CHAPTER ONE

INTRODUCTION

1.1 Background to the study

With the emergence of globalization, the world has become more structured

and organized than it has been in the earlier days. This development has

allowed for international trade, foreign direct investment, technology transfer,

hire of greater expertise which in all improves the productivity of a nation.

Trade liberalization is an effort to promote this order and allow the flow of

resources from surplus areas to deficit and remote regions even outside one's

continent. This kind of process is made more potent by multinational

corporations which is a major source of FDI for developing nation.

In a better way, one of the most salient features of today's globalization drive

is conscious encouragement of cross-border investments, especially by

transnational corporations and firms (TNCs). Many countries and

continents (especially developing) now see attracting FDI as .an important

element in their strategy for economic development. This is most, probably

because FDI is seen as an amalgamation of capital, technology, marketing

and management.

Foreign Direct Investment (FDI) is direct investments in the various sectors

of the economy of a nation by foreign nationals or cooperate organizations.

Ogu (2019) stated that Foreign Direct Investment (FDI) is an investment in

the form of a controlling ownership in a business enterprise in one country by

1
an entity based in another country. Foreign Direct Investment (FDI) occurs

when an investor in one country acquires an asset in another country with the

intent to manage the asset. This investment involves not only the transfer of

funds but also the transfer of physical capital, technique of production and

making expertise product, advertising and business practices with the aim to

make profit. According to the World Bank (2017) Foreign Direct Investment

(FDI) is an investment made to acquire a lasting management interest in a

business enterprise operating in a country other than that of the investor.

Thirwall (1994) in Omowumi, (2014), FDI refers to investment by

multinational corporations (MNCs) with headquarters in developed countries.

FDI comprises not only merger and acquisition and new investment, but also

reinvested earnings and loans and similar capital transfer between parent

companies and their affiliates.

Foreign direct investment (FDI) is generally believed to propel economic growth

in developing countries. FDI makes significant contributions to the host

country's development process especially through easing of the constraints of

low levels of domestic savings and investment as well as foreign exchange

shortages. It increases the gross domestic product and generates a stream of

real incomes in the host country. This increased productivity benefits local

income groups through higher wages and expanded employment, lower

product prices paid by consumers, rent to local resource owners, and higher

tax revenue or royalties to the government. Other segments of the economy

2
also benefit through the realization of external economies. » In some cases,

the expanded production leads to penetration into export markets thereby

increasing foreign exchange earnings for the host country. In the same way,

the expanded production from the import-substitution effect can lead to

conservation of foreign exchange. Forward and backward linkages can also

be enhanced in the economy (Obadan, 2004).

The most and strategic factor influencing economic growth in any country is

investment. It is characterized as the main key to increased level of

productivity. A strong correlation between investment and economic growth

has been revealed by both theoretical and empirical studies by

development economists in both developing and developed economics of

the world. Consequently, the most strategic a factor affecting investment is

capital accumulation. Capital accumulation is made possible majorly through

savings. Economic agent (deficit spending unit) borrows the accumulated

savings for investment purposes. In countries where there exists poor savings

habit, what is evident is that, realized savings fall short of desired investment

and hence there will be disequilibrium in the product market which in turn

slow down the rate of economic growth.

Nigeria is a monoculture economy, over depending on the oil sector. This has

also been seen to be responsible for deficiency in investment capital in the

country. Amadi (2002) opined, "With oil as the main source of foreign

exchange, a one-product monoculture economy must be continuously deficient in

3
investment capital. Oil is subject to the vagaries of international capitalism.

Therefore, revenue from it must be subject to serious fluctuations". The above

situation in the country has created saving and foreign exchange gap.

This culminates to a wide gap between the actual domestic investment fund and

the required investment for accelerating economic growth. So foreign capital has

been regarded as an alternative to bridge the gap. Consequently, for any country,

like Nigeria, with this investment gap to achieve a desired rate of economic

growth, FDI has to be given due consideration. This is because FDI provides

funds from other parts of the world to bridge the investment gap. In Nigeria, FDI

has been given prominence by past and present administrations. This is because

they see it as an antidote for slow rate of economic growth, which has been

experienced in the country. The federal government of Nigeria has, since 1986,

embarked on sustained effort to encourage FDI. The most significant of those

policy measures was the introduction of the Structural Adjustment Programme

(SAP), which provided the basis for deregulation of the economy (CBN, 2001).

Essentially, one of the greatest benefits of FDI to the recipient country is the

access to foreign knowledge and technology that the investment often

provides (Desai et al 2005; Obadan, 2004; Cockeroft and Ridell 1991).

Therefore, with more sophisticated technology as well as expertise,

productivity is boosted to a very high j level, there by leading to the growth

of the economy. An economy is said to be growing when there is a

sustainable increase in the production of economic goods and services over a

4
period of time, it is a function of physical capital, human capital, labour force

and technology. Of all these variables, FDI provides all, therefore setting the

pace for an increase in the volume if production and invariably national

income. It can be said to be the increase in the wealth of nation.

Consequently, contrary to the belief that is fast becoming a dogma in the

development orthodoxy, the growth-stimulating effect of FDI is not

automatic but stems from numerous country specific factors such as the

trade policy regime. Similar conclusion is made by Zhang (2001) and Asiedu

(2002) that a conducive environment that comes with more openness to trade

is likely to attract more FDI inflows for faster growth. Starting with the

pioneering paper by Bhagwati (1973) on the theory of Immiserating growth, a

sizeable theoretical literature has explored to explain how the restrictiveness

(openness) of the trade regime conditions the gains from FDI to host

countries (Bhagwati, 1978, and 1994; Brecher and Findlay 1983).

In recent times, trade restrictions and capital control measures has been

imposed as well. In fact, Sunday, Blessing and Odike (2016) stated that in the

1970s and 1980s, several countries in the sub-Saharan Africa, especially

Nigeria imposed trade restrictions and capital controls as part of a policy of

import-substitution industrialization aimed at protecting domestic industries

and conserving foreign exchange reserves.

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1.2 Statement of problem

In 1986, the Nigerian government pursued a structural adjustment programme

(SAP) which shifted emphasis from public sectors to private sectors and the

goal was to encourage private domestic savings and private domestic

investment for capital formation in order to enhance economic growth. The

supposed relationship between capital formation and economic growth is that

through financial services such as savings and deposit mobilization, credit

creation, it increases the accumulation of capital which in turn is expected to

enhance economic growth of the country National Population Commission

and ORC Macro (2004)

However, capital formation in Nigeria has been characterized by fluctuations

which may be responsible for lack or inadequate social infrastructure such as

roads, power supply and health facilities. The speed and the strength of

economic growth in Nigeria have not been satisfactory which contributes

equally to the decline in capital information overtime Oloyede (2001).

For instance, during 1980s, gross fixed capital formation average was 21.3

percent of GDP in Nigeria. This proportion increased to 23.3 percent of GDP

in 1991 and declined drastically to 14.2 percent of GDP in 1996. It picked and

increased to 17.4 percentage in 1997 and average 21.7 during 1997 to 2000. The

gross fixed capital formation rose from 22.3 percent of GDP in 2000 to

26.2 percent in 2002 and declined to 21.3 percent in 2005. The capital

formation rate in 2008 was 0.060 which represent 6% of the GDP Central Bank

6
of Nigeria (2008)By implication, the initial optimism expressed about public

sector reforms has not been met as Nigeria continues to be confronted with low

rate of economic growth. The rate of infrastructure development is very slow in

the country which hinders foreign and domestic investment except in the oil

sector. This is true because FDI is attracted to a quality environment which is

made up of government policies, infrastructural development, security, among

others. In Nigeria, the skills of labor are poor and technologically backward,

thereby hampering the process of new inventions and innovations. Hence low

capital accumulation is the main obstacle faced in achieving the goal of

sustained economic growth in Nigeria. Overall, the empirical evidence on the

performance of capital formation is mixed. While some studies had positive

effects other showed negative effect.

The preference for FDI stems from its acknowledged advantages (Sjoholm,

1999; Obwona, 2001, 2004). The effort by several African countries to

improve their business climate stems from the desire to attract FDI. In fact,

one of the pillars on which the New Partnership for Africa's Development

(NEPAD) was launched was to increase available capital to US$64 billion

through a combination of reforms, resource mobilization and a conducive

environment for FDI (Funke and Nsouli, 2003). Unfortunately, the efforts of

most countries in Africa to attract FDI have been futile. This is in spite of the

perceived and obvious need for FDI in the continent. The development is

disturbing, sending very little hope of economic development and growth for

7
these countries.

Furthermore, the economy is still and essentially bedeviled by large size

and inefficient public sector, low rates of savings and investment, persistent large

budget deficits, and inconsistent macroeconomic environment. All these have

hampered the growth of the economy (Sanni, 2006). Nigerians still remain

expectant to brighter days ahead that improvements in the exchange rate and

interest rate management could make a difference to the economic growth efforts.

However, the observed facts of foreign direct investment and interest rate

management on macroeconomic variables that would culminate into

economic growth are sluggish and not impressive let alone being sustainable.

In this regard, Oweoye and Onagowora (2007) observed that what Nigeria gains

from international trade and domestic investment is 'not consistent with the

reform put in place expected to attain robust result. Accessing of funds for

investment is still a challenge with lending rate being very high compared to

deposit rate in the economy. The end result is that almost four decades of policy

summersault especially in exchange rate and interest rate I management,

the Nigerian economy has not benefited immensely from the processes

Nigeria as a country, given her natural resource base and large market size,

qualifies to be a major recipient of FDI in Africa and indeed is one of the top

three leading African countries that consistently received FDI in the past decade.

However, the level of FDI attracted by Nigeria is mediocre (Asiedu, 2003)

compared with the resource base and potential need.

