THE IMPACT OF FOREIGN INVESTMENT INFLOW ON ECONOMIC GROWTH IN NIGERIA
ABSTRACT
According to Jhingan (1998), Foreign investment is the formation of a concern (business) in which foreign company/individuals has a majority holding. The formation of the business concern may be financed exclusively from foreign source lending to the creation of fixed assets.
This study examined the impact of foreign investment inflow on economic growth in Nigeria. The study adopted a secondary data, time series in nature from the Nigerian Stock Exchange (NSE) as at 31st December, 2014 within the period of 1987 to 2015. Ordinary least square technique was adopted in this study; foreign direct investment and foreign portfolio investment were found to have a negative desirable effect on economic growth in Nigeria.
Deliberate strategies and policies should be made to change the nature and the sectorial focus due to the negative relationship that existed. For example, agricultural and manufacturing sectors should be the major focus.
TABLE OF CONTENTS
CHAPTERONE: INTRODUCTION
1.1    Background of the Study    -    -    -    -    -    
1.2 Statement of the Problem    -    -    -    -    -    
1.3 Research Questions    -    -    -    -    -    -    
1.4 Objectives of the Study    -    -    -    -    -    
1.5 Research Hypotheses    -    -    -    -    -    -    
1.6 Scope of the Study    -    -    -    -    -    -    
1.7 Relevance and significance of the Study    -    -    -    
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction    -    -    -    -    -    -    -    
2.2 Concept of Foreign Investment Inflow    -    -    -    
2.3 Concept of Economic Growth    -    -    -    -    
2.4 Operationalization of Independent Variables    -    -    
2.5 Theoretical Framework    -    -    -    -    -    
2.6 Empirical Literature    -    -    -    -    -    -    
CHAPTER THREE: METHODOLOGY
3.1 Introduction    -    -    -    -    -    -    -    
3.2 Research Design    -    -    -    -    -    -    
3.3 Sources of Data    -    -    -    -    -    -    
3.4 Model Specification    -    -    -    -    -    -    
3.5. Method of Data Analysis    -    -    -    -    -    
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1    Introduction    -    -    -    -    -    -    -    
4.2   Data Presentation    -    -    -    -    -    -    
4. 3 Data Analysis    -    -    -    -    -    -    -    
4.4    Discussions of Results    -    -    -    -    -    
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction    -    -    -    -    -    -    -    -    
5.2 Summary of Findings    -    -    -    -    -    -    
5.3 Conclusion    -    -    -    -    -    -    -    
5.4     Recommendations    -    -    -    -    -    -    
5.5     Contribution to Knowledge    -    -    -    -    -    
5.6 Areas for Further Study    -    -    -    -    -    
BIBLIOGRAPHY    -        -    -    -    -    
CHAPTER ONE
INTRODUCTION
1.1    Background to the Study
Foreign investment inflow, particularly foreign direct investment (FDI) is perceived to have a positive impact on economic growth of a host country through various direct and indirect channels. It augments domestic investment, which is crucial to the attainment of sustained growth and development. Consequently, many developing countries, Nigeria included, have offered generous incentives to attract FDI inflows and, in addition, undertaken macroeconomic reforms, often under pressure from Bretton Woods Institutions, also geared towards the same end creating an investor-friendly environment. Some foreign firms have taken advantage of the incentives to satisfy their various motives of ensuring stable monopolistic control over sources of raw materials for their parent companies, access to control of local markets, utilizing low cost labour and realizing the possibility of higher returns and until the last five years, Nigeria also received very low proportions of global FDI inflows, inspite of its being blessed with enormous human and natural resources. This is perhaps because the economy was perceived by investors as a high-risk market for investment. In order to seek the highest of return for capital, economists tend to favour the free flow of capital across national borders.  It is against this backdrop that multinational companies seek investment in foreign countries with reasonable risk.  Nigeria is believed to be a high-risk market for investment because of factors such as bad governance, unstable macroeconomic policies, investment as a way out of Nigeria’s economic state of underdevelopment. The Nigerian governments have recognized the importance of FDI in enhancing economic growth and development and various strategies involving incentive policies and regulatory measure have been put in place to promote the inflow of FDI to the country. According to Lall, (2002), privatization was also adopted, among other measures, to encourage foreign investments in Nigeria. This involved transfer of state-owned enterprises (manufacturing, agricultural production, public utility services such as telecommunication, transportation, electricity and water supply), companies that are completely or partly owned by or managed by private individuals or companies.
