affect Negatively Response Count

Lack of Government Incentives for Foreign Investors

2(4.26%) 45(95.74%) 47

Corrurption 17(34%) 33(66%) 50Economic Downturn in the Country 3(6.12%) 46(93.88%) 49Highly Competitive Market 26(53.06%) 23(46.94%) 49Market and Country Environment(Infrastructure, political stability)

33(70.21%) 14(29.79%) 47

 Question Totals

answered question 50skipped question 0

As shown above, 95.74% of the respondents see that lack of government incentives for foreign investors negatively affect the current FDI in Nigeria. This is not a surprise. However, what was not expected is that 34% of the responders believe that corruption is a positive factor for current FDI in Nigeria. In general, there is two types of corruption in Nigeria: government corruption and private-sector

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corruption. With regard to government-corruption, there is usually a general government’s reputation around the world. Unfortunately, the Nigerian government’s reputation regarding corruption is negative. In Nigeria, government’s involvement in a particular sector may lead to very possible implications. For instance, the direct involvement of a president or a minister may reduce company’s risk to pay bribe or completely the opposite. Trying to fight corruption in the country, the newly elected Nigerian president, Muhammadu Buhari, gave an order through the Federal Government of Nigeria for immediate implementation of Treasury Single Account (TSA) according to weekly economic report and analysis published by Zenith Bank PLC (2015). This means that both fully funded organs (ministries, agencies, and foreign missions) and partially funded ones (federal tertiary institutions, medical centers and agencies like CBN, FIRS, NDIC, NPA, etc..) are obliged to make payments into this single account. Benefits of this implementation are not limited to:

a- Reduction of liquidity in the banking system as all funds related to government are not allowed to stay in commercial bank accounts.

b- Lending rates re-pricing: this will be a result of the decline in banks’ loanable funds.c- Increasing deposit rates: due to the pressure on loanable funds, commercial banks may increase

both deposit and lending rates to attract funds. d- Boosting foreign exchange reserve: indirect benefits of TSA implementation are not limited to

supporting both Naira currency and nation’s foreign exchange reserve plus active cash management in the economy.

e- Government’s borrowing reduction: this may be a result of effective management of government’s revenue.

As expected, 93.88% of respondents believe that downturn in Nigerian economy will affect negatively on current FDI. This is because economic downturn leads to many factors that are not limited to customer scarcity, increase in cost of utilities, dwindling cash flow, and low staff morale. 53.06% of survey responders believe that highly competitive market affects positively the current FDI in Nigeria while 46.94% believe it affects negatively. Nigeria is a country that has a large number of competitors who compete in order to satisfy the large number of consumers available. The last factor analyzed in this section is related to market and country environment such as infrastructure and political stability; 70.21 % believe that the current FDI is affected positively by the Nigerian environment. This can be explained by the stable political situation since 1999. Moreover, the Nigerian infrastructure developed greatly during the last two decades although it didn’t meet the required levels for smooth and simple business operation environment.

The final question in the survey tried to analyze how market type affects FDI. The responses on this question are shown in the below table:

Which type of market do you think will have higher FDI inflow?

Answer Options Response Percent

Response Count

High Risk Market Environment with High Return 68.0% 34

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on InvestmentLow Risk with Low Returns 22.0% 11Risk Doesn't Affect Decision on FDI 10.0% 5Other (please specify) 0

answered question 50skipped question 0

As shown in the above table, the majority of the responders (68%) believe that high risk market with high return on investment will attract more FDI inflow than other types of markets. This can be explained by human nature who always look for high return investment even though when it is assigned with high risks. Nigeria, as many other African countries, is a high risk market although is assigned to high returns. Nigeria is considered a high risk market due to challenges already discussed above such as corruption and poor infrastructure. Security is also a major challenge in Nigeria where it should be addressed thoroughly by the government to attract foreign capital. In fact, security issues is becoming worsen with time and this is causing the reduction of investor’s satisfaction level. Many companies suffered from this and had to relocate to another states where security situation is more stable. North part of Nigeria is burdened with high insecurity, many companies therefore are losing portion of market share as they don’t have access to population located in this region of the country. The existing operation environment is also very difficult due to poor infrastructure which is affecting negatively the profit margins and return on investments. It is the job of Nigerians to address the challenges related to operating business in Nigeria; foreign investors have a priority which is maximizing their return on investments.