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Though the economic reforms of the 1980s witnessed some significant level of
development especially in the financial system, there were still so many
unresolved economic problems. In particular, interest rate has remained
extremely high with devastating impacts on the cost of borrowing and
investment in Nigeria, which has been the bane of discouragement of foreign
investment. The exchange rate, which was hitherto at par with US dollar prior to
SAP is now exchanging for about N160 to a US dollar. The anticipated growth of
the economy to absorb the unemployed has remained elusive. Of particular
concern is the expected diversification of the Nigerian economy from the state
of monoculture, which still remains a mirage as the proportion of manufactured
exports to total export is at low level (Soyibo, 2010). The oil sector is still
maintaining its dominant posture as the major source of foreign exchange in the
economy. The real sectors of the economy such as Agriculture and Industry are
consistently declining (Okoroafor, 2010).

1.3 Research Questions:

The following research questions guided the study.
1. What is the relationship between Foreign Direct Investment and
Economic Growth in Nigeria?
2. What is the causal relationship between Foreign Direct Investment and
Economic Growth in Nigeria?
3. What is the impact of Interest Rate on Economic Growth in Nigeria?
4. What is the direction of causality between Capital Stock and the
Economic Growth in Nigeria?

1.4 Objectives of the Study

The main purpose of this study is to assess the extent to Foreign Direct
Investment has affected (either positively or negatively) the rate of economic
growth in Nigeria from 1986 -2021. Specifically, this study sought to examine:

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1. The relationship between Foreign Direct Investment and Economic Growth
in Nigeria.
2. The causal relationship between Foreign Direct Investment and Economic
Growth in Nigeria?
3. The impact of Interest Rate on Economic Growth in Nigeria
4. The causality relationship between Capital Stock and the Economic Growth
in Nigeria.

1.5 Statement of the Hypotheses

The following null hypotheses were formulated to direct the study.

Ho1- There is no significant relationship between Foreign Direct Investment

and Economic Growth in Nigeria.

Ho2. There is no causal relationship between Foreign Direct Investment

and Economic Growth in Nigeria.

Ho3: Labour has no significant impact on economic growth.

Ho4: There is no causality between Capital Stock and the Economic Growth

in Nigeria.

1.6 Significance of the Study:

For some time now the impact of foreign direct investment on the national

economy has become a topical issue in the press, industry and academic circles

especially its impact on the growth of the nation. Some say it's profitable,

while others say it's just a means to enrich the developed countries. The great

importance of foreign direct investments on the economy underscores the need

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to critically examine the consequences of the level of foreign direct investment

on the economy as a well as evaluate the influence of varying interest rates and

capital stocks on economic growth by linking all these variables and conduct a

whole analysis. This study will be of a great significance to policy makers who

are seeking avenues to evaluate the effectiveness and hence help in the policy

monitoring and control process. The study will also be of relevant to Researchers

and students and will contribute to resources available.

Besides, the study will also broaden the knowledge of the researcher on the

topic under consideration.

1.7. Scope and Limitation of the Study:

This study covered on the impact of Foreign Direct Investment, Capital Stock,

Labour Force and Interest rate on economic growth in Nigeria, from the period

of 1986 to 2021. Additionally, all the necessary information for the research

was extracted from CBN Statistical Bulletin. Various variables relating to the

study were sourced therein which enabled the research to give answers to the

questions raised by the study. These variables include, Foreign Direct

Investment (FDI), Capital Stock (CPS), Labour Force (LAB) and Interest rate

(INT) and economic growth using the real gross domestic product (LRGDP).

Their relationship as well as impact on the nation was examined. The choice of

the selected period is informed by the series of Economic reforms, political

reforms and infrastructural reforms that have occurred during the period. For

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example, the Structural Adjustment Program was introduced; Nigeria reformed

its foreign exchange system, covid 19 crisis, business and agricultural

regulations, among others.

During the process of writing this research project work, I was challenged by

many constraints from the point of selection to the process of brainstorming

down to its documentation. These are thus stated below:

1. Data collection constraints: Some of the data's sought for variables did not

have a long-term documentation.

2. Time Factor: Time is one of the limitations in the cause of this research

work because the duration of time to start and complete the work was

short. After writing my first topic, it was cancelled few weeks to the external

defense thereby leaving me little time to prepare this work.

3. Financial Constraint: due to much correction from my previous work, a lot

of finance was expended even before this topic was given. This means a back

log of costs even before beginning.

4. Sleeplessness: During the course of writing this project, the researcher

have some sleeplessness night in order to complete the work within the

allocated time.

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 CHAPTER TWO

REVIEW OF LITERATION

2.1 Conceptual Literature

2.1.1 The Concept of Foreign Investment

There is no universally accepted definition of what constitutes foreign

direct investment. Foreign Direct Investment usually consists of external

resources including technological, managerial, and marketing expertise, in

addition to capital. It usually adds new resources, technology, management and

marketing among others to host economies in a way that improves efficiency

and stimulate change in a positive direction. Sullivan and Sheffrin (2003)

define foreign direct investment as a situation where "one company from one

country making physical investment into building a factory in another country. It

is the establishment of an enterprise. The foreign investor is involved in the

management and control of the physical enterprises in a foreign direct

investment. Foreign Direct Investments may take the form of opening of a

subsidiary or associate company in a foreign country, acquiring a controlling

interest in an existing foreign company, or a merger or joint venture with a

foreign company. According to Oloyede and Obamuyi (2011) foreign

investment is an investment in a foreign country where the investing party

(corporation, firm) retains control over the investment and generally takes the

form of branch, affiliates or subsidiary operation. In other words, control is

exercised by foreign investors. Shiro (2012) stated that foreign investment

13
consist of external resources, including technology, managerial and marketing

expertise and capital.

Okon (2015) on his part defines foreign investment as the acquisition of

physical assets and/or securities of companies by either the nationals or the

government of one country in another. It is a cross-border acquisition of financial

or physical assets. It is the use of funds in the conduct of an enterprise that

distinguishes 'foreign investment' from foreign trade. Odiase-Alegimenlen

described foreign investment as "a means whereby capital, technology and other

managerial expertise are sourced outside the country by a state". Foreign Direct

Investment could be seen as the transfer of capital resources that involve both

ownership and control between countries. It serves as key stimulus for

international economy and globalization. To both the host and home countries,

FDI is essential and a major driver of economic development. In developing

economics, FDI is also considered as a booster of economic growth. This is as a

result of the fact that it influences economic growth by strengthening domestic

investment, enhancing capital formation as well as ensuring transfer of

technology among countries (Falki 2009). Falki, (2009) highlighted

employment increase, augmented productivity, improved export and high rate

of technology transfer as a major effect of FDI on the host economy. He further

claimed that the possible benefit that the host economy could derive from FDI

involve the facilitation of the exploitation and use of local natural resources,

introduction of current tools of organization and advertising creation of easy

14
access to modern skills, provision of external inflow that can be used for finding

current account defiant and the provision of a platform for increasing the stock of

human capital via on- the- job training. The rapid growth of interest in Foreign

Direct Investment (FDI) stand from the perceived opportunities derivable from

utilizing this form of foreign capital injection into the economy, to augment

domestic savings and further promote economic development in most developing

economies (Aremu, 2005). Ebekozien, Ugochukwu and Okoye (2015) in their

analysis of the trends of FDI inflows in the Nigerian construction sector,

posited that to solve these deficiencies the Nigerian government have

established the EFCC, the ICPC and NIPC in other to improve the cooperate

environment. But their study shows that in as much as the industrial sector have a

positive correlation with FDI, it has attracted little FDI into the country. Olokoyo

(2012) stated that Foreign Investment inflow particularly FDI is perceived to have

a positive impact on economic growth of a host country through various direct

and indirect channels. It augments domestic .investment which is crucial to the

attainment of substantial growth and development. The Government have been

trying to lift the country out the economic crisis without achieving success as

desired. Each of these governments has not focused much attention on

investment especially FDI which will not only guarantee employment but will

also impact positively on economic growth and development.

The threshold for a foreign direct investment that establishes a controlling

interest, based on the guidelines established by the Organization of

15
Economic Cooperation and Development (OECD), is a minimum 10%

ownership stake in a foreign-based company, typically represented for the

investor acquiring 10% or more of the ordinary shares or voting shares of

a foreign company.

Nigeria has been a top recipient of Foreign Direct Investment (FDl); Africa. It

has attracted a cumulative $75.4 billion FDI since 1999, and generated $22 4

billion in about three decades earlier. FDI makes a return of 36%.2 In spite of

government’s deliberate attempt to liberalize the business environment to

accommodate the private sector as the engine of growth and diversifying the

economy to accommodate critical non-oil sectors with FDI as the major focus,

FDI inflow to Nigeria has been on the decline. In the 2018 UNCTAD World

Investment Report it was shown that FDT ' Nigeria declined by 21% while

capital flight increased by 8%. Given the constraints in revenue generation

from the traditional revenue sources, FDI remains the most viable option for

Nigeria to stimulate the economy and increase the revenue of base of the

country.

2.1.2 Concept of Economic Growth

Economic growth is simply a sustained Increase in the output of goods and

services of a country over a period of time. It serves as the yardstick by which

the economic performances of a country or different nations are measured.

Therefore a country can be judged as a high performer or a poor performer based

on the rate of economic growth at any particular period of time. The gross

16
domestic product (GDP) is the measure of the flow of output of final goods and

services at either market prices or an adjusted value (i.e real gross domestic

product) resulting from current production during a year in a given country.

GDP is important because it gives information about the size of the economy

and how an economy is performing. The growth rate of real GDP is often used

as an indicator of the general health of the economy. In broad terms, an increase

in real GDP is interpreted as a sign that the economy is doing well. When real

GDP is growing strongly, employment is likely to be increasing as companies

hire more workers for their factories and people have more money in their pockets.

