1

CHPATER ONE

INTRODUCTION

1.1 Background of the Study

The relative advantage(s) of foreign direct investment (FDI) as a productivity-

enhancing package is now widely acknowledged. This is evidenced in the new

attention being given to the drive for foreign direct investment (FDI) especially in

developing economies.

For a developing country, the inflow of foreign capital may be significant

in not only raising the productivity of a given amount of labour, but also allowing

a large labour force to be employed (Sjoholm, 1999). Domestic consumers may

also benefit from foreign direct investment (FDI) in that when the investment is

cost reducing in a particular industry, consumers of the product may gain through

lower product prices, hence another industry that raises this product benefit from

the lower prices. This creates profits and stimulates expansion in the second

industry. Additionally, if the investment is product improving or product

motivating, consumers benefit in the form of better quality products or new

products. For most countries, taxes on foreign profits or royalties from

concession agreements constitute a large proportion of total government revenue.

This externality is the spillover effect from FDI.

According to Taylor and Sarno (1997), FDI responds to economic

fundamentals, official policies and financial market imperfections.

Development economists have identified a strong association between

investment and economic growth. It has been observed that the expansion of

private investment should be the main impetus for economic growth in

developing countries. Barro (1991) and Barro and Sala-I-Martin (1992) predict

that output can only grow through increased factor accumulation and/or through

2

technical progress. However, most growth models have come to ascribe the rate

of growth of an economy as being determined by the accumulation of physical

and human capital, the efficiency of resource use and the ability to acquire and

apply modern technology. Since investment determines the rate of accumulation

of physical capital, it thus become an important factor in the growth of productive

capacity and contributes to growth of the economy. Hence, increasing foreign

private investment is an important channel for increasing aggregate investment.

Obwona (2001) noted other benefits of FDI as:

(i) The provision of managerial knowledge and skills including organizational

competence and access to foreign markets;

(ii) It enables the transfer of technology to occur from developed economies;

and

(iii) It provides an array of goods and services to residents in the recipient

country. Furthermore, private FDl may also serve as a stimulus to additional

investment in the recipient country through the creation of external

pecuniary economies such as infrastructures.

The acknowledged benefits of the FDI seems to be more than the demerits,

and this seems to explain the current move of developing countries, seeking to

attract FDIs by removing the structural barriers and encouraging foreign

investors. Such encouragement includes offers of incentives such as income tax

holidays, import duties exemptions, and subsidies to foreign Firms.

In an apparent shift of long-held stance against FDI, the Nigerian

government, like other developing nations introduced the Structural Adjustment

Programme (SAP) comprising a package of economic policy measures in 1986.

The programme incorporates trade and exchange reform reinforced by monetary

and fiscal measures, which were geared towards diversifying the mono-export

base of the economy by stimulating domestic production and encouraging use of

3

improved inputs for local production. To reinforce the gains of the economic

policy measures and further encourage foreign participation in the economy, the

Nigerian Investment Promotion Decree was promulgated in 1995 “to encourage,

promote and coordinate foreign investment and enhance capacity utilization in

the productive sector of the economy.” It also provides an opportunity for foreign

participation in Nigerian enterprises up to 100 percent ownership. To achieve

these objectives, the decree established the Nigerian Investment Promotion

Commission (NIPC) in conjunction with the foreign exchange (monitoring and

miscellaneous provisions) decree No. 17 of 1995 that establishes the

Autonomous Foreign Exchange Market (AFEM).

The composition of Nigeria’s Gross Domestic Product (GDP) shows that the

economy is agrarian in structure with agriculture accounting for 40.4 per cent of

GDP between 1989 and 1998. The low capacity utilization of the manufacturing

sector, estimated at below 30 per cent, is a major factor responsible for the

sector’s low contribution to the economy. The available production capabilities in

the Nigerian economy, the amount of investment goods and other resources

required to exploit the opportunities opened up by the SAP are so enormous that

a large component of external financing is needed. However, the policy indicates

Nigeria’s high preference for FDI as against any other type of foreign capital

inflow for financing development programmes.

1.2 Statement of the Problem

The consensus in the literature seems to be that FDI increases growth

through productivity and efficiency gains by local firms. The empirical evidence

is not unanimous. However, available evidence from developed countries seems

to support the idea that the productivity of domestic firms is positively related to

the presence of foreign firms (Globeram, 1979; Imbriani and Reganeti, 1997).

4

The results from developing countries are not so clear, findings of some

economists said that there is positive spillovers (Blomstrom, 1986; Kokko, 1994;

Blomstrom and Sjoholm, 1999) and others such as Aitken et. al. (1997) reporting

limited evidence. Still others find no evidence of positive short-run spillover from

foreign firms. Some of the reasons adduced for these mixed results are that the

envisaged forward and backward linkages may not necessarily be there (Aitken

et.al. 1997) and that arguments of Transnational Corporations (TNCs)

encouraging increased productivity due to competition may not be true in

practice Aitken et al. (1999). Other reasons include the fact that TNCs tend to

locate in high productivity industries and, therefore, could force less productive

firms to exit (Smarzynska, 2002). Cobham (2001) also postulates the crowding

out of domestic firms and possible contraction in total industry size and/or

employment. However, crowding out is a more rare event and the benefit of FDI

tends to be prevalent (Cotton and Ramachanclran, 2001). Furthermore, the role of

FDI in export promotion remains controversial and depends crucially on the

motive for such investment (World Bank, 1998). The consensus in the literature

appears to be that FDI spillovers depend on the host country’s capacity to absorb

the foreign technology and the type of investment climate (Obwona, 2004).

The review shows that the debate on the impact of FDI on economic

growth is far from being conclusive. The role of FDI seems to be country

specific, and can be positive, negative or insignificant, depending on the

economic, institutional and technological conditions in the recipient countries.

In essence, the impact of the FDI on the growth of any economy may be

country-by-country and period specific. As such there is need for country specific

studies in FDI.

Nigeria has the potential to become Sub-Saharan Africa’s largest economy and a

major player in the global economy because of its rich human and material

5

resources. With its large reserves of human and natural resources, Nigeria has the

potential to build a prosperous economy, reduce poverty significantly, and

provide the health, education, and infrastructure services its population needs.

However this has not been achieved because all major productive sectors have

considerably shrunk in size with the over dependence on oil. Income distribution

is so skewed that the country is one of the most unequal societies in the world,

with 50% of the population having only 8% of the national income (chart I ) .

Chart 1 – Income Distribution 1970-2000

Source: Sala-i-Martin and Subramaniam 2003

The income disparity contravenes the principle of optimality. For this reason, this

study seeks to provide answers to the following questions:

1. What is the extent and trends of FDI inflows in the various sectors of the

Nigerian economy?

2. Do shocks transmit from FDI-sectoral-inflows cause changes to economic

growth?

6

1.3 Objectives of the Study

The broad objective of this study is to identify impact of various sectors of FDI

inflow and its dynamics on the growth of Nigeria economy.

The specific objectives are:

(1) To examine the extent and the trends of FDI inflows in the various sectors

of the Nigerian economy

(2) To trace how shocks transmission from FDI-sectoral-inflows cause change

on Nigeria economic growth.

1.4 Hypotheses of the Study

These hypotheses will be tested in order to validate this study.

Ho: The magnitude of various sectors of FDI is not significant to stimulate

economic growth in Nigeria.

Ho: There is no transmission of shocks from FDI-sectoral inflows on economic

growth in Nigeria.

1.5 Significance of the Study

One of most salient features of today’s globalization drive is conscious

encouragement of cross border investments; especially by transnational

corporations (TNCs) and firms that many countries (especially developing

countries) and continents now see attracting FDI as an important element in their

strategy for economic development. Hence, the study that addresses the issue of

economic development draws the interest of academician, both foreign and local

investors as well as government. This study will help policy-makers to formulate

suitable policy action and its implementing strategies that are capable of

attracting foreign investors. The study is also useful contribution to literature on

FDI. Because of controversies among Economists, some Economists are of the

option that FDI crowds-out domestic investment while some Economists suggest

7

otherwise. Our study will help to add value to this debate and also good to

explain economic problem.

1.6 Scope of the Study

There are two forms of foreign investment namely foreign direct

investment and portfolio investment, but this study is restricted to foreign direct

investment as the topic suggested. This study covered the period of 1972 to 2009.

The choice of the period is based on data availability and to have adequate

observations for annual time series analysis.

8

CHAPTER TWO

LITERATURE REVIEW

2.0 Theoretical Literature

2.1 Motives For Foreign Direct Investment

Some recent contributions that characterize motives of FDI have included

technology seeking in the motives of FDI. For instance, in the case of firms in the

US that seeks a spillover of new technology in information technology or

biotechnology. Dunning (1993. 1997) describes FDI motives as primarily

resource seeking; market seeking; efficiency seeking; or strategic-asset-seeking.

These motives are outlined below:

(1) Resource-seeking investment (for materials or skilled labour) is usually

directly tied to the presence of natural resources or their processing. This is

generally seen as locationally-fixed investment, although processing activities

may be more mobile than extraction activities. Governments are generally seen to

have significant bargaining power over Multi-National Corporations (MNCs)

where this type of investment applies. Policy approaches to mineral rights and

licenses are likely to be significant issues in this kind of investment. The

investment by the Canadian firm (Placer Dome in South Africa’s mining sector)

may be seen as falling under this motive. Surprisingly, Estrin (2003) finds that

resource seeking has not been, or become the dominant motivation for entry into

South Africa. Only about a quarter of FDI in South Africa could be viewed as

resource seeking. It also appears that firms have made the strategic decision

about whether production is primarily destined for export or for the home market

before entering, as the proportions of exports do not alter greatly through time.

Resource seeking FDIs in South Africa are relatively more focused on the global

market, compared with FDI in a number of emerging countries (Estrin, 2003).

