CHAPTER ONE: INTRODUCTION 1.1 BACKGROUND OF STUDY:

Since the attainment of independent in 1960 various policies of the Nigeria government have been geared essentially towards promoting the growth and development of the Nigeria economy by influencing the trends of gross domestic investment or indirectly through policies aimed at stimulating the flow of foreign finance in the economy. This is so given that in the literature there are divergent views on the nature of effects of foreign direct investment. This has been argued to be the most growth stimulation source of foreign finance in any growing economy. Those that are of the view that foreign direct investment produce positive effects on host economies argue that some of the benefits are in the form of externalities and the adoption of foreign technology, employers training and the introduction of new process by the foreign firms according to Ayadi, (2002) foreign direct investment especially when it flows to a high risk area of new firms where domestic resource is limited.

The first national development plan was launched for industrial trade off and developments however as foreign industrial investors were. Rather apprehensive of the nascent independent administration efforts had to be made not only to alloy their fears of nationalization but also attract additional foreign investment through joint venture with individuals or the state. However Nigeria economy has been one of the important destination points of foreign direct investment in sub-Saharan Africa. The amount of foreign direct investment inflow into Nigeria according to ayadi (2002) has reached US $ 2.23billon in 2003 and it rose to US $ 5.31billons in 2004 (9.13% increase) the figure rose again to US $9.92 billion (87%increasing) in 2005. The figure however declined slightly to US $ 9.44 billion in 2006.

Nigeria is argued to be buoyantly blessed with enormous mineral and human resource but believed to be highly risky market for investment. Also decade of bad governance have almost crippled. The national economy with corruption and misappropriation of fund is becoming the norm rather than expectation. What is the way out of this economic state? Many experts accepted that foreign direct investment. Is a verifiable boaster to kick start the economy. According to Odozi (1995) foreign investment appears to be the most. Crucial component of capital inflows and Nigeria should seek to attract in light of her current economic circumstance. Some scholars are of the view that Nigeria is in need of foreign direct investment as a verifiable boaster of the Nigeria economy while others are of the view that foreign direct investment is a form of neo- colonialism to some extent. However foreign direct investment helps the economic growth of Nigeria.

1.2 STATEMENT OF PROBLEM:

One of the major economic problems in less developed countries (LCD) is low capital formation to finance the necessary investment for economic growth.

Capital was one regarded by most economists as the principal obstacle to economic development and this is lot attentions were paid to capital formation. The role of capital in economic growth is still regarded as very crucial both the theory of ‘big push’ and the concept of ‘vicious cycle’ all a test to the crucial role of capital in the growth process. The theory of ‘big push’ simply state that the stagnant and undeveloped economies need huge and sudden injection of large capital from foreign direct investment.

However in the literature FDI is found to be related to export growth while human capacity building is found to be related to FDI flow.

Most studies on FDI and growth are cross country studies. However FDI and growth debates are country specific. Among Nigeria studies like those by Otepola (2002) oyeyide (2005), Akinlo (2004) examined the importance of FDI on growth for several periods and the channel through which it may be benefiting the economy. In the literature there exist a direct positive link between export growth and the growth of an economy. This growth in export can further be traced down to the level of investment which in most cases can be domestic or foreign investment.

This is so given that foreign capital remains the sure best option of filling the saving investment gap where it exists. Given this fact assessment will be based on the existing link among investment, export, exchange rate and economic growth.

These problems therefore raise the following research question.

1. What is the impact of foreign direct investment to the growth of Nigeria economy?

1.3 OBJECTIVE OF THE STUDY

The objectives of the study are as follow

1. To find out whether or not FDI has a significant impact on the growth of the Nigeria economy.
2. To determine the nature and magnitude of the impact of FDI on economic growth in Nigeria.

1.4 STATEMENT OF THE HYPOTHESIS

H01: FDI has no significant impact on the growth of the Nigeria economy

H02: The nature and magnitude of FDI on economics growth in Nigeria cannot be determined.

1.5 SCOPE AND LIMITATION OF THE STUDY

The focus of the study is to verify if there has been any contribution made toward the economic growth and development of the Nigeria economics via gross domestic product (GDP) through foreign direct investment for the period. (1990-2010)

This study will however be limited to investigate the impact of foreign direct investment on the growth of the Nigeria economy. Finance and time constraint.

1.6 SIGNIFICANCE OF THE STUDY

Finding from the study will be of immense benefits in a number of ways and to different groups of persons.

1. For policy making, the expected result outcome shall serve as a useful guide for future policies as it relates to stimulating growth within th e economy.
2. For further studies, it will serve as a reservoir of knowledge for such academic exercises.

1.7 ORGANIZATION OF  THE STUDY

this study is organized into five chapters. chapter one takes on overview of what is contained in the study such as background of the study, statement of the problem, objective of the study, research hypothesis, significant of the study, scope and limitation of the study and definition of terms.

while  chapter two takes a look at what other scholars has written concerning the subject matter.

The chapter three deals with the source of data, research design, population of the study, sampling and sampling technique and also variable in model, model of specification and model of analysis.

The chapter four is about presentation, analysis of data and interpretation of result and hypothesis testing.

The chapter five give the recommendation, summary, and final conclusion and recommendations of the research work done.

1.8 DEFINITION OF TERMS

INVESTMENT: An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide  income in the future or appreciate and be sold at a higher price.

EXCHANGE RATE: (also known as a foreign-exchange rate , forex rate , FX rate or Agio ) between two currencies is the rate at which one currency will be exchanged for another. It is also

regarded as the value of one country’s currency in terms of another currency.

FOREIGN DIRECT INVESTMENT – FDI’:     A foreign direct investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country.

ECONOMIC GROWTH:   Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product , or real GDP, usually in per capita terms.

GROSS DOMESTIC PRODUCT ( GDP ): is a monetary measure of the value of all final goods and services produced in a period (quarterly or yearly).

BALANCE OF TRADE – BOT: Balance of trade (BOT) is the difference between a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments.

DOMESTIC INVESTMENT:  is the measure of physical investment used in computing GDP in the measurement of nations’ economic activity. This is an important component of GDP because it provides an indicator of the future productive capacity of the economy.