When GDP is shrinking, as it did in many countries during the recent global

economic crisis, employment often declines. In some cases, GDP may be

growing, but not fast enough to create a sufficient number of jobs for those

seeking them. But real GDP growth does move in cycles over time.

The International monetary Fund (2009) and CBN (2010) stated that economic

growth is the increase in the amount of the goods and services produced in an

economy over time. It is conventionally measured as the percent rate of increase

in real gross domestic product, or real GDP (RGDP). Growth is usually

calculated in real term i.e inflation adjusted terms, in order to net out the effect of

inflation on the price of the goods and services produced. The drivers of

economic growth in an economy as posited by Dwivedi (2008) are the quality of

the labour force, natural resources, capital formation, technological

development and political and social factors while Riley (2012) noted that the

17
determinants are growth in physical capital stock; growth in the size of active

labour force available for production; growth in the quality of human capital;

technological progress and innovation; institutions including stable democracy,

maintaining rule of law and macroeconomic stability; and rising demand for

goods and services either led by domestic demand or from external trade.

2.1.3 Concept of Interest Rate

Interest rates are the rental payment for the use of credit by borrowers and return

for parting with liquidity by lenders. Interest rates perform a rationing function

by allocating limited supply of credit among many competing demands.

According to Olusoji, (2013), interest is the payment made by the borrower to the

lender of money loan. It is usually expressed as an annual rate in terms of money

and is calculated on the principal of .the loan. Interest Rate is the price paid for

the use of other capital funds for a certain period of time. In the real economic

sense, however, interest rate implies the return to capital as a factor of

production (Onoh, 2007). According to Kayode (2010), interest rate may be

conceived as a price of a money loan that is liquid capital, which may be

borrowed either for production or even for consumption purposes, or the price

paid for the productive services rendered by capital, its compensation demanded

by the lender of money funds for parting with liquidity. Interest can be defined

as the return or yield on equity or opportunity cost of deferring current

consumption into the future (Uchendu, 2010).

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2.1.4 Concept of Capital Stock.

The rate of growth in Nigeria economy cannot be fully examined without a closer

look at the contribution of capital formation to Nigeria's economic growth. This

is in the understanding that capital formation has been recognized as an

important factor that determines the growth of Nigerian economy. No country

has achieved sustained economic growth without substantial investment in capital

formation. In a bid to attain economic growth around the world, emphasis has

been placed on increased capital formation. Nevertheless, understanding the

determinants of the capital formation is a crucial prerequisite in designing a

number of policy interventions towards achieving economic growth.

Capital formation refers to the proportion of present income saved and invested

in order to augment future output and income. It usually results from acquisition

of new factory along with machinery, equipment and all productive capital

goods.

The neo-classical synthesis, established that for an economic agent, saving plus

borrowing must equal asset acquisition. It follows that in a closed economy

national Saving and domestic investment will always be equal. Thus, a high

rate of capital formation lead to a high rate of productivity which brings

about growth. Capital formation naturally plays an important role in the

economic growth and development process. It has always been seen as

potential growth enhancing player. Capital formation determines the

national capacity to produce, which in turn, affects economic growth.

19
Deficiency of capital formation has been cited as the most serious constraint to

sustainable economic growth Owolabo A, Ajayi (2003). It is therefore not

surprising that the analysis of capital formation has become one of the

central issues in empirical macroeconomics. One popular theory in the 1970s,

for example, was, that of the "Big Push" which suggested that countries needed

to jump from one stage of development to another through a virtuous cycle in

which large investments in infrastructure and education coupled with private

investment would move the economy to a more productive stage, breaking

free from economic paradigms appropriate to a lower productivity stage.

Therefore, people are encouraged to save more than to consume more,

because a growing economy requires a constant flow of fund for investment in

other to assure a supply of capital goods adequate for production of

consumer goods and replacement of obsolete equipment (lyoha MA ;2007).

In these cases, FDI helps to cover the deficits.

Over the years, the growth rate of capital formation in Nigeria has not

been satisfactory. It has always been very low and often negative. In the

drive towards rapid economic growth and the Nigerian vision of being one

of the twenty biggest economies in the world come 2020, expert opinion is

that the economy should be growing at the rate of at least 15 percent per

annum; Soludo CC (2006). Jhingan ML (2006) argued that the rate of capital

formation is low in less developed countries, the reason being that they lack

in those factors which determine capital formation. This brings about

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capacity under- utilization as resources (human and material) are not

adequately mobilized to bring about substantial economic growth. Such

growth can only be possible if there is continuous increase in the capital

stock of the nation to be brought about by massive public and private

investment in the country (lyohaMA; 2007) From the foregoing, it can be

observed that emphasis has been on capital formation as a major

determinant of economic growth. However, there is conventional

perception that the most pertinent obstacle to economic growth is the

shortage of capital.

2.1.5 Concept of Labour

Labour is the human factor in the production process. It refers to the effort

that individuals exert when they produce a good or service. For example, an

artist producing a painting or an author writing a book. Labor itself includes

all types of labor performed for an economic reward, such as mental and

physical exertion. The value of labor also depends on human capital,

which is determined by the individual's skills, training, education, and

productivity. A man is both a consumer and a producer. Productivity is

measured by the amount of output someone can produce in each hour of work.

The income that comes from labor is referred to as wages. Note that work

performed by an individual purely for his/her personal interest is not

considered to be labor in an economic context.

Labour is an important factor not only in production, but in all other

21
economic activities. Classical economists like Ricardo and Karl Marx gave

prime place to labour as the main source of production. Labour is a human

factor and the main source of consumption. Utility is created (Production)

for the satisfaction of his needs. Lord Keynes was of the view that a

stimuli to investment comes via increase in consumption. When

investment increases, income increases which leads to increase in

consumption.

From the productive view-point, labour is either skills or unskilled and a

major source of skilled labour is through foreign direct investment.

Bear also in mind that a production process can either be labour intensive, or

capital intensive. The rate of intensity of a particular project is determined by

the combination of either labour or capital. A project that uses much capital

intensive materials is capital intensive, while that one that uses more of labour

is labour intensive.

Technically sound and intelligent labour serves as a spinal cord of the nation.

Efficient labour force makes proper use of the scarce natural resources of the

country. Sincere, dedicated, devoted, hardworking and intelligent labour force

helps the country to march on the path of development.

22
Table. 1: Trends of Gross Domestic Product and Foreign Direct

Investment (at 1984 constant factor cost) (N million)

Year GDP FDI

1986 71095.9 71095.9

1987 70741.4 70741.4

1988 77752.5 1718.2

1989 83495.2 13877.4

1990 90342.1 .14686.0

1991 94614.1 6916.6

1992 97431.1 14463.9

1993 100015.2 29675.9

1994 101330.0 22292.2

1995 103510.0 75940.6

1996 107020.0 111295.5

1997 110400.0 110456.2

1998 112950.0 80751.2

1999 11640.0 92795.3

2000 120640.0 115955.7

2001 125350.0 132433.7

2002 131489.8 166631.6

2003 136470.0 178478.6

2004 145380.0 249220.6

Source s: CBN Statistical Bulletin (2004)

23
It is obvious from that above review that foreign direct investment and

economic growth are positively related, but the data employed in measuring the

value of Gross Domestic product was not expressed in real term the gap this

present study intend to cover (table 1).

From the table 1, both GDP and FDI in Nigeria have been increasing since

1986. In 1986, GDP was N71,075.9 million while FDI was N735.8 million. In

1990 GDP stood at N90,342.1 million and FDI N686.0 million, in 1995, GDP

was N103,50.0 million and FDI was N95,940.0 million. Again, the figure rose

to N120,640.0 million for GDP and N115,955.7 Million in 2000, the terminal

date of this study 2004 still recorded an increase in both GDP and FDI over the

previous years. GDP was N145,380.0 AND FDI was N249,220.6 million.

One fact that have become clear from the trend is that, both GDP and FDI has

been on the increase since 1986 to 2004. From the work of Eke et al, (2013),

one may conclude that causality runs in both directions.

2.1.6 Interest Rate and the Economy

The interest rate influences inflation indirectly via domestic demand for goods

and services and via its effect on the exchange rate. When the interest rate falls,

it is less profitable for household to save and they will therefore increase their

consumption now rather than wait until later. Borrowing also becomes less

costly, with an associated rise in investment. Higher demand in turn leads to a

higher rise in prices and wages and bond markets in different ways. Lowering

24
rates makes borrowing money cheaper. This encourages consumer and business

spending and investment and can boost asset prices. Lowering rates, however,

can also lead to problems such as inflation and liquidity traps, which undermine

the effectiveness of low rates. Higher interest rates tend to negatively affect

earnings and stock prices (often with the exception of the financial sector).

Any impact on the stock market from a change in the interest rate is

experienced fairly immediately; meanwhile, for the rest of the economy, it may

take about a year to see any widespread impact.

The interest rate has thus several roles to play in the economy and these roles

should be fairly closely linked. The interest rate shall in the short and

medium term contribute to stable inflation and stable developments in

production. At the same time, it shall in the long term also contribute to

equilibrium in the market for real capital. Capital accumulation shall over time

correspond to saving. To achieve this, the real interest rate must not over time

deviate substantially from the return on real capital. Substantial deviations can

give rise to undesirable fluctuations in the markets for real capital that have no

basis in economic fundamentals.

Changes in interest rates can have both positive and negative effects on the

markets. Central banks often change their target interest rates in response

to economic activity raising rates when the economy is overly strong and

lowering rates when the economy is sluggish. When central banks like the Fed

change interest rates, it has a ripple effect throughout the broader economy,

25
affecting both stock and bond markets in different ways.

