The role of foreign direct investment in economic development: A study of Nigeria
| Published date | 01 March 2011 |
| Pages | 133-147 |
| DOI | https://doi.org/10.1108/20425961201000011 |
| Date | 01 March 2011 |
| Author | Esther O. Adegbite,Folorunso. S. Ayadi |
| Subject Matter | Public policy & environmental management |
World Journal of Enterprenuership, Management and Sustainable Development, Vol. 6, Nos. 1/2, 2010
133
Copyright © 2010 WASD
Abstract: The study investigates the relationship between foreign direct invest-
ment flows and economic growth in Nigeria. The study became necessary because
as never before, the civilian governments since 1999 have employed several strate-
gies to ensure increased flow of FDI into Nigeria because of its perceived benefits
as lauded in the theoretical literature as the panacea for economic underdevelop-
ment. The study utilized simple OLS regression analysis and conducted various
econometrics tests on our model so as to obtain the best linear unbiased estima-
tors. The study confirmed the beneficial role of FDI in growth. However, the
role of FDI on growth could be limited by human capital. The study concluded
that indeed, FDI promotes economic growth, and hence the need for more infra-
structural development, ensuring sound macroeconomic environment as well as
ensuring human capital development is essential to boosting FDI productivity and
flow into the country.
Keywords: Foreign direct investment, growth, human capital, OLS, multicolli-
nearity, autocorrelation, heteroscedasticity, Normality test, macroeconomic, Nigeria,
infrastructural development, correlation
Esther O. Adegbite1 and Folorunso. S. Ayadi2*
University of Lagos, Nigeria
THE ROLE OF FOREIGN
DIRECT INVESTMENT IN
ECONOMIC DEVELOPMENT:
A STUDY OF NIGERIA
INTRODUCTION
Foreign direct investment (FDI) is one of
the standard panacea for economic under-
development in the economic development
literature. FDI has been defined as an in-
vestment made to acquire a lasting man-
agement interest (normally 10% of voting
stock) in a business enterprise operating
in a country other than that of the inves-
tor (where foreign is defined according to
residency and not according to nationa lity)
(World Bank, 1996). Such investments
could take the form of either greenfield
investment (also called ‘mortar and brick’
investment) or merger and acquisition
(M&A) which entails the acquisition of ex-
isting interest rather than new investment.
In corporate governance, ownership of at
least 10% of the ordinary shares or voting
rights is the criterion for the existence of
a direct investment relationship (World
Bank, 1996; Obadan, 2004; Ayanwale,
2007).
1Associate Professor, Dept Of Finance, University Of Lagos, Akoka, Visiting Associate Professor, Redeemer’s
University, Lagos/Ibadan Expressway, Ogun State, Phone: 2348023263322, e-mail: femifunmi1981@yahoo.com.
2*Department of Economics, University of Lagos, Akoka, Nigeria, Phone: (+234) 08028530208,
e-mail: funso123@yahoo.com.
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