9

More than three-quarters of investors in South Africa export at least a small

proportion of their output (Meyer et al, 2002).

(2) Market-seeking investment (i.e., investment that is producing for the local

market) seeks to access individual or regional markets. South Africa’s

manufacturing base is widely diversified which suggests that there may be more

limited opportunities for market. The disparities in income between the Southern

African Development Community (SADC) countries may also work against the

regional market motive. Historically low growth (off a low base) in SADC

countries may also militate against the significance of this factor, unless higher

growth levels can be achieved and sustained. There is a perception that the

association of South Africa with regions such as the European Union can enhance

other emerging market’s prospects. South Africa has not necessarily benefited

from its association with SADC. The “FDI Confidence Audit” conducted early in

2000 by management consulting firm. Kearney reinforced this perception. It

concluded “South Africa’s first challenge is to define its identity as an investment

destination distinct from the rest of Africa” (Kearney, 2000). This suggests an

important potential role for South Africa, both in terms of its leadership role in

SADC and in the marketing of the region. For market seeking investors coming

into South Africa, technology, brands and management are the sources of

competitive advantage (Estrin, 2003).

(3) Efficiency-seeking or cost-reducing investment is undertaken by Multi-

National Corporations to provide more favourable cost bases for their operations.

For example, source factories may provide specific components in ‘globally

rationalized plants’. Efficiency-seeking FDI tends to be located in countries with

skilled, disciplined workforces and good technological and physical

infrastructure. The recent expansion of the Mercedes Benz plant in Port Elizabeth

10

by the foreign parent Daimler Chrysler appears to fall into this latter category.

Incentives which foreign investors get from host country helps to attract FDI

thereby reduce cost of operation of foreign investors. Countries attempting to

outbid competitors in this way may find themselves subject to ‘incentive

inflation’.

(4) Strategic-asset and capability-seeking investment aims at protecting or

advancing the global competitive advantages of the Multi-National Corporations

(MNCs). These kinds of investments tend to be locationally specific For

example, the recent acquisition of Safmarine by the Danish company, A P

Moller, can be seen as falling into this category, earning them access to a

southern shipping line. This category of investment also suggests the need to

expand investor horizons to the African continent, by providing reliable

information.

The second approach for discussing motives for foreign direct investment

examines the “push factor” and highlighted influences that motivate

Multinational Enterprises to seek locate of operations in overseas. A

classification that is particularly useful for our purposes distinguishes between

horizontal and vertical FDI models (Shatz and Venables, 2000; Lim, 2001). In

this context, FDI is classified as either “horizontal or market seeking” or “vertical

or conglomerate” (Moosa, 2002). In horizontal models, the principal motive is to

become more competitive by reducing the cost involved in supplying the market

(for example, tariff and transport costs), moving closer to markets or improving

the ability to respond to local circumstances or preferences. Such investment is

normally aimed at the domestic markets of host countries. Horizontal models

apply to market-seeking FDI as well as strategic-asset and capability-seeking

FDI. Vertical models, by contrast, generally apply to export-oriented flows where

the principle motive is to take advantage of low production costs in particular

11

locations. Such cost factors include primary commodities and other raw

materials, labour, intermediate goods and agglomeration benefits. Vertical

models apply to resource seeking FDI and efficiency-seeking or cost-reducing

FDI. The FDI decision is seen as being undertaken to generate profit by creating

or defending a market or gaining control of inputs (Kenworthy, 1997). Some

authors suggest that significant amounts of FDI should be considered

“defensive;” especially in cases where no immediate profit opportunity exists.

Yet other authors talk about the arrangements between the firms and the host

government as “obsolescing bargain” in which the ultimate terms of the

agreement are made after both sides get to see how profitable things are.

2.1.1 Determinants of Foreign Direct Investment’s Locational Decision

In summarizing the literature on the determinants of FDI location decisions, Lim

(2001) highlights six broad categories of factors: the size of the host market,

distances and transport costs, agglomeration effects (the state of the infrastructure

and the availability of specialized support services), time cost of factors of

production, aspects of the business and investment climate, and trade barriers (the

openness of the economy). It is often suggested that Multinational Corporations

MNCs) invest in a particular location to take advantage of strong economic

fundamentals of the host country (Dunning, 1993, Shapiro and Globerman,

2001). The most important are the market size and the real income levels. Some

econometric studies comparing a cross section of countries indicate a correlation

between FDI and the size of the market (proxied by the size of GDP) as well as

some of its characteristics (for example, average income levels and growth rates).

Some studies report GDP growth rate to be a significant explanatory variable,

where GDP is found not to be significant probably indicating that the current size

of national income is very small. Increments of GDP may have less relevance to

FDI decisions than growth performance, as an indicator of market potential.

12

Location theory would base the incentive on the reasons for the foreign investor

deciding to choose the host country, whereas industrial organization theory

would focus on successful competition between domestic producers and foreign

firms. In terms of location specific incentives factors such as access to local and

regional markets, availability of relatively cheap factors of production,

competitive transport and communications costs, the opportunity to circumvent

import restrictions and incentives offered by the host country will lead to

increased FDI (Cherry, 2001:10). Motives for FDI will hence include: (I) The

need for a secure and cheaper source of regularly required inputs; (2) The desire

to defend or expand markets or service existing clients in a particular foreign

region; (3) The wish to rationalize production into a network of the most efficient

production bases supplying the largest possible worldwide market; (4)

Investments in education, training and research; (5) Investments in transport and

communications (6) Other strategic reasons.

The relationships between FDI and each of these factors may be summarized as

follows (Lim, 2001:13-18):

The size of the host market appears to be key determinants of FDI. Surveying the

empirical evidence, Lim refers to several surveys and cross-section econometric

studies that found positive correlations between FDI and the size of the market

(proxied by GDP) and between FDI and other characteristics of the extent of the

market (for example, average income levels and GDP growth rates).

From an empirical perspective, the relationship between FDI and transport costs

is not robust, possibly reflecting the reality that such costs are likely to stimulate

horizontal FD1 and discourage vertical FDI. There is strong evidence suggesting

that foreign investment benefits from agglomeration effects: enterprises tend to

cluster around certain locations in order to benefit from linkages with others.

Several studies have uncovered positive relationships between the extent of FDI

13

and proxies of the quality of infrastructure, the degree of industrialization in

particular countries and existing stocks of FDI. The latter relationship indicates

that the presence of other foreign investors in a specific area is a powerful

stimulus to more FDI.

According to Lim, several studies have found that low labour costs

stimulate FDI. However, studies on relationship is between FDI and the quality

of labour (proxied by educational attainment); this suggests that the real influence

on FD1 may well be in unit (productivity-adjusted) labour costs.

Empirical results on the relationship between FDI and fiscal investment

incentives are mixed. It is possible that potential investors sometimes harbour

doubts about the permanence of such incentives, or expect that generous

incentives would be recouped in future by means of higher taxes? Lim (2001:19)

stated that appropriate fiscal regime for FDI should perhaps highlight a tax

system with low rates, and does not discriminate between foreign and domestic

investors, and which has corporate tax rates that are similar to those prevailing in

capital exporting countries”. Marr (1997) also argues that removing restrictions

and providing good operating conditions generally benefit FDI flows more than

offering investment incentives.

Studies on the relationship between FDI and the business or investment

opportunity generally distinguish two sets of factors: political and

macroeconomic stability, and other institutional factors that includes the

regulation of economic activity, the quality of the bureaucracy, the security of

property rights, the enforceability of contracts, labour regulations and

performance requirements such as mandatory joint partnerships and domestic-

content requirements. There is a strong negative relationship between FDI,

political risk and aspect of macroeconomic instability such as excessive budget

deficits, high inflation, exchange-rate instability and high levels of external debt.

14

The discouraging affects on FDI of political and macroeconomic instability stems

in large part from the irreversible nature of most investment expenditures

(Pindyck, 1991). Empirical evidence on the link between FDI and the other

institutional variables is less robust. Lim argues that this counter-intuitive finding

probably reflects the difficulty of measuring the investment impact of the

regulatory, bureaucratic and judicial environment.

Studies on the relationship between FDI and trade barriers (openness) also

yield conflicting findings. As is the case with transport costs, different types of

FDI are likely to be affected differently by trade barriers. A priori, one would

expect horizontal FDI to be stimulated by trade barriers, while vertical FDI is

likely to be discouraged by protectionist regimes.

It has been suggested twice in this section, the impact of FDI on some of these

determinants depend on whether the prospective investments are of the horizontal

or vertical types (cf. Lim, 2001:12-13). On the whole, horizontal and vertical FDI

are likely to be affected similarly by agglomeration effects, labour costs and the

state of the business and investment environment. The size of the host market

would be a much more important determinant of horizontal FDI (which is aimed

more at host-country markets) than of vertical FDI (which tends to be export

oriented). High transport costs would encourage investment if the focus market is

that of the host country (horizontal FDI), but discourage export-oriented

investment (vertical FDI). To the extent that horizontal FDI is motivated more by

the size and growth of the host market than with lowering production costs. Trade

openness should stimulate vertical FDI, which often requires substantial flows of

inputs in and out of the host country. Trade barriers are likely to encourage

horizontal FDI aimed at capturing already huge markets, but their growth-

sapping effects may discourage investment in markets where profitable operation

depends on continued expansion.

15

The recent proliferation of regional economic integration arrangements suggests

that cognisance should also be taken of their possible effects on FDI. Lim

(2001:18) argues that regional integration is likely to stimulate interregional FDI,

both in the static sense of increasing the size of the market and in the dynamic

sense of making the region a more attractive investment decision by increasing

efficiency and growth. The impact of intra-regional FDI is less certain (Lim,

2001:18). Regional integration can increase FDI by making it easier to operate

across regional borders, or reduce FDI by eliminating differences in tariff

regimes and other aspects of the business environments of the countries within

the region.