Lowering rates makes borrowing money cheaper. This encourages consumer

and business spending and investment and can boost asset prices. Lowering

rates, however, can also lead to problems such as inflation and liquidity traps,

which undermine the effectiveness of low rates. Higher interest rates tend to

negatively affect earnings and stock prices (often with the exception of the

financial sector).

Any impact on the stock market from a change in the interest rate is

experienced fairly immediately; meanwhile, for the rest of the economy, it may

take about a year to see any widespread impact.

2.1.7 The Relationship between Population Growth and Economic Growth

Yusufu (2000) has indicated that labour is the most fundamental and dynamic

element in all economic activities, natural development, and social well-being.

Even if the labour concept is restricted to those who actively participate in

economic activity, that process is geared ultimately to identifying and satisfying

the needs for consumer goods and services for the entire population. Whether

the population is static or even declining, economic activity or output cannot in

practice be easily held static. Accordingly, in economic activity, as elsewhere,

progress is the essence of the game; and where it stops progress cannot be

maintained, retrogression begins, with its associated decline in per capita

incomes and in the living and welfare standards of the people. The general

consideration by economists and all persons concerned with the economy,

26
therefore, is the attainment of progressive increase in output, the gross as well

as the per capita gross domestic product, and the improvement of physical,

mental and associated living conditions of the population - in other words

whether expressly stated or implied, the general goal is economic development.

2.2 Theoretical Literature

Several theories of economic growth such as the Endogenous Growth theory,

Neo -Classical Growth theory, Modernization theory, Dependence theory and

Institutional FDI Fitness and Growth theories in relation to this study are

reviewed.

2.2.1 The Endogenous Growth theory

The basic improvement of endogenous growth theory over the previous models

is that it explicitly tries to model technology (that is, looks into determinants of

technology) rather than assuming it to be exogenous. Mostly, economic

growth comes from technological progress, which is essentially the ability of

an economic organization to utilize its productive resources more effectively

over time. Much of this ability comes from the process of learning to operate

newly created production facilities in a more productive way or more

generally from learning to cope with rapid changes in the structure of

production which industrial progress must imply (Verbeck, 2000).

2.2.2 Neo - Classical Growth theory

The neo- classical growth model was devised by Solow and Swan. They

27
developed growth model that scientific innovation or technological change

replaced investment (growth of capital) as the primary factor explain long term

growth and level of technological change is determined exogenously, that is

independent of all other factors including inflation. Gokal and Hanif (2004)

said that in neoclassical economics the theory of growth is built on a concept

of diminishing returns to labourand capital separately and constant returns to

both factors jointly. The determinants of output growth for neo classical

growth theory are technology, labour and capital.

Economists in neo classical growth gave their own explanation about the

relationship between inflation and economic growth. Mudell (1963) has

explained the effect of inflation on economic growth. According to him,

inflation might permanently increase output growth rate by stimulating

capital accumulation, because in response to inflation households would

hold less in money balance and more in other asset. Tobin (1965) also

supported Mundell's idea that inflation is positively related to economic

growth. His argument is that inflation causes individuals to change the

money into other assets, which leads to greater capital intensity and promotes

economic growth.

Contrary to Mundel and Tobin idea, Stockman (1981) developed a model that

shows a negative relationship between inflation and economic growth.

Stockman's model shows that an increase in the inflation rate results in a

lower steady state level of output people's welfare declines. In Stockman's

28
model, money is a compliment to capital, accounting for a negative

relationship between the steady state level of output and the inflation rate.

But it is substitute goods for Mundell and Tobin. In this theory there are

supporters of no relationship between inflation and economic growth.

Sidrauskin (1967) said that an increase in the inflation rate does not change

the steady capital stock and economic growth.

Generally, theoretical review in neo classical growth theory demonstrates

mixed results regarding relationship of inflation and economic growth.

2.2.3 Institutional FDI Fitness Theory:

Institutional FDI fitness theory was developed by Saskia Wilhelms in 1998.

The theory is actually pointing to the important and active role of the

governments in taking economic measures and adapting their public

policies in order to attract foreign investors. The theory noted that the

traditional determinants of FDI that matters for increasing FDI inflows in a

country are the size of the population or the socio-cultural characteristics, but the

institutional variables that can be changed through the action of the

governments are like the laws and their ways of implementation. The capacity

of a country for attracting FDI resides in its ability to adapt - or to fit - to the

internal and external demand of economic agents. In this way, the four types of

institutions capable to adapt are: the governments, the markets, the education

system and the socio-cultural framework. There is a permanent connection

between the four pillars (Wilhelms and Witter, 1998). Government fitness is seen

29
as the economic openness, a low degree of intervention on trade and exchange

rates, low corruption and high transparency, while markets fitness is assumed to

generate a high volume of trade, doubled by low fees and quick access to finance

or energy. The fitness of a country regards its capacity of not only attracting, but

also absorbing and retaining FDI. Therefore, the most attractive countries for

FDI will be those that are more capable to quickly adjust their environment:

seizing the opportunities, responding to threats, enhancing their creativity,

identifying niches for surviving in face of competition. The theory is applicable

to all the economic levels that determine FDI: macro, meso and micro level.

2.2.4 Growth Theory:

Abramovitz and Solow (1911) developed the growth. The growth theory

partitioned economic growth into separable components in the following

order of importance: growth in the supply of labor and capital, improvements

in the efficiency with which they are allocated between sectors in line with

their marginal productivity, and finally sector specific improvements in

technology. Considering this economic growth theory, economy models

may be seen as cases that highlight one important set of barriers to efficient

resource allocation. It has obvious that economic growth in under developed

countries is attributable more to capital accumulation unlike developed

countries it is attributable more too technological change.

2.2.5 The Gap Thesis Theory

According to Todaro (1977) "foreign direct investment is typically seen as a

30
way of filling in gaps between domestically available savings, foreign

exchange government revenue, skills and the planned level of resources

necessary to achieve development targets.

2.2.6 Modernization theory

The Modernization theory is of the opinion that growth in any economy is a

function of their openness to Modernization and the world of globalization. It

acknowledges the need for human capital development and increased

productivity as a tool for economic growth because growth must be sustainable.

They believe that Foreign direct investment is a blessing of globalization and

helps fast track the development of human capital, which will invariably lead to

economic growth.

2.2.6 Dependency Theory

Dependency theory was developed in the late 1950s under the guidance of the

Director of the United Nations Economic Commission for Latin America, Raul

Prebisch. Prebisch and his colleagues were troubled by the fact that economic

growth in the advanced industrialized countries did not necessarily lead to growth

in the poorer countries. Indeed, their studies suggested that economic activity in

the richer countries often led to serious economic problems in the poorer countries.

Such a possibility was not predicted by neoclassical theory, which had assumed

that economic growth was beneficial to all (Pareto optimal) even if the benefits

were not always equally shared. Prebisch's initial explanation for the

phenomenon was very straightforward: poor countries exported primary

31
commodities to the rich countries that then manufactured products out of those

commodities and sold them back to the poorer countries. The "Value Added" by

manufacturing a usable product always cost more than the primary products used

to create those products. Therefore, poorer countries would never be earning

enough from their export earnings to pay for their imports. It argues that if a

nation depends on foreign direct investment, its economic growth would face a

negative impact. The theory opines that FDI creates monopolies in the industrial

sector which results in under-utilization of domestic resources. The corollary is

that FDI produces an economy that is dominated by foreigners and the economy

does not as a matter of fact does not experience organic growth.

According to Aremu (2005), dependency theory maintains that, developing

countries are poor because they have been systematically exploited through:

imperial neglect; overdependence upon primary products as exports to

developed countries; foreign investors' malpractices, particularly through

transfer of price mechanics; foreign firm control of key economic sectors with

crowding-out effect of domestic firms; implantation of inappropriate technology

in developing countries; introduction of international division of labour to the

disadvantage of developing counties; prevention of independent development

strategy fashioned around domestic technology and indigenous investors;

distortion of the domestic labour force through discriminatory remuneration; and

reliance on foreign capital in form of aid that usually aggravated corruption and

dependency syndrome (Amin, 1976).

32
In the same vqin, the dependency theorists have also focused on how FDI of

multinational corporations distort developing nation economy. In the view of

these scholars, distortions include the crowding out of national firms,

rising unemployment related to the use of capital-intensive technology, and a

marked loss of political sovereignty (Umah:2007). It is also argued that FDIs are

exploitative and imperialistic in nature, thus ensuring that the host country

absolutely depends on the home country and her capital. (Anyanwu: 1993). From

the forgoing, dependency theories believe that the participation of developed

countries into developing nations via their FDI or any other means cannot be

expected to produce beneficial result on the developing economies

2.3 Empirical Review

Sunday, Blessing and Odike (2016) empirically investigated the impact of

foreign direct investment on the growth of Nigerian economy over the period,

1981-2014. The study captured foreign direct investment (FDI), government

capital expenditure (GCE), exchange rate (EXR), interest rate (IR) and growth

domestic product (GDP) proxied for economic growth. It employed econometric

tools of unit root test, co-integration and error correction model to analyze the

influence of these variables on economic growth. The study found that FDI has

significant positive impact on the growth of Nigerian economy. Contrary to the

supposed positive impact of GCE to economic growth, the study found that it

exact negative influence which the authors assumed may partly be as a result of

33
high rate of abandoned government capital projects on which large sum of

funds are committed to thereby inhibiting the expected contributions of these

projects to the growth of the economy. The study therefore recommends that

government should ensure stability in the economy in other to attract more

foreign direct investment. On the other hand, for the successive governments to

ensure continuity of policies that have positive impacts in the economy,

hence to see that projects in progress are completed to curb the incessant cases

of uncompleted or abandoned projects. The multiplier effect of this will again

stimulate the growth of FDI and general economic growth.