Shiro (2009) noted that since the enthronement of democracy in 1999, the government of Nigeria has taken a number of measures necessary to woo foreign investors into Nigeria.  These measures includes the repeal of laws that are inimical to foreign investment growth, promulgation of investment law, various overseas trips for image laundry by the president, among others. The need for foreign direct investment is born out of the underdeveloped nature of the Nigeria’s economy that essentially, hindered the pace of her economic development.  Nigeria is one of the economies with great demand for goods and services and has attracted some FDI over the years. According to CBN (2006), the amount of FDI inflow into Nigeria reached US$2.3 billion in 2003 and it rose to US$5.31 billion in 2004 (138% increase) this figure rose again to US$9.92 billion (87% increase) in 2005. The banking reform engendered the interest of foreign banks in the Nigerian market making foreign direct investment (FDI) into Nigeria grew by 134% to N1.123 trillion (US$9.6 billion) in 2007. Out of a total US$36 billion of FDI that went into Africa, Nigeria received 26.66% of the inflow. The Vanguard Newspaper of May 19, 2008, reported that a total of US$12.5 billion of foreign investment inflow was recorded in the economy at the end of 2007, and that this was an indication that “Nigeria is a beautiful bride for foreign investors”. This has not also been so, however. In Nigeria, FDI is defined as an investment undertaken by an enterprise that is either wholly or partly foreign-owned. The Investment Code that created the Nigerian Investment Promotion Commission (NIPC) (Decree No. 16 of 1995) and the Foreign Exchange (Monitoring and Miscellaneous Provision) Decree, also enacted in 1995, gives full backing for FDI in Nigeria. Nigeria has a high potential to attract significant foreign private investment inflow. Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. World Bank (1996) conceptualized Foreign Direct Investment (FDI) as investment that is made to acquire a lasting management interest (usually 10% of voting stock) in an enterprise and operating in a country other than that of the investors (define according to residency) the investors purpose being an effective voice in the management of earning either long term capital or short term capital as shown in the nations balance of payments account statement (Macaulay, 2012). Generally, policies and strategies of the Nigerian government towards foreign investments are shaped by two principal objectives of the desire for economic independence and the demand for economic development.
In conclusion, considering the wide range of critical empirical studies on how foreign direct investment in Nigeria affects its economic growth and development, one cannot draw conclusions from it with minimal acceptable level of confidence. There is therefore need for further studies to be carried out on how FDI affects the growth and development of the Nigerian economy.
1.2    Statement of the Problem
The core question in economic growth that has preoccupied researchers is why countries grow at different rates. The list of possible factors continues to expand, apparently without limit. The positive link between the foreign investment inflows and economic growth is in one sense fairly obvious. Therefore, it would seem that policies to develop the rate of foreign investment would be to hike economic growth. The role of foreign investment is considered by many to be the key to economic development and growth. One critical factor that has begun to receive considerable attention more recently is the role of foreign investment in the growth process especially in the wake of the recent global economic and financial meltdown. While economists have generally reached an agreement on the central role of foreign investment development in economic growth theoretically; empirical works harnessing this concept are conflicting. There is no doubt that financial analysts are in agreement on what constitutes economic growth and its measurement but the only bone of contention amongst them is agreeing on what actually is the relationship between foreign investment inflows and economic development. Recently, the impact of foreign investment on the growth of an economy generated a heated debate. While some studies opined that foreign investment drives economic growth (Nieh 2009) Islam and Osman: 2011, Shittu 2012), others have argued that economy growth drives foreign investment. Samson O. Odeniran, PhD and Elias A. Udeaja, PhD, argued that bi-directional casualty exists between foreign investment and economic growth. (Odhiambo: 2011) with many of these study applying causality test and ECM (Shittu, 2012, Odeniran&Udeaja). The present study departs from previous studies in that we investigate the extent of foreign direct investment on economic growth considering the fact that Nigeria still experience interest rate spread, trade openness, gross capital formation, inflation and broad money in the economy. This study bridge the existing gap in the literature by empirically investigating the role of foreign investment inflows in the economic growth of Nigeria by employing more variables and recent data.                    
1.3 Research Questions
More specifically, the study provided answers to the following research questions
1. To what extent is the effect of foreign direct investment on economic growth in Nigeria?
2. How does foreign portfolio investment influence economic growth in Nigeria?
1.4 Objectives of the Study
The main objective of this study is to examine the effect of foreign investment inflows on economic growth in Nigeria. Specifically the study seeks to:
1. Examine the effect of foreign direct investment on economic growth in Nigeria.
2. Determine the effect of foreign portfolio investment on economic growth in Nigeria.
1.5 Research Hypotheses
The research hypothesis to be tested in this study is stated below;
H1: Foreign direct investment has no significant effect on economic growth in Nigeria.
H2: Foreign portfolio investment has no significant effect on economic growth in Nigeria.
1.6 Scope of the Study
This research work examined foreign investment inflows and economic growth from 1981 to 2015. The period covered by this study (1981 to 2015) is the grey, boom and doom periods of capital market development in Nigeria. The study also scrutinizes the extent of foreign investment inflows in Nigeria.
 1.7 Relevance and significance of the Study
The research is significant to the following stakeholders:
Policy Makers: Various classifications have been made of foreign direct investment (FDI). Policymakers believe that FDI produces positive effects on host economies. Some of these benefits are in the form of externalities and the adoption of foreign technology. Externalities here can be in the form of licensing agreements, imitation, employee training and the introduction of new processes by the foreign firms (Alfaro, 2006). When FDI is undertaken in high risk areas or new industries, economic rents are created accruing to old technologies and traditional management styles. These are highly beneficial to the recipient economy.
Investors: The result of the study would be of benefit to investment analysts and investors in examining the effectiveness of foreign investment and thus evaluating the option available for accessing long term, short term, non-debt financial capital which enables investors to avoid over reliance on debt financing.
Researchers: Individuals or groups who want to study the effect of foreign investment inflows on economic growth will find this work very useful because it carefully analyzed the impact of foreign investment on economic growth and proffered solutions on how foreign investment inflows can be made more efficient. As a matter of fact, it adds to already existing empirical literature in the context of Nigeria.
Financial Institutions: This study will help the financial institution operators to understand the dynamics in foreign investment policies thereby equipping them to participate in a more sustainable manner in the financial system. The financial institutions are the channels through which foreign investment inflows is implemented to foster economic growth.