2.1.2 SECTORAL ANALYSIS OF FDI INFLOW IN NIGERIA

Although there has been some diversification into the manufacturing sector in

recent years, FDI in Nigeria has traditionally been concentrated in the extractive

industries. Table 1 shows the sectoral composition of FDI in Nigeria from 1970-

2001. Data from the table reveal a diminishing attention to the mining and

quarrying sector, from about 51% in 1970-1974 to 30.7% in 2000/01.

On the average, the stock of FDI in manufacturing over the period of analysis

compares favourably with the mining and quarrying sector, with an average value

of 32%. The stock of FDI in trading and business services rose from 16.9% in

1970-1974 to 32.6% in 1985-1989, before declined to 8.3% in 1990-1994.

However, it subsequently rose to 25.8% in 2000/01.

Table 1: Sectoral composition of FDI in Nigeria, 1970-2001 in percentage Year Mining

& quarrying

Manufactu-ring

Agriculture Transport & communication

Building & Construction

Trading & business

Miscellaneous service

1970-1974 51.2 25.1 0.9 1.0 2.2 16.9 2.7

1975-1979 30.8 32.4 2.5 1.4 6.4 20.4 6.1

1980-1984 14.1 38.3 2.6 1.4 7.9 29.2 6.5

16

1985-1989 19.3 35.3 4.1 1.1 5.1 32.6 5.2

1990-1994 22.9 43.7 2.3 1.7 5.7 8.3 15.4

1995-1999 43.5 23.6 0.9 0.4 1.8 4.5 25.3

2000-2001 30.7 18.9 0.6 0.4 2.0 25.8 21.5

1970-2001 30.3 32.2 1.7 1.1 4.7 19.1 10.9

Source: CBN Statistical Bulletin (various Issues)

Agriculture, transport and communications, and building and construction

remained the least attractive hosts of FDI in Nigeria. If the report from the

privatization programme (CBN 2004: 72) is anything to go by, however, the

transport and communication sector seem to have succeeded in attracting the

interest of foreign investors, especially the telecommunication sector. Nigeria is

currently described as the fastest growing mobile phone market in the world.

Since 2001, when the mobile telecommunication operators were licensed, the rate

of subscription has gone up and does not show any sign of abating; in fact, MTN

(Nigeria) the leading mobile phone operator - has acquired another line having

oversubscribed the original line. The four operators - MTN, V-mobile, Glo and

M-tel - are currently engaged in neck and neck competition that has forced the

rates down and in the process fostered consumer satisfaction. The effect of this

development is yet to be translated to the rest of the economy.

Our study goes further to give basic statistics on FDI in Nigeria. The period of

analysis is broken into two, separated by the official change of attitude

manifested in the establishment of the Industrial Development Coordination

Committee in 1988. The figures in the table thus present the analysis of FDI

inflow before and after the establishment of the Committee.

The mean figures for the FDI inflow after the policy shift are in all cases greater

than before, sometimes in multiples. Nominal FDI after the shift was about 339

times more than before, while the real FDI was seven times more than the value

17

before. However, the mean figure for manufacturing FDI and mining and

quarrying FDI dropped after the policy shift, suggesting a change in sectoral

allocation of FDI inflows.

De Gregorio, (2003) notes that one of the features of FDI is that it tends to be

relatively stable. In other words, when a crisis erupts, FDI cannot flee the country

as easily as more liquid forms of capital such as portfolio flows and debt. A

simple way to illustrate this point is to examine the persistence of different flows

by estimating the coefficient of variation and the autocorrelation coefficient for a

series of annual flows. The coefficient of variation measures the volatility or

otherwise of a variable.

The coefficient of variation for the nominal FDI is 315.96%, which is rather low

when compared with figures such as 23,366% for Korea, 3,719% for Indonesia,

1,123% for Argentina, 1,110% for the United States and 1,043% for France, as

computed by Claessens et al. (1995) for the period 1973.1 to 1992.1. The figures

for the other variables were even lower, thus suggesting relatively less volatile

nature.

2.2 Empirical Literature

In the face of inadequate resources to finance long-term development in

Africa and with poverty reduction looking increasingly bleak, attracting FDI has

assumed a prominent place in the strategies of African countries. The experience

of a small number of fast-growing East Asian newly industrialized economies has

strengthened the belief that attracting FDI could bridge the resource gap of low-

income countries and avoid further build-up of debt while directly tackling the

causes of poverty (UNCTAD 2004).

While FDI has been flowing to different regions of the world in growing

proportions, Africa has been receiving the least of global FDI inflows. African

18

countries, like many developing countries need a substantial inflow of external

resources in order to make up for the savings and foreign exchange gaps

associated with a rapid rate of capital accumulation. Africa also needs growth to

overcome widespread poverty and Africa’s development crisis is unique as it is

the poorest region in the world and remains mired in debt (Sachs 2004).

Since FDI can create employment and act as a vehicle of technology transfer,

provide superior skills and management techniques, facilitate local firm’s access

to international markets and increase product diversity, FDI can therefore be an

engine of economic growth and development in Africa although its need cannot

be overemphasized (Ngowi 2001; Mckinsey 2005).

The evidence on growth and poverty reduction looking at two countries that have

huge reduction in poverty such as China and India, a vast majority of the worlds

poor live in these countries achieved significant reductions in poverty during

1980 - 2000 when they grew rapidly by opening up to foreign investment

(Bhagwati and Srinivasan 2002).

Sachs (2004) argues that Africa is actually suffering from poor governance as in

Zimbabwe and widespread war and violence as in Angola, Congo, Liberia, Sierra

Leone and Sudan. To overcome many of the constraints on productivity, Africa

will require a sustained program of targeted investments. According to the 2005

World Development Report, governments need to improve their country’s

investment climate in order to increase the opportunities and incentives for

enterprises, both domestic and foreign, and to invest productively (Snowdon

2005).

Africa’s natural resources account for the uneven spread of FDI inflows across

the continent and the 24 countries in Africa classified by the World Bank as oil

19

and mineral-dependent have on average accounted for close to three-quarters of

annual FDI flows over the past two decades (UNCTAD 2005). In spite of the

abundance of natural resources in Africa, the investment response has been poor

even with economic reforms aimed at creating an investor-friendly environment.

Collier and Patillo (1999) argue that investment is low in Africa because of the

closed trade policy, inadequate transport and telecommunications, low

productivity and corruption.

Cantwell (1997) has suggested that most African countries lack the skill and

technological infrastructure to effectively absorb larger flows of’ FDI even in the

primary sector. Lall (2004) sees the lack of “technological effort” in Africa as

cutting off horn the most dynamic components of global FDI flows in

manufacturing.

The low level of FDI to Africa is also explained by the reversible nature of

liberalization efforts and the abuse of trade policies for wider economic and

social goals. Others have singled out unfavourable and unstable tax regimes

(Gastanaga et al. 1998), large external debt burdens (Sachs 2004; Borensztein

1990), the slow pace of public sector reform, particularly privatization (Akingube

2003) and the inadequacy of intellectual property protection as erecting serious

obstacles to FDI in Africa. However, considering the importance of a good

business climate, a study of African competitiveness found that, in terms of

business environment, Sub-Saharan Africa (SSA) does not fare badly relative to

other developing regions (Lall 2004) and also, corporate tax rates in Africa do not

appear to be at variance with those in other regions (Hanson 2001).

However, Lyakurwa (2003) has stressed macroeconomic policy failures as

deflecting FDl flows from Africa. According to Lyakurwa, irresponsible fiscal

and monetary policies have generated unsustainable budget deficits and

20

inflationary pressures, raising local production costs, generating exchange rate

instability and making location of FDI in certain region too risky. In addition,

excessive levels of corruption, regulation and political risk are also believed to

have further raised costs, adding to an unattractive business climate for FDI.

Ngowi (2001) points out that the main factors preventing an increased inflow of

FDI in Africa is that most countries are regarded as high risk because they are

characterized by a lack of political and institutional stability. Additional factors

that are cited as hindrances to prospective FDI include poor access to world

markets, price instability, high levels of corruption, small and stagnant markets

and inadequate infrastructure. Morrisset (2000) suggests that the most important

features of African countries successfully attracting FDI are strong economic

growth and aggressive trade liberalization. Other important factors include

privatization programs, the modernization of mining and investment codes, the

adoption of international agreements relating to FDI, a few large priority projects

which have significant multiplier effects, and a high-profile image-building

exhibition involving the head of state.

Collier, 1994; Senbet, 1996 stated that uncertainly may emanate from

macroeconomic variables like exchange rate, resource prices, interest rates,

changes in policies and rules of business transactions. In Africa, economic and

political instability plays a significant role in hampering capital flow along with

other macroeconomic and policy uncertainties.

Apart from firm-specific advantage and motives to internalize externality

benefits, Multinational Corporations (MNCS) determine the location of

production according to host country characteristics (Grossman and Razin, 1984,

1985). Host countries characteristic are most important, as it is the main focus of

21

those investing in developing countries where most economic and political

stability indicators are highly volatile.

The study by lucas (1990) found three factors for a slow capital inflow to capital

scarce countries namely: differences in human capital, external benefits of human

capital, and capital market imperfection, which lucas labeled as political risk.

Result with respect to the relationship between the level of FDI and GDP

per capital in Africa are mixed. Schneider and Frey (1985), Tsai (1994) and

Lispsey (1999) report positive correlations, while Edwards (1990) Jasperson et al

(2000) found the relationship to be negative. Other studies (Loree, and Gosinger,

1995; Hansman and Fernandez- Arias; Wie 2000) could not uncover a statistical

significant relationship between these variables. Findings on the relationship

between labor costs and FDI are also mixed. (Jenkins and Thomas, 2002: 7).

Empirical research finds relative labor costs to be statistically significant,

particularly for foreign investment in labor-intensive industries and for exports-

oriented subsidiaries. When the cost of labor is relatively insignificant the skill of

the labor force are expected to have an impact on decisions about FDI location.