Samuel, Olufemi, Lawrence and Tony (2017) investigated the effect of interest

rate on Economic Growth of Nigeria. The study adopted an Error-Correction

Mechanism to test for the short - and long - run relationships among the

saving deposit, real interest rate and inflation, ECM is negative and further

test of Granger causality indicates that there is a causal relationship between

SD and GDP and a unidirectional relationship exists between SD and GDP.

Therefore, Savings deposit causes Gross domestic product. The study

recommends that policies which would boost the saving accumulation in

Nigeria that will increase Capital Formation are necessary for economic

growth. This will also enhance lending to the real sector of the economy for

productive economic activities. This could be done by increasing the deposit

rate which would lure the people to deposit their money in banks thereby

increasing the supply of loanable funds. This would lead to a fall in interest

34
rate and eventually rise in investment.

Onu (2012) also studies the impact of FDI on Economic Growth in Nigeria

for the period 1986-2007. He employed multiple regression analysis to

determine the impact of FDI on economic growth in Nigeria. He concluded

that FDI is "an engine of economic growth". And that "the great potentials of

FDI for accelerating the pace of economic progress of Nigeria cannot be over

emphasized. Because of the positive and significant impact of FDI on

economic growth it should be encouraged. He recommended that as part of

encouraging inflow of FDI, the government should overhaul the tax system to

curtail widespread tax evasion and corruption.

Solomon and Eka (2013) investigated the empirical relationship between

Foreign Direct Investment and economic growth in Nigeria. The work

covered a period of 1981-2009 using an annual data from Central Bank of

Nigeria statistical bulletin. A growth model via the Ordinary Least Square

method was used to ascertain the relationship between FDI and economic

growth in Nigeria. The result of the OLS techniques indicated that FDI has a

positive but has insignificant impact on Nigerian economic growth for the

period under study.

Alejandro (2010) explained that FDI plays an extra ordinary and growing role

in global business and economics. It can provide a firm with new markets

and marketing channels, cheaper production facilities access to new

technology products, skills, and financing for a host country or the foreign

35
firms which investment, it can provide a source of new technologies, capital

processes products, organization technologies and management skills and

other positive externalities and spillover that can provide a strong impetus to

regional economic growth.

Adofu I, Abula M (2010) examined the impact of foreign direct investment

on economic growth in Nigeria from 1986-2004. The study employed the

use of ordinary Least Square regression technique. The result shows that

FDI has significant impact on economic growth in Nigeria during the period

under review.

Rekha M. (2011) carried out a research on the short-long run relationship

between capital formation and economic growth. The study Covers a long

time- period from 1950-51 to 2009 in which annual time series data are used in

the analysis. The results showed that capital formation exert influence on

economic growth.

Owolabo A, Ajayi (2013) on stock market and economic growth in Nigeria.

To achieve this Donwa P, Odia J. (2010) studied the impact of globalization on

the gross fixed capital formation in Nigeria from 1980 to 2006 using the

ordinary least square. It was found that globalization proxy by openness was

negatively and insignificantly related to gross.

Solomon and Eka (2013) investigated the empirical relationship between

Foreign Direct Investment and economic growth in Nigeria. The work

covered a period of 1981-2009 using an annual data from Central Bank of

36
Nigeria statistical bulletin. A growth model via the Ordinary Least Square

method was used to ascertain the relationship between FDI and economic

growth in Nigeria. The result of the OLS techniques indicated that FDI has a

positive but has insignificant impact on Nigerian economic growth for the

period under study.

Alejandro (2010) explained that FDI plays an extra ordinary and growing role

in global business and economics. It can provide a firm with new markets

and marketing channels, cheaper production facilities access to new

technology products, skills and financing for a host country or the foreign

firms which investment, it can provide a source of new technologies, capital

processes products, organization technologies and management skills and other

positive externalities and spillover that can provide a strong impetus to

regional economic growth.

In Nigeria, Akinlo (2004) did an empirical study on FDI and growth in

Nigeria. Using ADF, PP tests and correlation analysis, he concluded that FDI

in Nigeria has a positive effect on growth after a considerable lag. His results

suggest that FDI in extractive oil sector might not be growth enhancing as

much as the manufacturing sector. His work also shows that export, labour and

human capitals are positively related to growth. He advised government to

encourage more FDI inflows in productive sectors especially manufacturing.

His study also highlighted the need to stem capital flight which has a serious

negative impact of FDI on short runs.

37
Ricardo, Hwang and Rodrick (2005) argued that Foreign Direct Investment

(FDI) provide a path for emerging nations to export the products developed

economies usually sell, in effect increasing their export sophistication.

Many developing countries pursue FDI as a tool for export promotion, rather

than production for the domestic economy. Typically foreign investors build

plants in nations where they can produce goods for export at lower costs.

Alfaro et al, (2003) found that the contribution of FDI to growth depends on

the sector of the economy where the FDI operates. He claimed that FDI inflow

to the primary sectors, tends to have a negative effect on growth, however, as

for the service sector, the effect of DFI inflow is not so clear. Durharm (2004)

for example, failed to establish a positive relationship between Foreign Direct

Investment (FDI) and growth but instead suggests that the effects of Foreign

Direct Investment (FDI) are contingents on the absorptive capability of host

countries.

Nwankwo et al, (2013) investigated the impact of globalization on foreign

direct investment in Nigeria-since the world has become a global village. The

methodology used is purely descriptive and narrative and the data used is

secondary. It was found out that foreign direct investment (FDI) has been of

increased benefit to Nigeria in the area of employment, transfer of

technology, encouragement of local enterprises etc. But there are certain

impediments to the full realization of the benefits of foreign direct investment.

38
2.4 Summary of Empirical Literature

Under the empirical review, previous researches related to the study were

reviewed, which included studies in foreign direct investment (FDI), Interest

rate (INT), Capital Stock (CPS), Labour Force (LAB) Economic Growth

(LRGDP). It is evident from the review of literature that Foreign direct

investment, capital stock, and labour has a positive relationship with foreign

direct investment and interest rate has a positive relationship with economic

growth while interest rate has a negative relationship with economic growth in

Nigeria. For Foreign direct investment, it was also discovered FDI in extractive

oil sector might not be growth enhancing as much as the manufacturing sector.

2.5 Gap in Literature

Finding a research work on the impact of foreign direct investment on economic

growth is very easy as there are a lot of research in this regard. However, most

of those research are old, thereby obscuring the light of present truth and

keeping the subject in an outdated version and thus rendering policy making

decisions from their conclusion inaccurate and incompatible with the present

economic conditions.

39
 CHAPTER THREE

METHODOLOGY

This chapter presents the research design, theoretical framework, model

specification, method of evaluation, data required and sources, and the

statistical software used in the data analysis.

3.1 Research Design

This study adopted the ex-post facto research design. Ex-post facto research

design provides a systematic and empirical solution to research problems, by

using data which are already in existence. Also, the research design is

appropriate for studies involving events which have taken place. Hence, the

data is a historic (time series) data. In addition, the research design is suitable

for time series data which are not subject to control or manipulation.

However, the design ideally fits this work as it is not possible or permissible

to manipulate the characteristics of the variables under study.

Annual time series data of the study variables: Long-run Gross Domestic

Product (LRGDP), Foreign Direct Investment (FDI), Capital Stock (CPS),

Labour Force (LAB) and Interest rate (INT) were used as extracted from the

Central Bank of Nigeria (CBN) statistical bulletin from .1986-2021.

3.2 Theoretical Framework

The study is anchored on Institutional FDI fitness, Gap-thesis theory, and

Modernization theory.

40
3.2.1 Institutional FDI Fitness Theory

Institutional FDI fitness theory propounded by Wilhems and Witter in 1998

focuses on a country's potential or resources to attracting, absorbing and

retaining FDI. It is a country's ability to meet up to both the internal and

external expectations of its investors, which gives countries the upper-hand in

harnessing FDI inflows.

The theory itself made an attempt to illustrate the meaning of uneven

distribution of FDI distribution between the countries concerned. The

fundamentals of the theory are; Government, size of the market, educational

skills and socio-cultural fitness. First on the pyramid are socio-cultural factors

which according to Wilhelms and Witter (1998) are the oldest and also most

complex of all institutions. The next is education, which the authors affirm to

being necessary in ensuring an attractive environment for FDI as educated

human capital enhances R&D creativity and information processing ability.

The actual level of education is not the requisite for the inflow of FDI into a

given region but on the essential skills needed for the projects to be

undertaken. However, educational skills may affect productivity positively,

effectiveness and the efficiency of FDI operations in the country it is

operating. These influences from education such as the ability to speak,

hear, and understand including other educational skills are keys for attracting

41
FDI.

The third on the pyramid is the market which accounts for a large

percentage of both the economic and financial aspects of institutional FDI

fitness, in the form of machinery (physical capital) and credit (financial

capital). Well-developed and functioning financial markets are hence a

prominent feature in the MNC's investment decision-making process. The

fourth and very important on the pyramid is the Government. The role of a

country's political strength plays the biggest role in attracting FDI.

3.2.2 The Gap Thesis theory

According to Todaro (1977) "foreign direct investment is typically seen as a

way of filling in gaps between domestically available savings, foreign

exchange government revenue, skills and the planned level of resources

necessary to achieve development targets. One of the most popular theories

of the 'Gap thesis' is the Harrod-Domar Growth Model. The model was

developed by Harrod (1948) and Domar (1957) quoted by Todaro. The

Model posits that investment is pivotal in the process of economic growth.

The belief is based on the fact that investment creates income and accelerates

the productive capacity of any economy by increasing Capital Stock. The

model states that so long as investment increases, real income and output

will increase.

42
The Harrod-Domar Model emphasizes the need for new investments in form

additional capital stock - which FDI readily supplies. According to the model,

there is a direct relationship between a country's savings rate(s) and its rate

and its rate of output growth.

