Investigating the Interaction between FDI and Human Capital Development on Economic Growth: Evidence form Nigeria

Abstract

FDI among other channels by multinational corporations (MNCs) is considered to be a major channel for access to advanced technologies by developing countries. This study examines foreign direct investment, human capital development and economic growth in Nigeria within a cointegration and error-correction modelling (ECM) framework during the period (1975-2008). The main objectives of this study is to empirically examine the relationship between FDI, HCD and Economic growth in Nigeria and to ascertain the long run sustainability of FDI- induced growth process. The error correction mechanism is appealing because of its ability to induce flexibility by combing the short run and dynamic and the long run equilibrium model in a unified system. Our result show that FDI in Nigeria, has a negatively significant to growth in the long run. This  suggest that the contribution of FDI in to Nigeria  are small in the long run. The negative significant effect of human capital in Nigeria, with overall growth in the long run, this suggest that there is shortage of skilled labour in the country. The ECM coefficient is -0.13 and is not significant. This suggests that the speed to adjust towards equilibrium is not in moderate condition, this shows that the variables does not adjust to equilibrium value within one year.

The diagnostic statistics shows that the equations are well specified. The R² (0.9930) and adjusted R² (0.9816) is very high and this fulfill the condition of goodness of fit. The F-statistics 86.9792(0.0000) is highly significant at 1% critical level, this show that there is significant relationship between the dependent variable and independent variables. The Normality test was conducted and found that the residual is normally distributed ( Jaqua-Bera statistics = 0.4755(0.7884).The model specification (Reset Test) was also conducted and the result indicates that there is no misspecification present  1.6468(0.2458).This shows that the models are well specified. It is then recommended that that appropriate policy should be made to improve on the development of human capital in other to benefit more from the presence of foreign investors in to Sub-Saharan Africa countries and to Nigeria in particular, the linkages between the country and  MNEs need to be strengthened.

Keywords: FDI, Human Capital Developmen, Economic Growth