The lack of engineers and technical staff in many Africa countries are reported as

holding back potential against foreign investment, especially in manufacturing. It

lessens the attractiveness to investing in such productive sectors. Other

determinants of FDI include the availability of infrastructure and other resources

that facilitate the efficiency of production specialization, trade policies, political

and macroeconomic stability. Poor infrastructure is both an obstacle and an

opportunity for foreign investment. For the majority low-income countries, it is

often cited as one of the major constraints.

22

For sub-Saharan Africa as a whole, Bhattachanya et al. (1995) identify GDP

growth as a major factor; only three sub-Saharan African low-income countries

have been among the nine main recipients of FDI flows in recent years. One of

them is Nigeria; only Nigeria is close to being classified as a large market (using

UNCTAD’S benchmark of $36bn GNP). Angola and Ghana (with GNP of

$8.9bn and $5.5bn in 1995 respectively), received larger proportional FDI flows

in 1995 than Nigeria. This might indicate that small market size need not be a

constraint in the case of resource endowed and export-oriented economics.

Evidence points to the fact that extractive industries in the low-income Africa

countries continue to attract foreign investors as they have always done.

When the majority of low-income countries that do not attract large FDI are

examined, evidence tends to suggest that their small domestic markets are the

main deterrents to FDI inflows. In South Africa, more than half of all investors

initially only serve the domestic market. It is attributable to the higher proportion

of investors in the service and construction industries (Meyer et al 2002).

On the other hand it is also the potential for attracting significant FDI if host

governments permit more substantial foreign participation in the infrastructure

sector. Recently telecommunications in Africa countries and airlines have

attracted FDI inflows from South Africa (Vodacom and MTN). South Africa

telecommunications have also strongly benefited from an inflow of FDI

following sectoral privatization. However, other basic infrastructures such as

road building have attracted little FDI inflows and remain unattractive because of

the low potential return and high political risk of such investments.

The presence of natural resources such as mineral, ores, petroleum, natural gas,

coal, and other raw materials may also act as location specific advantage in

23

attracting FDI to host countries. For a discussion of FDI attraction to natural

resource extraction see Asiedu (2002), Elbadawi and Mwenga (1997) and Pigato

(2000)

The location of FDI may be influenced by various incentives offered by the host

government, these could be fiscal incentives, or incentives related to market

performance or monopoly rights. However, much of the empirical evidence

supports the motion that specific incentives such as lower taxes have a major

impact on FDI, particularly when they are seen as compensation for counting

comparative disadvantages. On the other hand, removing restrictions and

providing good business operating conditions are generally believed to have a

positive effect (Marr, 1997).

Asiedu (2002) identified the following possible determinants of FDI to African

countries: (1) the return on investment in the host country, proxied by the inverse

of real GDP per capital,

(2). Infrastructure development, proxied by telephones per 1000 people. (3). The

extent of openness of the host country.

(4). Political risk, proxied by the average number of associations and revolution.

(5). Financial depth, measured by the ratio of liquid liabilities to GDP.

(6). The size of the government consumption to GDP.

(7). Economic stability, proxied by the overall inflation rate, and.

(8). The attractiveness of the host country’s market, proxied by the growth rate of

GDP. Her findings suggest that the factors determining FDI to African differ on

important respects to those operating in other countries. In contrast to other

developing countries, infrastructure and the return on capital do not influence

24

FDI to African countries, while openness to trade also has a smaller FDI-

stimulating effect in Africa than elsewhere.

More generally, there seems to be an adverse regional effect for sub-Saharan

Africa in the sense that Africa countries receive less FDI than countries in other

parts of the world purely by virtue of their geographical location.

For a developing country, the inflow of foreign capital may be significant not in

only raising the productivity of a given amount of labour, but also allowing a

large labour force to be employed (Sjoholm, 1999).

Barro (1991) and Barro and Sala-I-Martin (1992) predicted that output could only

grow through increased factor accumulation and/ or technical progress. However,

most growth models have come to ascribe the rate of growth of an economy as

being determined by the accumulation of physical and human capital, the

efficiency of resource use and the ability to acquire and apply modern

technology. Since investment determines the rate of accumulation of physical

capital, it thus becomes an important factor in the growth of productive capacity

and contributes to growth of the economy. Hence, increasing foreign direct

investment is an important channel for increasing aggregate investment.

Obwona (2001) noted other benefit of FDI as:

1. The provision of managerial knowledge and skill including organizational

competence and access to foreign market.

2. It enables the transfer of technology to occur from development

economies; and

3. It provides an array of goods and services to residents in the recipient

country.

25

4. Furthermore, FDI may also serve as a stimulus to additional investment in

the recipient country through the creation of external pecuniary economics

such as infrastructures.

Anyanwu (1998) noted that the FDI in Nigeria shows a great deal of sensitively

to changes in domestic investment, changes in domestic output or market size,

indigenization policy and change in the openness of the economy.

Studies examining the macroeconomic effects of exchange rate on FDI centered

on the positive effects of an exchange rate depreciation of the host country on

FDI inflows, because it lowers the cost of production and investment in the host

countries, raising the profitability of foreign direct investment. The wealth effect

is another channel through which a depreciation of the real exchange rate could

make it easier for those firms to use retained profits to finance investment abroad

and to post collateral in borrowing from domestic lenders in the host country

capital market (see (Froot (1991) and Razin (2001)).

Loungani, Mody, Razin and Sodka (2008) employ a gravity model of bilateral

FDI and portfolio capital flows in order to explain determinants of the mobility of

financial capital across countries. The authors identify three main categories of

variables that significantly explain FDI inflows in the data. First, a positive

correlation between the industry specialization into the source countries and FDI

flows into the destination countries is shown to exist. Second, the case of

communication between the source country and the destination country (as

measured by telephone densities in each country) is found to have positive effects

on the size of FDI flows. Third, countries with higher debt-equity ratios of

publicly companies attract less FDI inflows.

26

Hecht, Razin and Shinar (2002) found in similar samples that the effect of FDI

inflows on domestic investment is significantly larger than either equity or loan

inflows. They provide also evidence that FDI inflows promote efficiency: the

effect of FDI on GDP growth is higher than the effect of other inflows, after

controlling for the effect of capital accumulation on GDP growth.

27

CHAPTER THREE

METHODOLOGY

3.1 RESEARCH METHODOLOGY

Our study employed descriptive method using multiply bar chart to enumerate sectoral trends of FDI inflows in Nigeria and Vector Error Correction model (restricted vector autoregressive model) to examine the extent of FDI inflows in the various sectors of Nigerian economy. Vector Error Correction model (VECM) summarizes the dynamic behaviour of the entire macro-economy with few restrictions from economic theory beyond the choice of variables included in the model. Sims (1980) is the original proponent of this type of model. It is based on the representation of an economic structure without following known theory. This is closely tied to the structuralists approach which argue that developing economies exhibit particular characteristics that sometimes are devoid of any economic theory. As such, modeling developing economics required that the structure of the economy be mimicked irrespective of any theoretical underpinning. The choice of this model was because of its unique features to bring out dynamics behaviour of our variables. In the model, every variable is seen as endogenous variable that each endogenous variable is explained by its own lagged values and lagged values of all other endogenous variables in the model.

3.2 Model Specification

The econometric form of our model is specified as: RGDPt = B11 + B12 Σ∆BUCOt-i + B13 Σ∆MIQUt-i + B14 Σ∆AGRIt-i + B15 Σ∆COMTt-i +

B16 Σ∆MAPRt-i + B17 Σ∆TBSEt-i + B18Σ∆SEMIt-i + Σ U1t

BUCOt = B21 + B22 Σ∆RGDPt-i + B23 Σ∆MIQUt-i + B24 Σ∆AGRIt-i + B25 Σ∆COMTt-i +

B26 Σ∆MAPRt-i + B27 Σ∆TBSEt-i + B28 Σ∆SEMIt-i + Σ U2t

28

MIQUt = B31 + B32 Σ∆BUCOt-i + B33 Σ∆RGDPt-i + B34 Σ∆AGRIt-i + B35 Σ∆COMTt-i

+ B36Σ∆MAPRt-i + B37 Σ∆TBSEt-i + B38 Σ∆SEMIt-i + Σ U3t

AGRIt = B41 + B42 Σ∆MIOUt-i + B43 Σ∆RGDPt-i + B44 Σ∆COMTt-i + B45 Σ∆MAPRt-i +

B46 Σ∆BUCOt-i + B47 Σ∆TBSEt-i + B48 Σ∆SEMIt-i + Σ U4t

COMTt = B51 + B52 Σ∆AERIt-i + B53 Σ∆RGDPt-i + B54 Σ∆MAPRt-i + B55 Σ∆BUCOt-i +

B56 Σ∆MIQUt-i + B57 Σ∆TBSEt-i + B58 Σ∆SEMIt-i + Σ U5t

MAPRt = B61 + B62 Σ∆AERt-i + B63 Σ∆RGDPt-i + B64 Σ∆BUCOt-i + B65 Σ∆MIGUt-i +

B66 Σ∆COMTt-i + B67 Σ∆TBSEt-i + B68 Σ∆SEMIt-i + Σ U6t

TBSEt = B51 + B52 Σ∆AERIt-i + B53 Σ∆RGDPt-i + B54 Σ∆MAPRt-i + B55 Σ∆BUCOt-i +

B56 Σ∆MIQUt-i + B57 Σ∆COMTt-i + B58 Σ∆SEMIt-i + Σ U5t

SEMIt = B61 + B62 Σ∆AERt-i + B63 Σ∆RGDPt-i + B64 Σ∆BUCOt-i + B65 Σ∆MIGUt-i +

B66 Σ∆COMTt-i + B67 Σ∆TBSEt-i + B68 Σ∆MAPRt-i + Σ U6t

Where RGDP the Real Gross Domestic product as a proxy for Economic Growth

BUCO = FDI inflow on Building and Construction sector

MIQU= FDI inflow on Mining and Quarrying sector

MAPR = FDI inflow on manufacturing and processing sector

AGRI = FDI inflow on Agriculture, fishery and forestry sector

COMT = FDI inflow on communication and transportation sector

TBSE = FDI inflow on Trading and Business Services sector

SEMI = FDI inflow on Miscellaneous service Sector

U1 = Error term

3.2.1 Estimation procedure

This VAR – model can be specified as in order of n

29

Yt = AtYt-1 ………….. +AnYt-n + B xt-1 + et --------------- 3.2.1

Where Yt = K – vector of non-stationary, 1 (1) variables

Xt = d – Vector of deterministic variables

et = Vector of Innovation

Eqn 3.2.1 can be written as

∆Yt = πYt-1 + Σ πi∆ Yt-i + Bxt + Et

Where πi = Σ Aj

In accordance with the Granger’s representation theorem, if the coefficient matrix