3.2.3 Modernization theory

Modernization theory says that since economic growth requires capital

investment, FDI will serve as the engine of economic growth. Modernization

theory highlights that it is knowledge and technological transfers and

capital that are scare in developing countries. It is argued by modernization

theory that FDI plays a dual role by contributing to capital accumulation and

by increasing total factor productivity.

3.3 Model Specification

The model is, however specified as follows:

LRGDP- F(FDI, CPS, LABJNT (3.1)

Expressing the functional relationship in the linear (econometric) form, we have:

LRGDPt = PO + pi FDIt + (32 CPSt+ p3 LABt+ P4 INTt+ ^it (3.2)

Where:
LRGDP = Long run Gross Domestic Product.
FDI = Foreign Direct Investment.

43
CPS= Capital Stock.

LAB= Labour Force

INT= Interest Rate

Where: β0 and μ are the constant and error term respectively

β1, β2, β3 and β4 are the parameters attached to the explanatory variables detailing

their impact on the dependent variables. The inclusion of the error term (μ) in the

model is to capture the impact of other variables that are not included in the model.

3.4 Method of Evaluation

The estimated result will be evaluated subject to three criteria.

1. Preliminary test

2. Economic criteria

3. Statistical criteria

4. Econometrics criteria

3.4.1 Preliminary Test

[Link] Stationarity (Unit Root) Test

The importance of this test cannot be over emphasized since the data used in the

estimation are time -series data. In order not to run a spurious regression, it is

worthwhile to carry out a stationary test to make sure that all the variables are mean

reverting, that is, they have constant mean, constant variance and constant

covariance. In other words, that they are stationary. The Augmented Dickey-Fuller

44
(ADF) test was used for this analysis since it adjusts for serial correlation.

The model is specified as follow:

LRGDP t-1 = β0 +β1 +FDI-1+β2 CPSt-2 +β3 LABt-3+β4INTt-4 (3.3)

Decision Rule: If the ADF test statistic is greater than the MacKinnon critical value at

5% (all absolute term), the variable is said to be stationary. Otherwise it is non-

stationary.

[Link] Cointegration Test

Econometrically speaking, two variables will be cointegrated if they have a long-term,

or equilibrium relationship between them. Cointegration can be thought of as a pre-test

to avoid spurious regressions situations (Granger, 1986). As recommended by Gujarati

(2004), the ADF test statistic will be employed on the residual.

The model is specified as follows;

= Po + Pi FDIt + p 2CPSt + P2LABt+ p2INTt (3.4)

Decision Rule: If the ADF test statistic is greater than the critical value at 5%, then

the variables are cointegrated (values are checked in absolute term).

[Link] Error Correction Mechanism

If there exist a long run relationship (co-integration) among the time series variables,

the Error correction mechanism will be estimated to know the rate at which the

dependent variable returns to equilibrium to the independent variable after some

levels of variations i.e. to derive the numerical value of the magnitude of the short

run dynamics or disequilibrium.

The error correction model is specified as follows:

ALRGDP€t = œ0 + œ∆FDI +œ2∆CPSt+œ 3∆LABt+ œ 4∆INTt+ œaUt-1 +€t

(3.5)

45
Decision Rule: In conducting ECM, the expected sign of the result should be

negative. A positive ECM implies a model misspecification or an indication of

structural changes and will not give us the rate of these change in the dependent and

independent variables

3.4.2 Economic criterion Test (Apriori Test)

These are determined by the principle 'of economic theory and refer to the sign and

size of the parameters of economic relationship.

The expected signs for the parameters associated with the various variables are

shown below;
VARIABLES EXPECTED SIGNS
FDI +
CPS +
LAB +
INT -

3.4.3 Statistical Test of Significance

These are determined by the statistical theory and aimed at evaluating the statistical

reliability of the estimates of the parameters of the model, the most widely used

statistical criteria is the square of correlation coefficient (coefficient of determination

R2), T-Test and F-Test of significance.

[Link] Test for Goodness of Fit

To determine the proportion of variation dependent variable that is attributable to

46
variation in explanatory variable. The value of R 2 ranges between 1 and 0 (i.e.0< R 2

<1). The closer to 1 the better the fit, otherwise the worse the fit.

[Link] t-test of significance

The student t-ratio will be used to test the individual statistical significance of the

| regression co-efficient. A two tail test is conducted at 5% level of significance

and n-k degree of freedom (df). Where n is the number of observation and K

is the parameter estimated.

Decision Rule

The computed (t*) will be computed with the critical t-value (to.025)- If t*>t 0.025, the HO

will be rejected and H I will be accepted. Otherwise, Ho is accepted and HI

rejected

[Link] f-Test of Significance

F - test statistics is used to test the overall statistical significance of the independent

variables. A one tail test conducted at 5% of significance and degree of freedom.

Where;
Vi = degree of freedom (df) for the numerator: vi=k-l.
V2=degree of freedom (df) for the denominator: V2-n-k.
Decision Rule (F-test)

If the F*>F0.05 we will reject the null hypothesis and accept the alternative, otherwise,

the alternative hypothesis HI will be rejected and null hypothesis HO be accepted.

The student T-test is used to test the individual statistical relationship of the

individual regression coefficient.

3.4.4 Econometric Test of Significance (Second order test)

47
[Link] Autocorrelation test: The object of this test is to see whether the errors

corresponding to different observations are serially correlated or not. Uncorrelated

errors are desirable. The Durbin - Watson (D-W) statistics at 5% will be used to test for

the presence of autocorrelation problem. The region of no autocorrelation

remains:

du< d*< (4-du).

Where
du = Upper Durbin - Watson
d* = Computed Durbin - Watson

Decision Rule

If the computed value of Durbin - Watson lies within the no autocorrelation

region, it means there is no presence of autocorrelation problem. But if the Durbin-

Watson computed value lies outside the regions there is the presence of

autocorrelation problem. If it occurs, to avoid the spurious regression associated with

it, we will employ the Heteroscedasticity Autocorrelation (HAC) to remove its

influence in the model.

5. Granger causality test: Although regression analysis deals with the dependence

of one variable on the other, it does not necessarily imply causation. In other words,

the existence of a relationship between variables does not prove causality or the

direction of influence (Gujarati, 2004). The essence of causality analysis, using the

granger causality test, is to actually ascertain whether a causal relationship exists

between two variables of interest.

48
49
3.5 Data Required and Sources

The data required for this study are secondary time series data on government

expenditure in education (GEXPE), inflation rate (INF) and real gross domestic

product (RGDP) ranging from 1981-2019. The data we will be extracting from

Central Bank of Nigeria (CBN), statically Bulletin, 2019 Edition.

50
 CHAPTER FOUR
PRESENTATION AND DISCUSSION OF RESULTS
4.1 Empirical Results

The empirical tests to be performed are the economic, statistical and econometric

tests of time series data. These tests are carried out applying the variables which

make up the study's concern.

4.1.1 Unit Root Test Results

The unit root test was performed based on the following hypotheses:

H0: Variable is non-stationary

HI : Variable is stationary

The results from the Augmented Dickey-Fuller (ADF) test for unit root is presented

summarily below:

51
Table 4.1: ADF Test Result for Stationarity (Unit Root)

Variables At levels At first difference

Order of

ADF Test 5% Critical ADF Test 5% Critical Integration

Statistic Value Value Statistic Value Value

LRGDP -3.718291 -3.562882 - - 1(0)

FDI - - -5.098717 -3.548490 1(1)

CPS - - -5.592509 -3.548490 1(1)

LAB - - -4.446487 -3.548490 1(1)

:
INT - - -5.863031 -3.552973 1(1)

SOURCE: AUTHOR'S COMPILATION FROM E-VIEWS 9.0 (2022)

From Table 4.1, Long-run Real Gross Domestic Product (RGDP) is stationary at

level. That is, it is integrated of order zero; I (0). However, Foreign Direct Investment

(FDI), Capital Stock (CPS), Labour (LAB) and Interest Rate (INT) are stationary at

first difference. .Thus they are integrated of order one; I (1).

Not having a Stationarity time series data implies the absence of short run

relationships among the individual time series data, a result that is expected since most

macro-economic time series data are known to exhibit such behavior.

Since some of the-variables are non-stationary at level form, there is need to conduct a

co-integration test. The essence of performing the co-integration test that although all

the variables are non-stationary at level form, the variables may have a long term

relationship.

4.1.2 Co-integration Test Result

According to Gujarati (2004), a regression involving non-stationary time series

52
variables will produce a spurious (non-meaningful) result. The test for co-integration

is the proof that long-run relationship exists among the time-series data on the

variables employed in the study.

To test for co-integration among the variables, the study employed ADF test on the

regression residuals as proposed by Gujarati (2004). The ADF unit root test on the

residuals work with the same decision rule as unit root test.
The co-integration test result is presented summarily as follows:

53
 Table 4.2: Co-integration Test Result
Null Hypothesis: ECM has a unit root
Exogenous: Constant; Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=8)

t-Statistic Prob*
Augmented Dickey-Fuller test statistic -3.580741 0.0467
Test critical values 1% level -4.252879
5% level -3.548490
10% level -3.207094

*Mackinnon (1996) one-sided p-values.

Augmented Dickey-Fuller test Equation

Dependent variable: D(ECM)
Method: Least squares
Date: 04/19/23 Time: 06:56
Sample (adjusted): 1988 2021
Included observations: 34 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

ECM(-1) -0.799672 0.223326 -3.580741 0.0012
C -5059.977 3892.904 -1.299795 0.2033
@ TREND(“1986) 277.5053 198.1152 1.400727 0.1712
R-squared 0.308468 Mean dependent var -452.4807
Adjusted R-squared 0.263853 S.D. dependent var 10440.32
S.E of regression 8957.691 Akaike info criterion 21.125719
Sum square resid 2.49E+09 Schwarz criterion 21.25719
Log likelihood -356.0827 Hannan-Quinn criter. 21.16844
F-statistic 6.914009 Durbin-Watson stat 1713367
Pro (F-statistic) 0.003289

From the result above, the ADF test statistic (-3.580741) is greater than the 5% critical

value (-3.548490) in absolute terms. This implies that the residuals are stationary (i.e

the variables are co-integrated).

