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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The role of Foreign Direct Investment on economic growth has been vigorously debated in the literature. Some studies are of the view that Foreign Direct Investment (FDI) contributes positively to the growth of the economy (Adegbite and Ayadi, 2011; Koojaroenprasit, 2012; Onu, 2012; Adeleke, Olowe and Fasesin, 2014; John, 2016; and Ali and Hussain, 2017), while some are of the view that FDI only contributes small and it is not significant (Akinlo, 2004; Louzi and Abadi, 2011). However, the attributes of FDI in any economy of the world cannot be over-emphasized. FDI refers to an investment made by an investor either corporate bodies or individuals in a country other than the domestic country of origin of the investor in creating business or buying an asset in the country. (John, 2016) posits that foreign direct investment is seen as a process of moving technology and capital from a nation either developed or developing countries to another nation. (Farrell, 2018) posits that foreign direct investment refers to the package of technology, capital, management, and entrepreneurship that firm uses to operate and provide goods and services in a foreign market. In Africa, Nigeria is the third host economy for FDI, behind Egypt and Ethiopia. Some of the investing countries in Nigeria are the USA, United Kingdom, China, the Netherlands and France (UNCTAD, 2018). Nigeria FDI flows in 2017 dropped by 21% to reach 3.5 billion USD which could be as a result of political instability, lack of transparency widespread corruption and poor quality of infrastructure (UNCTAD, 2018). However, this study tends to re-examine the impact of foreign direct investment on economic growth in Nigeria. The relevance of FDI cannot be overemphasized. Its significant influence on the provision of new technologies, products, management skills and competitive business environment, overtime has been a strong impetus for economic growth. Many countries of the world, especially emerging economies favor policies that encourages the inflow of FDI because of it positive spillover associated with the provision of funds and expertise that could help smaller companies to expand and increase international sales and transfer of technology thus, forming new varieties of capital input (i.e. flow of services available for production from the stock of capital goods e.g. equipment, structures, inventories etc.) that cannot be achieved through financial investments or trade in goods and services alone. Nigeria is one of the economies with great demand for goods and services and has attracted many FDI over the years since the discovery of crude oil. According to the World Bank, from 1970 to 1979, Nigeria recorded an average ratio of FDI net inflow of about 1.579 to GDP while from 1980 to 1989, the average ratio of FDI net inflow to GDP recorded stood at 1.947. Thus, in 1994 and 1993, the country made a remarkable record of 8.28 and 6.3 respectively. Since 1993 and 1994, the record was not an issue to contend with. To the greatest dismay, from 1995 to 2010, FDI, net inflow as % of GDP in Nigeria has not gone beyond 4.0 except in 1996, 1997, 2005 and 2009 the country made a record of 4.51, 4.25, 4.44 and 5.08 respectively. World Bank research contained in global development finance 2008 shows that Thailand attracted $9.6 billion in 2007 while Nigeria attracted just about $6.03 billion. Also, CBN (2010) annual report also indicated that total FDI inflow into the Nigerian in 2010 was about $5.99 billion. The breakdown of the amount according to the report shows that FDI portion was just 12.2 percent or $668 million. This represents a 78.1 percent drop from $3.31 billion in 2009. In light of the above, many Nigerians are lost in guesses of the likely causes of the insignificant inflow of FDI into the country. This has been a source of worry to both policy makers and government authorities. Amidst, (Asiedu, 2005) asserted that the level of FDI attracted by Nigeria is indifferent compared with the resource based and potential need, taken into cognizance of the fact that Nigeria is the 8th ranked most populous nation and 32nd biggest economy in the world (CIA World fact book) with the endowment to do better than its counterpart South Africa as the Africa biggest economy following the statement of investment giant Morgan Stanley.

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