π has reduced rank, r < k there exist K x r matrices α and β each with Rank r in a

way that π = αβ and B1yt, is stationary. In this case, r is the number of co-

integrating vector. With the help of Johansen co-integration method, we estimate

the π matrix is an unrestricted form of vector autoregressive (VAR) and test

whether we can reject the restriction in the reduced rank of π. It is pertinent to

note that the co-integrating vector is not identified unless we impose some

arbitrary normalization.

3.2.2 Battery Tests

In this section, we test for the order of integration and co-integration among the

variables in the model.

3.2.3 Unit Root Test

We employ Augmented Dickey Fuller (ADF) to test for the order of

integration. The choice for this test is made because it is more reliable and robust

than the Dickey Fuller (DF) test. It also eliminates the presence of auto-

correction in the model. ADF unit root test is specified as

Yit = αo + α1 Yit-1 + Σ β∆Yit-1 + U -----------------------3.2.3

Where Yi = Variables in the model

n-1

i=1

n

j = i+1

i=1

n

30

αo, α1 and β = Parameters in the model

Ui = Error term

The variable is stationary of the order in which its ADF test statistic is greater in

absolute value than the ADF critical values at different levels of significance.

3.2.3 Co-integration Test

In this section, we determine whether the variables are integrated and

identified the long run relationships. Johansen test of co-integration is a system

approach of VECM. However, Johansen method of co-integration is preferred in

this study as against Engel and Granger co-integration methodology because it

has power to detect more than one co-integration relationships that exist in a

model.

3.3 Justification of the Model

Augmented Dickey Fuller (ADF) test statistic helps to identify the order of

integration. The choice of this test statistics is selected because it is more reliable

and robust than the Dickey Fuller (DF) test. It also eliminates the presence of

autocorrelation in the model.

The co-integration enables us to determine whether the variables are

integrated and to identify the long – run relationships in the variables. Knowing

the number of Co-integrating vectors help us run the vector error correction. The

number of the co-integrating vectors so identified becomes the number of

restrictions placed on VAR to run the vector error correction model (VECM).

VEC model is designed to use with non-stationary series that are co-integrate.

Vector error correction (VEC) model being restricted vector Autoregression

model (VAR), which enable us to know the long – run and short – run behaviour

of variables. This study also made use of these test statistics namely impulse

response and variance decomposition. The impulse responses trace out the

31

responsiveness of the dependent variables in the VAR to shocks in the error term.

Variance decomposition gives the proportion of the movements in the dependent

variables that are due to their own shocks, versus shocks to the other variables.

The variance decomposition gives information about the relative importance of

each shock to the variables in the VAR.

3.4 Sources of Data

Data are sourced from publications such as CBN statistical bulletin,

statement of accounts, and economic and financial reviews for various years,

statistical abstracts of the federal office of statistics and electronic media.

3.5 Computing Device

Our computing device is Eviews 3.1 because it is user-friendly-computer

application package that handles time – series data more efficiently.

32

CHAPTER FOUR

Presentation and Analysis of Results

4:1 FDI Sectoral Trends in Nigeria

This chart below illustrates FDI sectoral trends in Nigeria. The sectoral spread of

FDI included in the study were basically the key sectors namely miscellaneous

service sector, trading and business sector, building and construction sector,

transportation and communication sector, agricultural sector manufacturing

sector, and mining sector.

33

Between 1975 to 1979, average of 771 million dollar FDI inflow on mining

sector comes to Nigeria annually and was growing up till 2009 without any

decline. Extraction crude oil dominate in mining sector because of high demand

0

2 00 0 0

4 00 0 0

6 00 0 0

8 00 0 0

10 00 0 0

12 00 0 0

14 00 0 0

16 00 0 0

18 00 0 0

Average Values of Sectoral Spread of

FDI

FDI Sectoral Trends in Nigeria

1975-1979 771 906 67 37 175 527 168

1980-1984 678 1874 126 70 388 1168 384

1985-1989 1911 3451 127 112 478 2423 495

1990-1994 48231 10345 488 372 1208 1751 9672

1995-1999 58317 26533 1209 609 1792 1792 29312

2000-2004 61578 52756 1209 2137 4448 6334 46807

2005-2009 99223 178875 1209 9170 9605 14046 81783

Mining & Quarrying sector(M)

Manufacturing

Sector(M)

Agricultural

Sector(M)

Transsportation

&

Building &

Constructi

Trading & Business Sector(M)

Miscellaneous

Service

34

of Nigeria crude oil in international market due to its reduce quantity of sulphur

content. Most of the FDI in Nigeria goes into the oil and extractive sectors and

the economic structure remains highly undiversified, with oil accounting for 95%

of exports (USAID 2003). However, the Nigerian government has acted to

stimulate non-oil businesses through the promotion of Small and Medium

Enterprise (SME). These efforts and the momentum provided to the nation by the

return of a democratic government are reflected in the “Improvement and

Optimism Indexes’ compiled by the World Economic Forum’s Africa

Competitiveness Report (2000-2001), which ranks Nigeria fourth among 12

African countries in terms of improvement and first, in terms of “optimism”

(AFDB/OECD 2003; Ariyo 2004).

The policy (SME) provides relatively conducive environment for FDI inflow in

the Nigeria in such a way that manufacturing sector that amount to 906 million

dollar in 1979 rise to 1874 million dollar in 1984 and even surpassed the value

for mining sector in 2009 (see the chart). Our chart illustrate and gives evidence

why Nigeria is considered as second recipient of FDI in Sub Sahara Africa after

Angola. FDI inflow was high on mining and manufacturing sectors giving reason

to believe that most of the FDI inflow in Nigeria was for resource-seeking and

market-seeking investment. Agriculture sector, transport and communication

sector, building and construction sector remained the least attractive hosts of the

FDI in Nigeria. These are weaknesses in infrastructure provision, a lack of

personal and property security, poor governance and corruption.

Without continuous efforts in these areas, Nigeria will not go far on their efforts

to develop through the help of the FDI. Nigeria was ranked below average in the

2005. Transparency international Business Confidence Survey among African

countries stated that such a poor environment for business makes it difficult for

Nigeria to increase the rate of FDI inflows. While these factors are in a sense

35

intangible in the business climate, their impact is real in terms of its effect on

foreign investment and consequently on the growth of the economy.

Other elements like the complex regulatory environment, policy instability, the

predominance of state owned enterprises, and layers of business regulation at the

state and local level, all contribute to corruption by providing opportunities for

patronage and intervention in private business affairs (AFDB/OECD 2003;

World Bank 2002). In spite of this, the table above indicates that Nigeria still

ranks amongst the top FDI receiving countries in Africa.

However with the transition to democracy and intense competition for FDI by

other developing countries, the Nigerian administration now shows a welcoming

attitude to investors. The government has aimed its most generous incentives at

the sectors that present the greatest obstacles to economic development,

particularly infrastructure. Nigeria is becoming investor-friendly, with some laws

allowing for 100% foreign ownership of businesses and unhindered repatriation

of capital. In addition, the government has put in place a range of incentives

designed to lower the cost of doing business and to offset the higher-cost

operating environment arising from factors such as deficient infrastructure.

Various industries have been afforded ‘pioneer status’, giving start-ups a five-

year tax holiday. There are 69 industries benefiting from this incentive, including

mining, large-scale commercialised agriculture, food processing, manufacturing

and tourism. Manufacturers that add value to imported inputs are eligible for a

five-year 10% local VAT concession. Manufacturers using a prescribed

minimum level of local raw materials, for instance, 70% for agro-allied industries

and 60% for engineering industries, are entitled to a five-year 20% tax

concession. Investors can take advantage of an infrastructure incentive that

permits a 20% tax deduction of the cost of providing infrastructure facilities that

should have been provided by the government. Such facilities include access

36

roads, pipe-borne water and electricity supply. There is a generous tax allowance

on research and development (R&D), with up to 120% of expenditure being tax

deductible, provided that such R&D activities are carried out in Nigeria and are

related to the business from which profits are derived. In the case of research into

the use of local raw materials, the tax-deductible allowance rises to 140%. The

government is also targeting investment into some economically disadvantaged

areas, extending the tax holiday available to ‘pioneer status’ industries to seven

years and adding a 5% capital depreciation allowance. Additional tax breaks are

available for labour-intensive modes of production. (Financial Times 2005).

According to the World Bank, Nigeria’s macroeconomic performance over the

last two years has been commendable. The economic reform efforts are showing

positive results including:

• In 2005, growth continued to be strong at 7% for the economy as a whole and

8% for the non-oil sector. In the first quarter of 2006, the Nigerian economy grew

by 8.3%.

• Year-on-year inflation fell from 28% in August to 12% by December 2005.

• A Fiscal Responsibility Bill has passed and has gone for critical second

readings in both the Senate and House.