54
 4.1.3 Error Correction Mechanism Regression Result
Table 4.3: ECM Test Result
Dependent Variable: LRGDP
Method: Least Squares
Date: 04/19/23 Time: 08:08
Sample: 19872021
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 3767.627 2264.961 1.663440 0.1074
D(FDI) -0.024596 0.028922 -0.850429 0.4023
D(CPS) 0.465928 0.572348 0.814063 0.4225
D(LAB) -0.961804 0.411216 -2.338927 0.0267
D(INT) -119.4677 353.6032 -0.337858 0.7380
ECT(-1) -0.510727 02.38075 2.145231 0.0408
R-squared 0.332346 Mean dependent var 1.87E-12
Adjusted R-squared 0.189277 S.D. dependent var 9534.636
S.E of regression 8585.001 Akaike info criterion 21.13028
Sum square resid 2.06E+09 Schwarz criterion 21.44135
Log likelihood -362.7799 Hannan-Quinn criter. 21.23766
F-statistic 2.322981 Durbin-Watson stat 1.521433
Pro (F-statistic) 0.060329
SOURCE: AUTHOR’S COMPILATION FROM E-VIEWS 9.0 (2023
From Table 4.3 above, the magnitude of the short run disparity is -0.510727, that is to

say the degree of the short run dynamics is 51.0727%. this shows a relatively high

speed of adjustment to equilibrium after a shock.

4.1.4 A priori Result

The coefficient values of b0, bi, b2, b3 and b4 are 1.663440, -0.850429, 0.814063,
55
2.338927, and-0.337858.

The A priori test results are presented as follows:

Table 4.4: Result of A Priori Test:

Variables Expected Signs Observed Signs Remark

FBI +VE -VE DCWES

CPS +VE +VE CWES

I

LAB +VE -VE DCWES

INT -VE -VE CWES

CWES - conform with expected sign

DCWES - does not conform with expected sign

4.2 Evaluation of Regression Results

4.2.1 Evaluation Based on Economic Criterion

This is concerned with evaluating the regression results based on a priori

expectations. The signs and magnitude of each variable coefficient is evaluated

against theoretical expectations.

The signs of some of the variables coefficients from the estimated model are in line with

a priori expectations whereas some are not in line with a priori expectations. Foreign

Direct Investment (FDI) and Labour (LAB), from the test results, have negative

relationships with the Long-run Gross Domestic Product (LRGDP), as opposed to a

priori expectations. On the other hand, Capital Stock (CPS) has a positive

relationship with LRGDP and Interest Rate (INT) has a negative relationship with

56
LRGDP, both of which conform to a priori expectations. The constant term is

1.663440. Thus, if the independent variables are zero, Real Gross Domestic Product

would be 1.663440.

The coefficients for Foreign Direct Investment (FDI), Labour (LAB) and Interest

Rate (INT) are -0.850429, -2.338927 and -0.337858 respectively. This implies that

holding other variables affecting Long-run Real Gross Domestic Product (LRGDP)

constant, a unit increase in FDI, or Labour or Interest Rate will lead to a -0.850429,or -

2.338927, or -0.337858 unit reduction in LRGDP on the average as the case may

be. On the other hand, a unit increase in Capital Stock (CPS) would lead to a

0.814063 unit increase in LRGDP.

4.2.2 Evaluation Based on Statistical Criterion

Here the R2, the t-test and the f-test are applied to determine the statistical reliability of

the estimated parameters. These tests are performed as follows:

[Link] R2—Result and Interpretation (Measure of Goodness of Fit)

The coefficient of determinations, R 2, from the regression result is given as

0.332346. This implies that 33.2346% of the variation in Long-run Real Gross

Domestic Product is being explained by the variations in Foreign Direct Investment,

Labour, Capital Stock and Interest Rate.

4.2.2,2 t-Test Result and Interpretation

The study also employs the 95% confidence interval or 5% level of significance

(i.e. a=0.05) and df = n-K = 36-5 = 31 as the degrees of freedom.

From the distribution table, to.o25(3I)= 2.042
The result of the t-test of significance is shown in table 4.5 below:

The result of the t-test is presented below and evaluated based on the critical value

57
(2.042) and the value of calculated t-statistics for each variable.

Table 4.5: Result oft-Test of Significance

-VARIABLES t-computed (t*) t-tabulated (ta/2) Conclusion

"FDI~ -0.850429 2.042 Insignificant

CPS 0.814063 .2.042 Insignificant

LAB -2.338927 2.042 Insignificant

INT -0.337858 2.042 Insignificant

Significant (Reject HO; accept HI),

Insignificant (Accept H0).

From the t-test result above, for FDI, t*<t a/2, therefore, the null hypothesis is

accepted. Hence, Foreign Direct Investment is not statistically significant, i.e, it has no

significant impact on long-run economic growth.

For CPS, t*<ta/2. therefore, the null hypothesis accepted. Hence, Capital Stock is not

statistically significant, i.e, it has no significant impact on long-run economic

growth.

For LAB, t*<taj2, therefore, the null hypothesis is accepted. Hence, Labour is not

statistically significant, i.e, it has no significant impact on Ion-run economic growth.

For INT, t*<ta/2, therefore, the null hypothesis is accepted. Hence, Interest Rate is not

statistically significant, i.e, it has no significant impact on long-run economic

growth.

58
[Link] Result and Interpretation of f-Test of Significance

The degree of freedom for the numerator (V1) and for the denominator (V2) are given as

K-1 and N-K

Where
N= sample size
K= number of parameters including the constant term.

V1=5-l= 4, V2=36-5=31, df = (4,31) at 5% level of significance . f 0.05 = 2.69 and F* =

2.322981. Since f*:<fo.o5, the null hypothesis is accepted; hence the conclusion that the

variables FDI, CPS, LAB and INT have no joint influence on economic growth. This

implies that the entire regression plane is insignificant.

Table 4.6: Result of f-Test of Significance:
Computed f-ratio value Critical f-ratio value Result

2.322981 2.69 Statistically insignificant

4.2.3 Evaluation Based on Econometric Criterion

In this subsection, the following econometrics tests of Autocorrelation, Normality, and

Granger causality test are used to evaluate the results of the model.
[Link] Result and Interpretation of Autocorrelation Test

Using the Durbin-Watson statistic, the region of no autocorrelation (positive or

negative) is given as follows:

du< d*<(4-du)

du= 1.724

d*= 1.521433

(4-du)= 4-1.724 = 2.276

59
By substitution, the region becomes:

1.724>1.521433<2.276

Table 4.7: Autocorrelation Test Result

Du d* 4-du Result

1.724 1.521433 : 2.276

: Autocorrelation

present

The result shows that there is the presence of autocorrelation problem in the model as

the computed Durbin-Watson statistic does not fall within the zero autocorrelation

regions.
[Link] Normality Test Result and Interpretation

The Normality test was carried out using the Jarque-Bera test of normality which relies

on the hypothesis that K is close to or exactly 3 and S is close to or exactly 0, thus

making the JB value close to or equal to 0, which is the condition for normal

distribution.
Table 4.8 Result of Normality Test
Skewness Kurtosis Jarque-Bera 1 Probability Test
I
0.866614 4.347566 7.029186 0.029760 ND

Conclusion:

From the normality table, the probability value (0.029760) Jarque-Bera is less than

0.05. Hence, the residuals are not normally distributed.

[Link] Granger Causality Test Result and Interpretation

The essence of causality analysis, using the Granger causality test, is to actually

60
ascertain whether a causal relationship exists between two variables of interest.

Table 4.9: Result of Causality Test:

pairwise Granger Causality Tests
Date: 04/19/23
Time: 06:49 Sample: 19862021
Lags: 2
Null Hypothesis: Obs F-Statistic Prob.

FDI does not Granger Cause LRGDP 34 : 0.40915 0.6680

LRGDP does not Granger Cause FDI 0.24862 0.7815
CPS does not Granger Cause LRGDP 34 0.81142 0.4541
LRGDP does not Granger Cause CPS 1 .22041 0.3098
LAB does not Granger Cause LRGDP 34 0.67506 0.5169
LRGDP does not Granger Cause LAB 0.74699 0.4827
INT does not Granger Cause LRGDP 34 1.50299 0.2393
LRGDP does not Granger Cause INT 4.00993 0.0290

A causality relationship exists where the probability value is less than 0.05. The

Granger causality result in the table above shows that no significant

relationship | exists between Foreign Direct Investment, Capital Stock and

labour and the long-run GDP. A significant unidirectional relationship however

exists between Interest Rate and Long-run GDP. Where Interest Rate granger

causes the Long-run GDP, LRGDP however does not granger cause Interest

Rate.
4.3 Evaluation of Research Hypotheses

4.3.1 Hypotheses one- from the regression result in Table 4.5, the null

hypothesis(Ho) is accepted for the first hypothesis because the t-computed

values are less than' the t-computed value for foreign direct investment. Hence

we accept the null hypothesis and reject the alternative hypothesis. Therefore,

FDI is not a significant variable to determine economic growth of Nigeria

61
over the period of study.

4.3.2 Hypotheses two- from the granger causality test result we, accept

the null hypothesis because the probability value is greater than 0.05. This

which explains that there is no causal relationship between Foreign

Direct Investment and Economic Growth in Nigeria.

4.3.3 Hypotheses three- from the regression result in Table 4.5, the

null hypothesis(Ho) is accepted for the first hypothesis because the t-

computed values are less than the t-computed value for Labour. Hence we

accept the null hypothesis and reject the alternative hypothesis. Therefore,

Labour is not a significant variable to determine economic growth of Nigeria

over the period of study.