5. Conclusion and Recommendations:

One of the main challenges facing Nigeria currently is how to attract foreign direct investment; it is of significant importance not only because of the transfer of capital, but also of technology. The author expressed the research aim, questions and objectives in the first chapter of the dissertation study. Through this dissertation, the author tries to answer two research questions related to the impact of FDI on Nigerian economic growth and the main determinants of FDI inflow into Nigeria. The author examined empirically the impact of foreign direct investment on Nigeria’s economic growth by using unit root and ordinary least squares (OLS) tests for the period 1970-2009.

The second chapter of the dissertation reviewed the literature related to the topic. The author found contradicting research results where some showed a positive impact of FDI inflow on economic growth while others reflected a neutral or even negative relation between FDI inflow and economic growth. Therefore, this dissertation is an addition to the literature.

Methodology and data were discussed in chapter 3. In this chapter, linear regression model is designed where variable basis of the empirical model are specified. The empirical model assess in testing the hypothesis under study. Time series for all the variables need to be tested for its stationarity. The author used Augmented-Dickey-Fuller method (ADF) to test for unit root. Ordinary Least Square (OLS) is the last method used where it models the relation between dependent variable (GDP) and other explanatory variables (FDI, EXR, INF, & INTR).

The results of the methods and techniques used were discussed in chapter 4. The unit root test showed that all variables (dependent and independent) were non-stationary. Differencing method was applied

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to transform the studied data into a stationary one. However, only two variables (GDP and Inflation) passed the transformation test and a stationary data was obtained. E-views statistical package is used for the other variables in order to obtain the stationary data. After data was transferred to stationary for all variables, OLS method was applied to find the relation between FDI and economic growth in Nigeria. The coefficient for the independent variable FDI is equal to 0.269. This means that 1 % increase in FDI inflow reflects o.269% growth in GDP. The findings also showed a negative impact for interest rate, inflation rate, and exchange rate. Moreover, the results showed that the impact of interest rate and exchange rate is significant while that of inflation rate is significant.

The other part of the study was qualitative where a survey of four questions on the determinants of FDI into Nigeria was shared with 50 MD’s and CEO’s. Most of the responders to the survey have experience in the domain as they run foreign companies that operate in Nigeria. The result of the survey showed that political stability, financial laws and regulations, GDP growth, openness to regional and international trade, and interest rates are the main determinants of FDI in Nigeria. Unstable political situation is the main factor that causes FDI outflow of the country according to 70% of the responders. Interestingly, only 20% of responders believe that corruption causes FDI outflow from Nigeria. This means that some investors look at corruption as a positive factor when investing abroad. Usually, large companies take advantage of corruption to settle issues related to taxes and other financial or non-financial issues they may face. Therefore, this dissertation confirms some of the already-existing literature regarding the significant positive impact of FDI inflow on the growth of Nigerian economy. However, the author finds that corruption doesn’t have significant impact on FDI outflow from Nigeria according to survey conducted; this finding may be accepted or rejected in recommended future empirical studies.

Based on the above findings, below are some recommendations to attract more FDI into Nigeria:

a- Nigerian government should sustain political stability to attract additional foreign capital into the country.

b- Diversifying the economy will hedge the Naira currency against shrinking oil prices; this means that government should concentrate on increasing the portion of non-oil exports.

c- Stable and favorable monetary and fiscal policies (such as better management of Naira currency) are highly needed along with government incentives to attract foreign investors.

d- Regional and international openness of the economy is more required for additional FDI.

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