• The National Assembly is discussing a Public Procurement Reform Bill.

• A bank consolidation program was implemented strengthening the financial

sector and enhancing its ability to provide credit to the private sector.

• The import tariff regime has been liberalized reducing the number of tariff

bands from 19 to 5 and lowering the average tariff from about 29% to 12%.

With the deregulation of the telecommunication sector, Nigeria’s

telecommunications sector is no in a rapid growth mode. According to the

Nigerian Communications Commission (NCC), there is enormous growth

potential in the market, as demand for telecom service has been high because of

37

market liberalization and massive telecom investments. Over recent years, all

branches of the telecom industry have generated considerable growth and the

telecom industry has emerged as a main motor of the country’s economy. It is

only the oil sector that has seen more investment and telecom is now seen as the

most lucrative branch for investment in Nigeria’s economy.

As a result, Nigeria presently boasts Africa’s largest and most promising telecom

market. Even though Nigeria is trailing other countries in terms of providing

phone technology at an affordable price and doing so reliably, the market has

taken significant strides in its development.

4:2 Presentation of Results

In this section we discuss the necessary tests that were carried out on the data

before estimating the models for the study. These tests are the unit root test and

the Johansen co-integration test.

4:2:1 Results of Unit Root Test

It has been observed that macroeconomic data usually exhibit stochastic trend

that can be removed through differencing. We applied Augmented Dickey Fuller

(ADF) test to eliminate the presence of autocorrelation in the model, to detect the

stationarity of the variables at different levels of significance and to identify the

order of integration of the variables in the model. The result is illustrated with the

aid of table 4:2.

Table 4.2 Unit root test Variables ADF

statistic

Lag Mackinnon

critical

Value (1%)

Mackinnon

critical

Value (5%)

Order

integration

Stationarity

position

AGR1 -5.981 1 -3633 -1.249 Level 2 Stationary

BUCO -4.308 1 -3.628 -2.947 Level 1 Stationary

38

COMT 4.119 1 -3.628 -2.947 Level 1 Stationary

GDP -3.861 1 -3.628 -2.947 Level 1 Stationary

MAPR -3.945 1 -3682 -2.947 Level 1 Stationary

MIQU -3.323 1 -3.628 -2.947 Level 1 Stationary

SEM1 -3.925 1 -3.628 -2.947 Level 1 Stationary

TBSE -5.946 1 -3.628 -2.947 Level 1 Stationary

In the table 4.2, the variables that were tested with unit root are shown, the

values for Augmented Dickey Fuller (ADF) statistics are presented, the lag level

of each variable was identified, the Mackinnon critical values at 1% and 5% level

of significant were pointed out. The order of integration of each variable was

enumerated, and finally the stationarity position of each variable was also stated.

FDI inflow on agriculture, fishing and forestry sector (AGRI) was not

stationary at level and at first level. At that time, the values of ADF were 0.860

and -2061 respectively. It was stationary after the second level of integration with

ADF value (-5.5891) while the conventional 5% Mackinnon critical value is -

2.949 hence the variable is stationary at second level.

FDI inflow on Building and Construction sector (BUCO) is stationary at level 1

and lag 1 and its ADF value and 5% Mackinnon critical value are -4.308 and -

2.947 respectively. FDI inflow on Mining and Quarrying sector (MIQU) is

stationary at level 1 and lag 1 and its ADF value and 5% Mackinnon critical

value are -3.323 and -2.947 respectively. FDI inflow on Service Miscellaneous

sector (SEMI) is stationary at level 1 and lag 1 and its ADF value and 5%

Mackinnon critical value are -3.925 and -2947 respectively. Gross Domestic

product (GDP) is stationary at level 1 and lag 1 and its ADF value and 5%

Mackinnon critical value are -3.861 and -2947 respectively. FDI inflow on

Manufacturing and Processing sector (MAPR) is stationary at level 1 and lag 1

39

and its ADF value and 5% Mackinnon critical value are -3.945 and -2.947

respectively. FDI inflow on Trading and Business sector (TBSE) is stationary at

level 1 and lag 1 and its ADF value and 5% Mackinnon critical value are -5.946

and -2.947 respectively.

4:2:2 Co-integration Tests

To find out the number of co-integrating vectors, we applied the approach of

Johansen and Juselius (1990) that contains Likelihood ratio test statistic, the

maximum Eigen value and the trace statistics. Empirical evidence has shown that

Johansen co-integration test is a more robust test than Engel-Granger (EG) in

testing for co-integrating relationship. The co-integrating relationship was

estimated under the assumption of linear deterministic trends. The result is shown

in table 4.2.2

Series: GDP, MIQU, MAPR, AGRI, COMT, BUCO, TBSE, SEMI:

Lags internal 1 to1

Eigen value Likelihood ratio 5% critical value 1% critical value

0. 9913 490.0443 156.00 168.36

O. 9579 319.0913 124.24 133.57

0.8936 204.9955 94.15 103,18

0.8065 124.3316 68.52 76.07

0.7248 65. 1965 47.21 54.46

0.2429 18.7462 29. 68 35.65

0.1968 8.7270 15. 41 20.04

0.0229 0.8373 3.76 6.65

The Likelihood ratio test detects five co-integrating equation(s) at 5%

significance level. We compared likelihood ratio at 5% and 1% critical values

40

and verified that there are five co-integrating relationship among them are Gross

Domestic Product (GDP), FDI inflow on mining and quarrying sector (MIQU),

FDI inflow on manufacturing and processing sector (MAPR), FDI inflow on

Agriculture forest and fishing sector (AGRI), and FDI inflow on communication

and transportation sector (COMT). While FDI inflow on building and

construction sector (BUCO), FDI inflow on trading and business service sector

(TBSE) and FDI inflow on service miscellaneous sector (SEMI) do not have co-

integration relationship.

The values for likelihood ratio for fine co-integrating variables are 490.0443,

319.0913, 204.9955, 124.3316 and 65.1965 respectively while their 5% critical

values are 156.00, 12424, 94.15, 68.52 and 47.21 respectively.

With these, we verified five co-integrating relationship exist in our model.

4.3 VECM RESULTS

Vector error correction method (VECM) indicates evidence of long run causality

from the explanatory variable to the dependant variables.

VECM was estimated and the result is presented in table 4:3

Variables Coefficients Std Errors t. statistics

D(GDP (-1)) -0.001742 0.00061 -2.84975

D(GDP (-2)) 0.62674 0.03132 2.00119

D(MIQU (-1)) -5.445770 2.027521 -2.39353

D (MIQU (-1)) -0.176925 0.05682 -3.11376

D (MIQU (-1)) -.0.176974 0.05342 -2.97479

D (MIQU (-1)) -1.10974-3 0.50342 -2.20441

D (MIQU (-2)) -3.411204 1.45913 -2.33783

41

D (MIQU (-2)) 0.055306 0.00865 6.39161

D (MIQU (-2)) -0.107796 0.0.03644 -2.95817

D (MIQU (-2)) -0.180559 0.03878 -4.65624

D (MIQU (-2)) -1.515433 0.32285 -4.69389

D(MAPR(-1)) 6.065038 2.03655 2.97810

D(MAPR(-1)) -0.077905 0.01208 -6.45059

D(MAPR(-1)) 0.159303 0.05086 3.13218

D (MAPR(-1)) 0.136089 0.05412 2.51443

D (MAPR(-2)) 3.939031 0.06926 3.68392

D (MAPR(-2)) -0.021534 1.00634 -3.39612

D (MAPR(-2)) 0.097372 0.02670 3.64642

D (MAPR(-2)) 0.115582 0.2842 4.06743

D (MAPR(-2)) 0.981404 0.236659 4.14818

D (MAPR(-2)) 0.73547 0.34187 2.15138

D (AGRI(-1)) -84.13276 24.8387 -3.38717

D (AGRI(-1)) -42.83213 13.5878 -3.15225

D (AGRI(-1)) -63.0031 19.634 -3.2038

D(COMT(-1)) -162.7592 54.3026 -2.99174

D(COMT(-1)) 1.851675 0.32203 5.75008

D(COMT(-1)) -5.505782 1.35614 -8.34809

D(COMT(-1)) -3.542061 1.44315 -2.45440

D(COMT(-1)) -52.78666 12.0151 -4.39335

D(BUCO(-2)) -10.16779 3.73132 -2.72499

D(BUCO(-)) -9.865049 4.57311 -2.15719

D(BUCO(-2)) -11.74330 2.50169 -4.69415

D(TBSE(-2)) 0.051299 0.00993 5.16544

D(TBSE(-2)) -0.930132 0.37054 -2.53177

42

D(TBSE(-1)) 2.900226 0.95392 3.04033

D(TBSE(-1)) 0.130754 0.01399 9.34889

D(TBSE(-1)) -0.134749 0.06268 -2.14988

D(TBSE(-1)) -1.894815 0.52183 -3.63107

D(SEMI(-1)) 0.762283 1.67924 2.37592

D(SEMI(-1)) -0.073205 0.02462 -2.97334

D(SEMI(-1)) 0.229879 0.10368 2.21713

D(SEMI(-1)) 0.237221 0.11034 2.1500

D(SEMI(-1)) 3.273454 0.91862 3.66347

D(SEMI(-2)) -0.059878 0.02020 -2.96403

D(SEMI(-2)) 3.330461 0.75376 4.41849

In table 4:3, it shows the Gross domestic product (GDP) is explained by its own

lagged values for year one and two and lagged values of FDI inflow on

agriculture, (AGRI) and mining (MIQU) sectors. The values of t – statistics for

both lag one and two are -2.84975 and 2.00119 respectively and it is statistically

significant.

The VEC estimation pointed out that FDI inflow on mining and quarrying

sector is explained by its own lagged values for year one and lagged values of

FDI inflow on manufacturing and processing sector, communication and

transportation sector, building and construction sector and trading and business

services sector. The values of t-statistics for lag period of one year for the

dependent variables are -239353, -3.11376, -2.9749, -2.20441 respectively.

