ABSTRACT
This
study investigated the causal relationship between foreign investment inflows disaggregated
into foreign direct investment and foreign portfolio investment inflows and
macroeconomic performance in Nigeria. Most emerging economies around the world
strive to attract foreign investment inflows because of the gap between the
domestic savings and investment especially into the real sectors of
theireconomies. This ismost probably because, foreign investment inflows are
seen as an amalgamation of capital, technology, marketing and management of
resources which are useful in harnessing host country resources. Since
globalization, the flow of foreign investments into emerging economies has
increased and the debate on the effect of these foreign investment inflows on
macro economic performance has also intensified. Nigeria is one of the largest
beneficiaries of foreign direct investment (FDI) and foreign portfolio
investment (FPI) in sub-Saharan Africa. Yet their impact on macroeconomic
performance has not been fully ascertained. It is, therefore, against the
foregoing that this study sought to examine the effect of total foreign
investment inflows on gross domestic product, exchange rate, inflation rate and
interest rate in Nigeria. The study adopted the ex-post facto research
design. Annual time series data for 26 years for the period, 1987 – 2012 were
sourced from the Central Bank of Nigeria (CBN) statistical bulletin. Four
hypotheses were formulated and tested using the ordinary least square (OLS)
regression method. The results revealed that total foreign investment inflows
had positive and significant effect on gross domestic product in
Nigeria;foreign direct investment had negative impact on exchange rate while
foreign portfolio investment had positive impact on exchange rate. Again, total
foreign investment inflows have positive and insignificant impact on inflation
whereas foreign direct investment had positive impact on interest rate and
foreign portfolio investment had a negative impact on interest rate. The study
recommends, among others, that incentives such as tax holidays should be used
to direct foreign investment inflows towards non-oil real sectors of the
economy in order to boost export. This will obviously lead to strongerexchange
rate, lower inflation, and encourage competitive interest rate which will
encourage savings and sustainable economic growth.
CHAPTER ONE
INTRODUCTION
1.2 BACKGROUND
TO THE STUDY
Globalization is the process
through which economies, societies and cultures relate through trade,
transportation and communication. Economic theory clearly points to the
tremendous potential advantages of cross-border capital flows.Neoclassical
economists support the view that capital flow is beneficial because they create
new resources for capital accumulation and stimulate growth in developing
economies with capital shortages. Various types of these flows are welcomed to
bridge the gap between domestic saving and investment that accelerate growth.
Capital flow play significant role in economics. Finance is the life blood of
any enterprise. With sufficient finance, an entrepreneur can get other factors
of production such as labor, machinery/technology, management as well as raw
materials and be involved in any other business activity (Okafor and
Arowshegbe, 2011). According to Fuch-Schtindekn and Herbert (2001), foreign
investments usually have absolute impact on domestic investment, and the
productivity of investment, technology overflow, and household financial
development. Fitzgerald (1998) theoretically argues that higher capital inflows
lower interest rates, which help increase investment and economic growth. On
the empirical side, using data from seventeen emerging economics, Bekaert and
Harvey (1998) find a positive relationship between equity capital flows and key
macroeconomic indicators, including growth and inflation. Evidence from Latin
America and far Eastern economies shows that capital inflows tend to appreciate
real exchange rates, lower interest rates, and increase consumption, investment
and economic growth (Antzolatus 1996; Calvo 1994; Carbo and Hernandez 1994;
Fernandez-Arias and Montiel 1995, Khan and Reinhart 1995).
In contrast, the financial crisis
that came up in Asia, Russia and Latin America have created doubts about the
benefits of capital inflows and emphasized the necessity of capital controls.
Agosin (1994) argues that capital inflows are used to finance imports and
domestic consumption. Rodrik (1998) contends that capital flows have no
significant impact on economic performance once the impact of other variable,
such as education level, the initial level of income, the quality of government
institutions, and regional dummies, are controlled for.
Nigeria as an import dependent
economy needs foreign investment to enhance her investment needs. That is why
since the emergence of democratic governance in May 1999, she has embarked on
some concrete means to encourage cross-border investors into her domestic
economy. Some of these means are: the repeal of laws that are adverse to
foreign investment increase, promulgation of investment laws, introduction of
policies with favorable atmosphere like ease of businesses, fast export and
import processing methods, fight against advanced fee frauds, instituting.....
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Item Type: Ph.D Material | Attribute: 188 pages | Chapters: 1-5
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