THE IMPACT OF FOREIGN DIRECT INVESTMENTS ON THE NIGERIAN ECONOMY

11 PAGES (4171 WORDS) Finance Paper
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ABSTRACT
Generally, policies and strategies of Nigerian government towards foreign direct investments are shaped by two principal objectives of desire for economic independence and the demand for economic development.  Multi national corporations are expected to bring into Nigeria, foreign capital in the form of technical skills, entrepreneurship, technology and investment fund to boost economic activities thereby, rising the standard of living of Nigerian.

The main issues in this paper relates to understanding the effects and impact of foreign direct investments on the Nigerian economy as well as our ability to attract adequate amounts, sufficient enough to accelerate the pace of our economic growth and development.  From related research and studies, it was revealed that multinational corporations are highly adaptive social agents and therefore, the degree to which they can help in improving economic activities through foreign direct investment will be heavily influenced by the policy choice of the host country.

Secondary data were collected for the period 1970 to 2005.  In order to analyse the data, both econometric and statistical method were used.  Tables were produced in order to create a visual impression of the dependence of Nigeria economy on that of donor countries such as Western Europe and North America.  The economic regression model of ordinary least square was applied in evaluating the relationship between foreign direct investment and major economic indicators such as gross domestic product, gross fixed capital formation and index of industrial production.  The model revealed a positive relationship between foreign direct investment and each of these variables, but that foreign direct investment has not contributed much to the growth and development of Nigeria.  This is evident in reality of enormous repatriation of profits, dividends, contract fees, and interest payments on foreign loans.

The study thus suggest that in order to further improve the economic climate for foreign direct investments in Nigeria, the government must appreciate the fact that the basic element in any successful development strategy should be the encouragement of domestic investors first before going after foreign investors.

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