Again, the FDI inflow on mining and quarrying sector is explained by its

own lagged values for the period of year two and lagged values of FDI inflow on

manufacturing and processing sector, agriculture sector, communication and

43

transportation sector, building and construction sector and trading and business

service sector. The value of t- statistic for lag period of year two are -3.11376, -

2.97479, -2.20441,-2.38783, 6.93161, -2.95817, -4.65624, -4.69389 respectively.

It is statistically significant.

The FDI inflow on Manufacturing and Processing sector is explained its

own lagged period of one year and the lagged value of FDI on Agriculture sector,

Communication and Transportation sector, Building and construction sector,

Trading and Business service sector. The values of their t-statistics for lag period

of one year are 2.97810, 6.45059, 3.13218, 2.54143, and 4.19118 respectively. It

is statistical significant. The FDI inflow on Agriculture, fishery, and forestry

sector is explained by its lagged period of one year and lagged value of Mining

and Quarrying sector, Trading and Business services sector and service

miscellaneous sector.

The FDI inflow on communication and transportation sector is explained

by its own lagged period of one year and lagged values of Agriculture sector,

Manufacturing and Processing sector, Building and Construction sector, and

Trading and Business service sector. The values of their t- statistics for lag period

of one year are 5.75008, -8.34809, -2.45440, -4.39335 respectively.

The FDI inflow on Building and Construction sector is explained by its

own lagged period of one year and lagged value of Trading and Business services

sector, Mining and Quarrying sector. The values of t-statistics for lag period of

one year are -215719, -4.6415 respectively.

The FDI inflow on services miscellaneous sector is explained by its own

lagged period of one year and lagged value of Agriculture sector, Communication

and Transportation sector, Building and Construction sector. The values of their

t- statistics for lag period of one year are 2.375592, -2.97334, 2,21713, 2,15000,

3.56347,-2.9640 4.41849 respectively.

44

4:4 The Variance Decomposition and Impulse Reponses Results

These statistics were computed to show the dynamics behaviour variables. The

Variance Decomposition gives information about the proportion movement in the

dependent variables that are due of their own shock, versus shocks to the other

variables. GDP in the period one is only influenced by its own shock while in

period two to period ten; GDP is influenced by the shocks of other variables in

the model. It assumed 100% in the first period and its standard error is 27885.86.

In the second period, the value it assumed was 93% and its standard error is

37138.19. In the tenth period, the value GDP assumed was 70% and its standard

error is 51398.46. It means that transmission of shocks from FDI-sectoral inflows

cause change on Nigeria economic growth.

The results of impulse responses indicate that all endogenous variables converge

to long-run equilibrium in the lag period of eight and diverged to establish

equilibrium in the long run.

4:5 Evaluation of hypotheses

In the section, we tested the two hypotheses in accordance with the analysis of

the results.

4:5:1 Test of Hypothesis one

Ho1 = The magnitude of variable sectors of FDI are not significant to stimulate

economic growth in Nigeria.

The result of vector error correction method denotes that Gross Domestic Product

(GDP) is influenced by the impact of Agriculture, forestry, and fishery sector

(AGRI) and Mining and Quarrying sector (MIQU). Mining and Quarrying sector

(MIQU) has 6 percent influences on Nigeria economic growth while insignificant

45

percent comes from Agriculture, forestry, and fishery sector (AGRI). We reject

the null hypothesis; hence the hypothesis is statistically significant.

4:5:2 Test of Hypothesis Two

H02 = There is no transmission of shock from various sectors of FDI

on economic growth in Nigeria.

The result of variables decomposition shows that GDP in the period one is only

influenced by its own shock while in period two to period ten; GDP is influenced

by the shocks of other variables in the model. It assumed 100% in the first period

and its standard error is 27885.86. In the second period, the value it assumed was

93% and its standard error is 37138.19. In the tenth period, the value GDP

assumed was 70% and its standard error is 51398.46. It means that transmission

of shocks from FDI-sectoral inflows cause change on Nigeria economic growth.

We reject the null hypothesis; hence the hypothesis is statistically significant.

46

CHAPTER FIVE

SUMMARY OF FINDING, CONCLUSION AND RECOMMENDATIONS

5:1 Summary of the Findings

Our study made use of augmented dickey fuller test to detect the order of

integration and stationarity position of the variables. We verified that only FDI

inflow on agriculture, fishery and forestry sector (AGRI) was stationary at level

two and lag one while FDI inflow on communication and Transportation sector

(COMT), FDI on Mining and Quarrying sector (MIQU), FDI on Manufacturing

and processing sector (MAPR), FDI inflow on Miscellaneous Service sector

(SEMI) and Trading and Business services sector (TBSE),FDI on Building and

Construction sector (BUCO), and GDP were stationary at first level lag one.

The Johansen co-integration statistics detected that our model has five co-

integrating equations at 5% significance level. The result of vector error

correction method denotes that Gross Domestic Product (GDP) is influenced by

the impact of Agriculture, forestry, and fishery sector (AGRI) and Mining and

Quarrying sector (MIQU). Mining and Quarrying sector (MIQU) has 6 percent

influences on Nigeria economic growth while insignificant percent comes from

Agriculture, forestry, and fishery sector (AGRI). We reject the null hypothesis;

hence the hypothesis is statistically significant.

The result of variables decomposition shows that GDP in the period one is

only influenced by its own shock while in period two to period ten; GDP is

influenced by the shocks of other variables in the model. It assumed 100% in the

first period and its standard error is 27885.86. In the second period, the value it

assumed was 93% and its standard error is 37138.19. In the tenth period, the

value GDP assumed was 70% and its standard error is 51398.46. It means that

transmission of shocks from FDI-sectoral inflows cause change on Nigeria

47

economic growth. We reject the null hypothesis; hence the hypothesis is

statistically significant.

5.2 CONCLUSION

This study verified that most of foreign direct investments in Nigeria are in

extraction industry that is it is resource-seeking investment. Resource-seeking

investment is usually directly ties to the presence of natural resources or their

processing. On this ground, other motives for foreign direct investment such

market-seeking investment, efficiency- seeking or cost reducing investment and

strategies asset and capacity –seeking investment attract less attention in Nigeria.

In addition, our study emphasized that the cause of skewed income

distribution that the country is one of the most unequal societies is one world,

with 30% of the population having only 8% of the national income due to

unbalanced growth in sectoral inflow of FDI in Nigeria

Again, the problem therefore does not tie so much with the magnitude of

investment in which it is given. We could emphasize that foreign investment

contribute much to the economy primarily to capital supply than to investment

projects. Foreign investment can be very effective if it is directed at improving

and expanding managerial and labour skills. In other words, the task of helping a

“poor beggar” can be made less generous and yet more fruitful if it is directed at

teaching him a trade rather than giving him food to eat. In-conclusion, in order to

further improve the climate for foreign investment in Nigeria these policy

recommendations should be considered.

5:3 Policy Recommendations

48

The following policies are hereby recommended to policy makers and

government, as foreign investment contributes to the growth and development of

Nigeria.

a) The Nigerian government should encourage the inflows of foreign direct

investment and contact policy institutions that can ensure the transparency

of the operations of foreign companies within the economy.

b) In evaluating foreign direct investment, the screening process should be

simplified and improved upon. For example, export investment projects

that consistently generate positive contribution to national income can be

screened separately and swiftly, while projects in import competing

industries should be screened separately.

c) Efforts should be made to engage in joint ventures that are beneficial to the

economy. Joint ventures provide for a set of complementary or

reciprocating matching undertakings, which may include a variety of

packages ranging from providing the capital to technical cooperation. The

government should intensify the policy to acquire, adopt, generate and use

the acquired technology to develop its industrial sectors.

d) Efforts should continue, this time with more vigor at ensuring consistency

in policy objectives and instruments through a good implementation

strategy as well as good sense of discipline, understanding and cooperation

among the policy makers.

e) The Nigerian government needs to come up with more friendly economic

policies and business environment, which will attract FDI into virtually all

the sectors of the economy.

f) The Nigerian government needs to embark on capital project, which will

enhance the infrastructural facilities with which foreign investors can build

on.

49

g) The current indigenization policy should be pursued to the latter as a way

of preventing absolute foreign ownership in the key sector of the economy.

h) The Nigeria government should also carry out the liberalization of all the

sector of the economy so as to attract foreign investors, so that the current

efficiency and growth noticed in the telecommunication sector can also be

enjoyed there.

i) For Nigeria to generate more foreign direct investments, efforts should be

made at solving the problems of government involvement in business;

relative closed economy; corruption; weak public institutions; and poor

external image. It is therefore advised that the government continues with

its privatization programme, external image laundry, seriousness and

openness in the fight against corruption, and signing of more trade

agreements.

50

REFERENCES

Aitken, B., A.E. Harrison and R. Lipsey (1999) “Do domestic firms benefit from

foreign direct investment?” American Economic Review,89:605-18

Aitken, B., G.H. Hansen and A. Harrison (1997) “Spillovers, foreign Investment

and export behaviour” Journal of International Economics 43:103-32

Anyanwu, J.C (1998). “An Economic Investigations of the Determinants of FDI

in Nigeria” proceedings of the 1998 NES Annual Conference, pp 219-

241

Asiedu, E. (2003), “Policy reform and Foreign Direct investment to Africa

Absolute Progress but relative Decline” ,Mimeo Department of

Economics, University of Kansas United States

Asiedu, E. (2001), “Policy reform and Foreign Direct investment to Developing

countries: Is Africa Different?” World Development, 30 pp 107-199

Barro, R.J. & X. Sala-I- Martin (1992) “Convergence” Journal of political

Economy Vol.100: pp223-251.

