The Impact of Foreign Direct Investment on Poverty Reduction in Nigeria

Abstract

Many developing countries are competing to attract foreign direct investment with a belief that it can be a tool for poverty reduction because it serves as supplements to domestic savings and it is often accompanied with technology and managerial skills which are indispensable in economic development. Foreign direct investment can contribute in significant ways to breaking of growth – poverty vicious circle and there lies Nigerian hope. The Nigeria government has opened several economic sectors to foreign investors and issued several investment incentives. Since the market oriented economic reforms took place in Nigeria emphasis has been given to attracting FDI. In this study, the relationship between FDI and poverty reduction is analyzed empirically. It is based on secondary data which was collected from the central Bank of Nigeria and the World Bank’s world development indicators. The period covered in the study is 1980-2012. The model was estimated using the Ordinary Least Square Estimation Approach. The results show that FDI has a positive but not significant impact on real per capita income and hence does have the potential of reducing poverty in the country. The insignificant impact on the Nigerian economy may be due to the under development of human capital, backward institutions, crowding out of domestic investment or other reasons which require further investigation, the fact that FDI does not have a significant impact on poverty reduction has an important implication for policy markers, especially trade and FDI policies must be checked in order to make FDI growth enhancing in Nigeria.