CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Investors’ decisions and actions globally are influenced significantly by the

dictates of self-interest which suggests that capital not only be channeled to

high-yielding economic sectors but also to those that are ostensibly quick yielding

economies. On balance therefore investors would spun profitable opportunities

characterized by extreme competitions market glut unfavorable regulation long

gestation periods and opt instead for investments that yield high returns within

the shortest time possible. Base on this view investors generally migrate from

one economy to another in search of better investment climate and higher

returns.

This form of capital movement results in the creation of a typical investment

called Foreign Direct Investment. In the opinion of Jomo (1988) Foreign Direct

Investment can be explained to represent the flow of tangibles from a country

abroad of capital equipment and other production and processing facilities into a

host economy. It is also defined as a long term investment reflecting a lasting

interest and control by a foreign direct investors (or parent enterprise) of an

enterprise entity residents in an economy other than that of the foreign investor

(IMF 1993).

Foreign Direct Investment is widely thought to bring with it into the host

country a bundle of productive assets including long term foreign capital

entrepreneurship technology skills innovative capacity and managerial

organizational and export marketing know-how. The distinctive feature of

Foreign Direct Investment is that it involves not only a transfer of resources but

also the acquisition of control. i.e the subsidiary does not simply have a financial

obligation to the parent company if is part of the same organizational structure

(Krugman and Obstfeld2000). Foreign Direct Investment involves much more

than the simple transfer of capital or the establishment of a local factory in a

developing nation. Multinational carry with them technologies of production

tastes and diverse business practices including cooperative arrangement

marketing restrictions advertising and the phenomenon of transfer pricing. They

engage in a range of activities many of which have little to do with the

development aspirations of the countries in which they operate. (Todaro 2000).

Temle (1999) demonstrates that technical changes and technological

learning which are significant components of Foreign Direct Investment represent

important determinants of economic growth. Furthermore it is relevant to add

that technology is generated by Research and Development (R&D) most of which

is conducted in industrialized countries making technology transfer very

important for economic prosperity of countries with weak Research and

Development (R&D) and innovation capacities.

Political and economic policies bothering on FDI assist immensely in stimulating

the economic growth of the recipient nations Chang(2001) believes that in the

16

th

and 17

th

centuries deliberate transfer policies of King Henry viii made Britain

a leading manufacturing nation. Among the hotly debated issues in development

economics is the role played presently by FDI in export performance of

developing countries such as the case of East and South East Asian country.

FDI flows to Africa have expanded only marginally and are still at levels

behind those of other developing countries. The region accounted for less than

1% of the global total FDI inflows in the late part of 1990s (Odenthal 2001) while

inflows to developing countries as a group increased from U.S $20billion to U.S

$75billion between 1981 and 1985. Africa’s share of that inflow dropped

(UNCTAD 1999).

Historically low rates of FDI inflows to the region and Nigeria in particular

are explained by hostile policies unstable political environment characterized by

civil wars and armed conflicts lack of effective regional integration efforts poor

and deteriorating infrastructure burdensome regulations or lack of institutional

capacity to implement FDI to establish confidence.

1.2 STATEMENT OF PROBLEM

In recent time the government of Nigeria has embarked on economic

policies to check the flow of Foreign Direct Investment (FDI) in certain sectors of

the economy. Admittedly how to achieve rapid economic growth and

development through FDI which has proved to be one of the economic problems

facing Nigeria.

Therefore this work tend to analyze critically the following:

i. The determinants of FDI in emerging economy such as Nigeria.

ii. The impact of Foreign Direct Investment on the growth of Nigerian

economy.

iii. To analyze the increase in local wage cost through payment of wages by

Multinational Corporations (MNC) affiliates.

iv. To examine the importation of capital intensive and cost dates

technology.

1.3 RESEARCH QUESTIONS

The following research questions have been designed as a guild to elicit

reliable information for this study. They are:

 To which extent will the Nigerian economy depend on the foreign capital

inflow?

 How friendly is Nigeria’s trade policy and environment to FDI?

 How have the Nigerian industries been stimulated by foreign technology?

 Does intellectual poverty production increase the attractiveness of FDI?

 To which extent has the FDIs in Nigerian led to the diversification of

Nigerian economy?

 Has the rate and volume of FDI into Nigeria increased the consumption

expenditure of its citizenry?

1.4 OBJECTIVE OF THE STUDY

The objective of the study includes:

i. To determine the magnitude of the impact of FDI on economic growth in

Nigeria.

ii. To find out whether or not FDI has a significant impact on the growth of

Nigeria economy.

iii. To examine the appropriateness and suitability of the nature and quality of

foreign technology transfer on Nigeria economy.

1.5 RESEARCH HYPOTHESIS

The following hypothesis have been formulated to determine the validity and

reliability of the study.

1. Null Hypothesis (Ho): There is no relationship between the volumes of FDI

inflows and the growth of the Nigerian economy.

Alternative Hypothesis (H1): There is a relationship between the volume

of Foreign Direct Investment inflows and the growth of the Nigerian

economy.

1.6 SIGNIFICANCE OF THE STUDY

Technological adoption by any country is a function of local technological

capabilities which in turn are largely determined by the quality and volume of

Research and Development being sponsored by foreign or parent companies.

Thus FDI appears to substitute local innovation as the technology recipient firms

in the n host country becomes mere in the global chain of affiliates subject to

central decision making. Therefore this study is designed to assist the policy

maker in determining the technology transfer through FDI into Nigeria. Also the

global economic circumstances permit that national economics should be

integrated into global economic network and this is only possible through

effective capital transfers appraised and monitored through research of this

nature.

There is also need to meet challenges post by foreign product domination of

internal market and this is supported by research work such as this study. The

study can also be relevant in universities and research centers in Nigeria libraries

National Bureau of Statistic and investors will find this study highly useful.

1.7 SCOPE OF THE STUDY

The study is restricted within the confines of the impact of Foreign Direct

Investment in the growth of Nigeria economy. The time frame covered by the

study is between 1990-2011. The topic is chosen because of the importance of

FDI in the growth of the Nigerian economy since independence.

1.8 LIMITATION OF THE STUDY

In the course of this study many problems were encountered and most of

them centered on time finance dearth of data and poor attitude of respondents.

The impact of time constraints were enormous because of the nature of

programme. Financing of a project of this nature is always costly and this has

been a major constraints because cost of sourcing materials assemblage of data

obtained collected and printing constitute large chuck of fund. Also dearth of

data and poor attitude of respondents affected the early completion of the study

many business organization in Nigeria do not make public their data bank for

reach studies and this affects the quality of the information generated from either

National Bureau of Statistics (NBS) and those released by their personal.