Foreign Direct Investment Essay

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Foreign Direct Investment and Economic Growth in Nigeria Folorunso Sunday Ayadi, University of Lagos, Nigeria Most economic rationale for granting special incentives for attracting FDI is based on the belief that FDI bridges the ‘idea gaps’ between rich and the poor nations in addition to the generation of technological transfers and spillovers. Empirical literature however finds controversial, the effects of FDI on productivity growth. This paper contributes to the existing studies by applying the rho’s rank correlation and causality test in exploring the possible links between FDI and economic growth in Nigeria. We determined the contributory factors to FDI and empirically tested the endogeniety theory of FDI. The study concluded that the link between FDI and economic growth in Nigeria is very weak. However, FDI is found to be related to export growth while human capacity building is found to be related to FDI flow. The endogeneity theory of FDI is found unrealistic in Nigeria. The study therefore recommends infrastructural development, human capacity building and strategic policies towards attracting FDI flow. INTRODUCTION Various classifications have been made of foreign direct investment (FDI). For instance, FDI has been described as investment made so as to acquire a lasting management interest (for instance, 10% of voting stocks) and at least 10% of equity shares in an enterprise operating in another country other than that of investors’ country (Mwillima, 2003; World Bank, 2007). Policymakers believe that foreign direct investment (FDI) produces positive effects on host economies. Some of these benefits are in the form of externalities and the adoption of foreign technology. Externalities here can be in the form of licencing agreements, imitation, employee training and the introduction of new processes by the foreign firms (Alfaro,

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