FOREIGN DIRECT INVESTMENT AND POVERTY REDUCTION IN NIGERIA (REGRESSION ANALYSIS USING OLS)

ABSTRACT

Developing countries all over the world 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 2007-2017.

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 makers, especially trade and FDI policies must be checked in order to make FDI growth enhancing in Nigeria.

CHAPTER ONE

Introduction

1.1 Background of the study

The importance of foreign capital to developing countries is well known. It supplements their 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 the growth poverty vicious circle, and there lies Nigerians hope. The Nigerian government hopes that Foreign Direct Investment (FDI) can make up for domestic capital shortfalls, provide technology, managerial skills, facilitate access to foreign market and generate both technological and efficient spillovers to local firms.

By providing access to external markets, transferring technology and building capacity in the local firms generally, Foreign Direct Investment (FDI) is expected to improve the integration of the continent global economy, spur economic growth and alleviate poverty. Direct foreign investment has been characterized as the best form of foreign finance. The packages of Foreign Direct Investment (FDI) come with finance, technology and highly skilled personnel (Lall and Streeton 1977).

Indeed in the case of Nigeria as in 3rd world countries Foreign Direct Investment (FDI) was the main channel through which their import-substitution industrialization strategies were prosecuted. It is widely believed that given the appropriate host-country policies and a basic level of development, benefits that might accrue from Foreign Direct Investment (FDI) include employment creation, the acquisition of new technology and knowledge, increased tax revenue from cooperate profits generated by Foreign Direct Investment (FDI). All of these form of benefits are expected to contributed to higher economic and employment growth, which is the most important and effective tool for achieving improvements in human well-being for alleviating poverty in Nigeria. Although, the impact of Foreign Direct Investment (FDI) on poverty alleviation depend principally on many factors such as host country policies and institutions.

The most efficient way Foreign Direct Investment (FDI) help in alleviating poverty is the widening access to employment opportunities. The ability of Nigeria to alleviate poverty depends on adequate inflow of foreign investment resources. The country has been experiencing difficulties in her effort to alleviate poverty for decades now. At present, majority of Nigerians are living below the poverty level. Consequently given the low level of per capital income characterizing the less developed economies, the traditional model of economics assumes that average and marginal consumption propensities are high, savings are low and that the formation of new productive capital is restricted.

1.2 Statement Of The Problem

Poverty incidence in Nigeria despite the enormous Foreign Direct Investment (FDI) flows into the country aimed at improving the economy and consequently reducing poverty (Ogunniyi and Igberi, 2014; Oni, 2014). FDI inflows have been rosy and increasing at a modest rate. Presently, the country is the most favoured destination of foreign capital in Africa, gulping more than 15% of total FDI flows into the continent (UNCTAD, 2012).

However, as a missing gap in the literature, which this study intends to fill, an answer has not been given to the poverty FDI inflows nexus in Nigeria particularly the influence of some selected macroeconomic variables or indicators like Foreign direct investment, External earnings, Trade openness, Market size, Exchange rate, External debt, Foreign aids and technology on poverty reduction in Nigeria. This literature gap thus warrants an empirical probing to ascertain the influence of these selected macroeconomic indicators on poverty reduction in Nigeria.

1.3 Objective Of The Study

The objectives of the study are;

To ascertain the relationship between foreign direct investment and poverty reduction in Nigeria
To determine if FDI has impacted on Poverty reduction in Nigeria.
To ascertain if FDI granger cause poverty in Nigeria and vice versa

1.4 Research Questions

Has FDI impacted on poverty reduction in Nigeria?
Is there any significant relationship between FDI and the poverty level in Nigeria?
Does FDI granger cause poverty in Nigeria and vice versa?

1.5 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H0: There is no relationship between foreign direct investment and poverty reduction in Nigeria

Ha1: There is relationship between foreign direct investment and poverty reduction in Nigeria

H02: Foreign Direct Investment do not have a significant impact on poverty reduction in Nigeria.

Ha2: Foreign Direct Investment do not have a significant impact on poverty reduction in Nigeria.

1.5 Significance Of The Study

The study will be significant to Nigeria government, students and the general public. The ability of Nigeria to alleviate poverty depends on adequate inflow of foreign investment resources and the security free of the country for investment. The study will also serve as reference to other researchers that will embark on this topic

1.6 Scope And Limitation Of The Study

The scope of the study covers foreign direct investment and poverty reduction in Nigeria. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 Definition Of Terms

Foreign Direct Investment:

A foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control.

Poverty:

Poverty is the scarcity or the lack of a certain amount of material possessions or money. Poverty is a multifaceted concept, which may include social, economic, and political elements.

Poverty Reduction:

Poverty reduction, or poverty alleviation, is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows:

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
Chapter two highlights theoretical framework on which the study is based, thus the review of related literature.
Chapter three deals on the research design and methodology adopted in the study.
Chapter four concentrate on the data collection and analysis and presentation of finding.
Chapter five gives summary, conclusion, and recommendations made of the study

…

CHAPTER TWO

2.0 Literature Review

2.1 Introduction

The review of relevant literature is the main topic of this chapter. A literature review covers theoretical and methodological contributions to a certain issue in addition to the state of knowledge at the time of writing. It provides information about the state of the art in relation to the subject you are writing about. It examines the body of work on the chosen subject. The literature evaluation in this study comprises the …

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TABLE OF CONTENTS
PRELIMINARY PAGES

Title page
Approval page
Dedication
Acknowledgement
Table of Contents
Abstract
CHAPTER ONE:

Introduction

1.1 Background of the study

1.2 Statement of the problem

1.3 Objectives of the study

1.4 Research questions

1.5 Hypotheses of the study

1.6 Significant of the study

1.7 Scope of the study

1.8 Limitation of the study

1.9 Definition of the terms

CHAPTER TWO:

Literature Review

2.1 Conceptual framework

2.2 Theoretical frameworks

2.3 Empirical review

2.4 Summary of review of related literature

CHAPTER THREE:

Research Methodology

3.1 Research design

3.2 Research Area

3.3 Population of study

3.4 Sample size

3.5 Sampling method

3.6 Research instrument

3.7 Source of data

3.8 Validity and reliability of the research instruments

3.9 Reliability of the instrument

3.10 Data analysis techniques

CHAPTER FOUR:

Results And Discussions

4.1 Data presentation and analysis

4.2 Test of hypotheses

4.3 Discussion of findings

CHAPTER FIVE:

Summary, Conclusion And Recommendation

5.1 Summary of findings

5.2 Conclusions

5.3 Recommendations

REFERENCES

APPENDIX

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