Barro, R.J. (1991) “Economic Growth in a Cross-section of countries” Quarterly

Journal of Economics, Vol.106: pp407-443.

Bhagwati, J. and Srinivasan, T. N. (2001) Trade and Poverty. American

Economic Review paper and proceedings may

51

Bhattacharya, A; P.J. Montiel & S. Sharma (1995) “private capital inflow to sub-

Sahara Africa: An overview of Trends and Determinants”. (unpublished

paper)

Blomstrom, M. (1986) “Foreign Investment and productive efficiency: the Case

of Mexico” Journal of Economic Survey 12(13) 247-77

Blomstrom, M. and F. Sjoholm (1999). “Technological transfer and spillover:

Does Local Participation with multinationals Matter?” European

Economic Review

Borensztein, E. (1990) “Debt Overhang, Credit Rationing and Investment”

Journal of Development Economic 32 pp 315- 335

Cantwell, J. (1997) “Globalization and Development in Africa”. In Dunning, J

and Hamdani, K. the New globalism and developing courtries UNU

press.

Central Bank of Nigeria (2004) Annual Report and Statement of Account Abuja

Nigeria-www.centbank.org

Cherry, J. (2001) Korean Multinationals in Europe: Richmond Curzon

Claessens, S., M.P. Dooley and A. Warner (1995) “Portfolio Capital Flows-Hot

or cold?” The World Bank Economic Review 9(1): 155-175.

52

Cobham, A. (2001) “Capital Account Liberalization and Impact on the

poor”paper produced for Oxfam and Bretton-wood Project.

Collier, P. and Patillo, C. (1999) Reducing the Risk of Investment in Africa

Mcmillan Collier, Paul. (1994) “The marginalization of Africa”, Center for the study

African Economics, Mimeo

Cotton, L. and U. Ramachandram (2001) “Foreign Direct Investment in

Emerging Economic Development” working paper No 196. Central Bank

of Chile santiago

De Gregorio, Jose (2003) “The role of foreign direct investment and natural

resource in economic development’ working paper No 196 Central Bank

of Chile Santiago

Dunning, J. (1993) Multinational Enterprises and the global economy, Reading

Addison Wesley Publishing Company.

Dunning, J.H. (1999) Re-evaluating the Benefits of foreign Direct Investment in

Alliance capitalism and global business, JH. Dunning: London

Rentledge.

Elbadawi, I.A. & F.M. Mwenga (1997). “Regional Integration and Foreign Direct

Investment in Sub-Saharan Africa” AERC working paper Nairobi

African economic Research consortium.

53

Estrin, S. (2003) “Foreign Direct Investment in Egypt, India, South Africa and

Vietnam: An overview” DRC working paper s No. 17, center for New

and Emerging Markets, University of London.

Froot, K.A. and J.C. Stein (1991) “Exchange Rate and FDI: An Imperfect capital

Market Approach”, The quarterly Journal of Economics 106(4)1191-217.

Globerman, S. (1979) “Foreign Direct Investment and spillover efficiency benefit

in Canadian”. Journal of Economics, 12:42-56

Grossman, G. M. and Risan, AssaF. (1985) “Direct Foreign Investment

and The Choice of technique under uncertainty” ,Oxford Economic papers

37

Grossman, G.M. and Risan, AssaF. (1984) “International Capital

Monuments under uncertainty” The Journal of Political economy.

Vol. 92. Issue 2, 286-306.

Hanson, G.H. (2001) should countries promote FDI? G – 24 Discussion Paper 9. Hausmann, R. & E. Fernandez- Arias (2000), “The wave of capital inflows:

Sea change or Just Another Title?” Inter-American Development

Bank Working Paper 417.

Hecht Joel, Assaf Razin, & Nitsan Shinar (2002), “capital inflows and

domestic Investment: New Econometric Look” Mimeo bank of Israel.

54

Imbriani, C and F. Reganati (1997) “International efficiency spillovers into the

Italian Manufacturing sector” English summary. Economia Internazioale

50 :583-95

Jerome, A. and J. Ogunkola (2004) “Foreign direct investment in Nigeria:

Magnitude, Direction and prospects” paper presented to the African

Economic Research Consortium special seminar series Nairobi April.

Kearney, A.T. (2000) “FDI Confidence Index, Global, Business Policy Global”

Business policy Council, January 2000 Vol. 3

Kenworthy, J.L. (1997) Foreign Direct Investment in Egypt: Problems and

Prospects as part of the development economic Policy Reform Analysis

project for USAID and the Minister of Economy and International

Cooperation. Cairo Egypt.

Kokko, A. (1994) “Technology, market characteristics and spillovers” Journal of

Development Economics vol.43 pp 279-93.

Lall, S. (1983) ‘Is African Industry Competing “QEH working paper 121 Oxford

Queen Elizabeth House.

Lim, E. (2001) “Determinants of and relationship between foreign

Investment and Growth: A summary of Recent Literature” IMF working

paper No. 175 international Monetary Fund, Washington, D.C.

55

Lipsey, R. E. (1999), “The location and characteristics of U.S. affiliates

in Asia,” NBER working paper 6876

Lonugani, P. Ashoka Mody, Assaf, Razin, & Efraim Sadka, (2003); “The Role of

International in driving FDI theory and Evidence” paper presented in the

North American Winter Meeting of the Economic Society on January 3-

5,2003.

Loree, D.W and Guisinger (1995) “Policy and Non-policy Determinants of U.S

Equity Foreign Direct Investment” Journal of business Studies Vol. 26(2)

pp 281- 299. Lucas, Robert E (1990) “Why Doesn’t capital flow from Rich to poor

Countries?” America Economic Review 1990 Vol.80 No.2.

Marr, A. (1997) ”Foreign Direct Investment flows to low incomes Countries “:

An Review of the Evidence ODI Briefing paper(3) September.

Meyer, K.E, Estrin, S. Bhanmick, S. Gelb, S. (2002), “Foreign Direct Investment

in Emerging Markets: A comparative study in Egypt, India, South Africa

and Vietnam: paper presented at the 6th conference of the European

Association for comparative Economic studies(EACES) Forli Italy, June

2002.

Moosa, I.A. (2002) Foreign Direct Investment Theory, Evidence and

Practice. New York, Palgrave.

56

Morrisset, J. (2000) Foreign Direct Investment in African: Policies also

Matter. Transnational Corporations 9(2) p. 107 – 125

Ngowi, H.P. (2001) “Can Africa increase its Global Share of Foreign Direct

Investment?” West – Africa Review 2(2).

Obwona, Marios B. (2001) “Determinants of FDI and their Impact of Economic

Growth in Uganda”. African Development Review 2001. Blackwell

publishers Oxford U.K pp46-80.

Obwona, Marios B. (2004) “Foreign direct investment in Africa” In

Financing pro – poor Growth: AERC senior policy seminar VI, Kampala,

Uganda, 2 – 4 March 2004 seminar papers pp. 60 – 95 Narobi: African

Economic Research Consortium.

Pigato, A. Maria (2000). “Foreign Direct Investment in Africa: Old Tales and

New Evidence”. ARWPS 8, African Region working paper series:

Washington, DC World Bank.

Pindyk, R. (1991), “Irreversibility: Uncertainty and Investment” Journal of

development EconomicsLiterature,39(3) pp1110-1148..

Razin, A. (2002) “FDI flows and Domestic Investment: overview”

Sala-I-Martin, X. and Subramanian, A. (2003) “ Addressing the Natural Resource

Curse: An Illustration from Nigeria” Natioal Burean of Economic

Research, NBER Working Paper No 9804. in edition of Nwankwo, A.

57

2004 “ The Determinants of foreign Direct Investment Inflow (FDI) in

Nigeria” October 15th 2006 Gutman Conference Center, USA.

Shiro, A. (2005) “ The Impact of foreign Direct Investment on the Nigerian

Economy” Department of Finance University of Lagos.

Sachs, J.D. (2004) Ending Africa’s poverty trap Brookings paper on

Economic Activity 1 p.117 – 240.

Schneider, F and B. Frey (1985) “Economic and Political determinants of

Foreign Direct Investment” World Development 13(2) pp.161 – 175.

Senbet, W. Lemma. (1996) “Perspective on African Finance and Economic

Development, Vol. 2 1:1 – 22.

Shapiro, D. and S. Globerman (2001) National Infrastructure and foreign

Direct investment, Mimeco Simon Fraser University.

Sjoholom, Fredrick. (1999). “Technology Gap, competition and Spillovers from

FDI: Evidence from Establishment Data” Journal of Development

Studies, 36 (1) 53-73.

Smarzynska, B.K. (2002) “Does foreign direct investment increase the

Productivity of Domestic firms? In search of spillovers through backward

linkages” policy Research working paper No 29 the World Bank,

Washington, D.C.

Sim, C.A. (1980) “Macroeconomics and Reality” Econometrica, 48 (10) pp48

58

Snowdon, B. (2005) A Global Compact to End poverty: Jeffery Sachs on

Stabilization, Transition and Weapons of Mass Destruction World

Economics 6(4).

Taylor, M.P. and L. Sarno (1997) Capital flows to Developing countries:

Long and short term Determinants. The world Bank Economic Review.

11(31): 451 – 470.

Tsai, P.L. (1994). “Determinants of Foreign Direct Investment and Its Impact on

Economic Growth,” Journal of Economic Development. 19 pp 137-163.

UNCTAD (2000) Capital flows and Growth in African. New York United

Nations.

UNCTAD (2001, 2003) World Investment Report Geneva United Nations

Conference on Trade and Development.

United Nations conference Trade and Development (2005) Economic

Development of Africa: Rethinking the role of foreign direct investment

New York and Geneva.

United Nations Conference Trade and Development (2004) Economic

Development in African, Debt sustainability: Oasis or Mirage New York

and Geneva.

World Bank (1998) World Development Indicator 1999, 2004 CD – Rom.