Econometric Evaluation on the Impact of Foreign Direct Investment on the Economic Growth of Nigeria

Abstract

It has been established that economies in the world are driven by policies. The government, been the centre of policy formulation is therefore saddled with the responsibility of formulating policies that will produce positive impact on the economy. The foreign investment of a nation, been one of the government’s key responsibility has thus been recognized as a major driving force of the economy particularly in the area of globalization. It therefore becomes imperative that the government formulate suitable policies to attract foreign investment. The findings from this study will be useful in this direction. There is an emerging consensus that a conducive macroeconomic policy environment is not only a desideration but is in fact a sine qua non for attracting substantial amounts of foreign investment inflow in a liberalizing and globalizing world economy. Nigeria needs a massive inflow of foreign investment in order to transform its economy, upgrade dilapidated infrastructure and plug on to the electronic age of computers and the Internet. An absolute prerequisite for success is the design and implementation of policies and measures that would make the policy environment investment friendly. In creating a friendly environment of foreign investors, the public sector has a major role to play via its expenditure power. Economic theory suggests that capital will move from countries where it is abundant to countries where it is scarce. This pattern of movement will be informed by the returns on new investment opportunities, which are considered higher where capital is limited. The resultant capital relocation will boost investment in the recipient country and, as summers (2000) suggests, bring enormous social benefits. Underlying this theory is the premise that returns to capital decrease as more machinery is installed and new structures are built, although, in practice, this is not always, or even generally true.

Keywords: Foreign Private Investment, Economic Growth and Public Sector