FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA
CHAPTER ONE
INTRODUCTION
Background of Study
The economies of the developing countries has of recent been experiencing very torrid times due to low domestic investment thereby, creating shortage in production and rising inflations. Duasa and Kassim (2009) described such countries as struggling to exist in the world ecosphere.
    Investment plays a critical role in dragging a country from lack to surplus. It initiates the growth process of any country by increasing productivity and hence Gross Domestic Product (GDP). Aurangzeb (2012) gave a succinct review of the advantages of investment. He gave a breakdown of investment into domestic and foreign investment. He further went on to show that foreign investment is divided into Foreign Direct Investment and Foreign Portfolio Investment.
 According Aurangzeb (2012) foreign direct investment enhances productivity by bringing competition, cutting-edge innovations and excellent organization skills to increase productivity. He pointed out that with the current rising macroeconomic imbalances, foreign investment has to grow at a faster pace in developing countries. Foreign investment apart from boosting productivity, in recent years the era of globalization has resulted in inter-country relay of finance and deals. This has been crucial in eroding the ill effects of exploding debt accumulation by developing countries. Pelinescu and Radulescu (2009) showed that FDI doesn’t only have a positive effect on the receiving country but also on the giving country. Esther and Folorunsho (2011) have investigated the impact of FDI flows on economic growth in Nigeria. Their study found that FDI had a beneficial impact on the economic growth. However, they also report that the extent to which FDI influences the economic growth positively could be limited by human capital. Zakia and Zaid (2007) have also carried out this study to see the effect in Jordan. They observed that there is a bidirectional relationship between FDI and output.
    Adam (2009) observed that the link between FDI and economic growth can be found in modernization and dependency theories. He argued that since economic growth requires capital investment, FDI could serve as the engine to the economic growth.
    Baghebo and Akpere (2014) while studying the impact of foreign portfolio investment on economic growth as well as the long run determinants of foreign portfolio investment in Nigeria, defined foreign portfolio investment as an aspect of international capital flows comprising of transfer of financial assets such as cash, stocks or bonds across international borders in want of profit. They stated that foreign portfolio investment in Nigeria compared to its nearest sibling (the Foreign Direct Investment) is a relatively new phenomenon in Nigeria and on the increase since the mid-80’s. Onyeisi et al (2016) stated that Foreign Portfolio Investment consists of securities and other fiscal resources inactively held by alien investors. This does not provide the investor with direct ownership of the financial assets and thus no direct management of a company by the alien investors. FPI is a very liquid type of investment it takes away the burden of management from foreigners.
 Economic growth has been measured by Gross Domestic Product which shows the total number of goods and services produced in a country within a particular period usually a year. This has been shown by Adam (2009) that it is one of the variables considered by investors when considering where to invest. This shows that they are both dependent on each other. Investor need to see some positive growth in GDP before investing and developing countries need foreign direct investment to show significant growth in GDP. this study would deviate from the path of other studies in this matter and consider the bidirectional relationship between foreign direct investment, foreign portfolio investment and economic growth.
Statement of the Research Problem
From an economic point of view, the concept of FDI has a very important effect on all economic variables due to the cycle of the economy. Several authors have studied the effect of FDI on economic growth in other countries but the research has been deficient in terms of Nigeria and not very direct. But the FDI depends on the capability in terms on revenue of the foreign internationals and the possibility of making a profit. (Zakia and Zaid, 2007). FPI according to the research of Duasa and Kasim (2009) studying the impact of FPI on economic growth in Malaysia showed that FPI like FDI also has the potential to transform developing countries. Baghebo and Apere (2014) also showed that there is hope for Nigeria using the effectiveness of FPI in attracting more foreign exchange. This study contrast with much of the available studies due its bidirectional approach to investigate the relationship between FDI, FPI and economic growth. This study shall provide the answers to the following questions:
Does foreign direct investment affect economic growth?
Does foreign portfolio investment affect economic growth?
What is the combined effect of foreign direct investment and foreign portfolio investment on economic growth.
Objective of the Study
To examine if there is any relationship between foreign direct investment and economic growth.
To examine if there is any relationship between foreign portfolio investment and economic growth
To observe how foreign direct investment and foreign portfolio investment affects economic growth
Research Hypothesis
H0: There is no relationship between FDI and economic growth.
H0: There is no significant relationship between FPI and economic growth.
H0: There is no significant impact of FDI and FPI on economic growth
Scope of Study
This study would focus on the empirical relationship that exists between foreign direct investment and economic growth in Nigeria. The empirical investigation shall be restricted to secondary data obtained from the Nigeria Bureau of statistics and the annals of the Central bank of Nigeria.
Significance and Relevance of Study
Empirical and theoretical studies have been carried out in the past on this matter by several renowned researchers and interesting conclusions have been arrived at. But there has not been a bidirectional study on the matter in Nigeria. The study is significant and unique and thus bridges the gap of various studies relating to economic growth. This study would show how a developing country can leverage foreign investments in its transformation process from rags to riches.
Limitation of Study
The only limitation to the study is the availability of data and the willingness of Nigeria bureau of statistics to contribute to this study by giving access to data that predates the 90’s.