4.3.4 Hypotheses four- from the granger causality test result and based

on the decision rule, the alternative hypotheses are accepted while

rejecting the null hypotheses. This explains that Capital Stock has a

causality relationship with Economic Growth in Nigeria.

4.4 Implication of the Results

Having estimated the parameters of the model numerically, with the use of

multiple linear regression on the application of the ordinary least squares (OLS)

and error correction mechanism model, this study reveals that Capital Stock

has a positive relationship with the Long-run GDP. This implies that an

increase in the units of Capital Stock would lead to an increase in the LRGDP.

62
On the other hand, Labour, Foreign Direct Investment and Interest Rate share

negative relationships with the long-run GDP. This implies that increases in

Labouror Interest Rate or Foreign Direct Investment would lead to a fall in long-

run economic growth.

The Granger Causality Result implies that there exists no causality relationship

between Capital Stock and LRGDP; Foreign Direct Investment and LRGDP;

and Labour and LRGDP. However, there is a unidirectional causality

relationship between Interest Rate and the LRGDP. This implies that the past

values of INT can be used to predict the future values of the LRGDP.

63
 CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION

5.1 Summary of findings

This study builds a model to examine the impact of Foreign Direct Investment

on Economic Growth of Nigeria for the period 1986-2021. To carry out this

research work, annual time series data on FDI, Labour, Capital Stock, Interest

Rate and Long Run Gross Domestic Product for the period 1986-2021 were

collected.

The regression result of the study indicates that only Capital Stock among all

the evaluated variables has a positive relationships with Long run GDP, while

Foreign Direct Investment, Labour and Interest Rate have negative

relationships with the Long Run GDP over the period under study.

On the other hand, the t-Test result shows that all the variables under study:

Foreign Direct Investment, Capital Stock Labour and Interest Rate have

insignificant impact on the Long Run GDP of Nigeria over the period covered

in this study.

The result of the Granger causality of this study indicates that no causality

relationship exists between Foreign Direct Investment, Capital Stock and labour

and the long-run GDP. A significant unidirectional relationship however exists

between Interest Rate and Long-run GDP. Where Interest Rate granger causes

the Long-run GDP, LRGDP however does not granger cause Interest Rate.

64
5.2 Conclusion

This study, therefore, concludes that Foreign Direct Investment, Labour and

Interest Rate have negative relationships as well as insignificant impact on

the Long Run GDP in Nigeria. On the other hand, Capital Stock has a

positive relationship with the dependent variable.

There exists a significant unidirectional relationship between Interest Rate

and Long-run GDP over the period covered in the study. On the other hand,

there is no causality relationship exists between Foreign Direct Investment,

Capital Stock and labour and the long-run GDP of Nigeria over the period of

evaluation.

5.3 Recommendations:

Based on the findings of the study, it is therefore recommended that;

1. There is an urgent need for government to examine how FDI inflow is

been channeled and utilized within the country.

2. Also, government should strive to attract FDI through reliable and

attainable economic policies for economic growth. Under this

objective, providing and maintaining an enabling environment is key

to the attainment of greater returns from FDI. Also, other sources

other than oil must be exploited to bring about an increase in FDI.

65
 3. The government should set and maintain expertise laws which

allows for technology transfer and the training of Nigerian manpower.

4. Since Capital stock plays a vital role in affecting Long Run GDP as

compared with FDI, the government must put in measures to improve

its capital stock as this has been a major challenge in previous years.

5. Government should scrape every policy that discourages attraction of

FDI into the country.

5.4 Limitations of the Study

In the course of the study the researcher encountered certain problems

such as limited time and funds. Finance was a major issue that disturbed the

timely execution of this project. The biting economic situation could not allow

the researcher carryout the work as fast' as it had to be done.

5.5 Suggestion for Further Studies

Further research should be carried out on the following:

1. The trend of Foreign Direct Investment in Nigeria in the last twenty years

and the Current state of Foreign Direct Investment.

2. The oil FDI vs others sources.

66
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Aremu, A. J., (2005), Attracting and Negotiating Foreign Direct Investment
with Transnational Corporations in Nigeria Market Links
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Okon, E.E., (2006), 'Foreign Investment and National Security in Developing

Countries under the Globalised Environment: The Nigerian Perspective'
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Akper, P (eds), NAILS, Lagos

Sunday E A, Blessing M V and Odike' A I (2016) Foreign Direct Investment

and Economic Growth in Nigeria: An Empirical Investigation.
HARD International Journal of Economics and Business Management
ISSN 2489-0065 Vol. 2 No.5

Omowumi O I (2014) Foreign Direct Investment In Nigeria. International

Journal of Liberal Arts and Social Science Vol. 2 No. 9

CBN (2014). "Central Bank of Nigeria report on Small and medium scale
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and Economic Growth: The Case of Nigeria. International review of
business of research papers vol 13,1.

Shiro, A.A, (2007), The Impact of Foreign Direct Investment on the Nigerian
Economy, Lagos Journal of Banking, Finance and Economic Issues, Vol.
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Countries under the Globalised Environment: The Nigerian Perspective'
in Foreign Investment in a Globalised World, in Guobadia, A. and
Akper, P (eds), NAILS, Lagos.

Oloyede, J. A. and Obamuyi, T. M, (2000),. 'The Impact of Direct Foreign

Investment on the Nigerian Economy', Nigerian Journal of banking and
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"Labour Force Participation and Economic Growth In Nigeria.

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 AdemolaObafemi Young, (2018), "Impact Of Labour Force Dynamics
On Economic Rowth In Nigeria: An Empirical Analysis Using
ARDL Bound Testing

Alibi, K.O. (2019) The Impact Of Foreign Direct Investment On Economic

Growth In Nigeria.

Adelekekunle M. (2015) "The Impact of Foreign Direct Investment on

Nigeria Economic Growth"

Eli H. Tartiyus, Mohammed InuwDauda.., (2016), "Impact Of Population

Growth On Economic Growth In Nigeria"

Falki, N. (2009). "Impact of Foreign Direct Investment on economic

growth in Pakistan. International Review of Business Research Papers
5(5)"

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case of Nigeria. Bvimsr's Journal of Management Research, 4(1)"

Rostow, W.W.,(1960), The Stages of Economic Growth: A Comparative

Manifesto, Cambridge University Press Sachs. J. (ed) 'Developing
Country Debt and Economic Performace' Volume 1: The
International Financial System (National Bureau of Economic
Research Project Report) University of Chicago Press

A.Z. Faraku, B.K Asare, M. Yakubu..,(2011) "Causality Analysis of the

Impact of Foreign Direct Investment on GDP in Nigeria.

Riskat Oladoyin S. Dauda, Ph.D (2006), "The Impact of Foreign Direct

Investment on Nigeria Economic Growth: Trade Policy Matters'"

Oluwatosin E.O, Adekanye Taiwo.., (2013), "Empirical Analysis of the

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Emmanuel Isaac John, (2016), "Effect of Foreign Direct Investment on

Economic Growth in Nigeria"
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AdofuIllemona, (2010), "Accelerating Economic Growth, The Role Of
Foreign Direct Investment"

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Foreign Direct Investment In Nigeria"

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employment generation in Nigeria. Proceedings of ADVED 2017-
3rd International Conference on Advances in Education and Social
Sciences 9-11 October 2017- Istanbul, Turkey, 1078-1088

69
 APPENDIX I
TIME SERIES DATA ON LONG-RUN GDP TO FOREIGN DIRECT
INVESTMENT, CAPITAL STOCK, LABOUR AND INTEREST RATE
SPANNING FROM 1986-2021
YEAR LRGDP FDI CPS LAB INT
1986 17,180.55 735.8 6.8 196.17 10.5
1987 17,730.34 2452.8 8.2 242.26 17.5
1988 19,030.69 1718.2 10 312.5 16.5
1989 19,395.96 13877.4 12.8 410.77 26.8
1990 21,680.20 4686 16.3 489.77 25.5
1991 21,757.90 6916.1 23.1 584.25 20.01
1992 22,765.55 14463.1 31.2 897.12 29.8
1993 22,302.24 29660.3 47.5 1,244.80 18.32
1994 21,897.47 22,229.20 66.3 1,751.28 21
1995 21,881.56 75,940.60 180.4 3,069.43 20.18
1996 22,799.69 111,290.90 285.8 4,045.32 19.74
1997 23,469.34 110,452.70 281.9 4,374.50 13.54
1998 24,075.15 80,749.00 262.6 4,756.71 18.29
1999 24,215.78 92,792.47 300 5,426.47 21.32
2000 25,430.42 115,952.16 472.3 6,990.62 17.98
2001 26,935.32 132,433.65 662.5 8,150.02 18.29
2002 31,064.27 225,224.76 764.9 11,383.66 24.85
2003 33,346.62 258,388.61 1,359.30 . 13,418.01 20.71
2004 36,431.37 248,224.55 2,112.50 17,938.38 19.18
2005 38,777.01 59.13 2,900.06 22,884.90 17.95
2006 41,126.68 1,882.05 5,120.90 30,063.96 17.26
2007 43,837.39 2,740.98 13,181.69 34,318.67 16.94
2008 46,802.76 8,550.39 9,562.97 39,542.43 15.14
2009 50,564.26 15,640.07 7,030.84 43,012.51 18.99
2010 55,469.35 21,356.30 9,918.21 54,612.26 17.59
2011 58,180.35 42,696.40 10,275.34 62,980.40 16.02
2012 60,670.05 50,862.62 14,800.94 71,713.94 16.79
2013 63,942.85 49,173.64 19,077.42 80,092.56 16.72
2014 67,977.46 49,807.15 16,875.10 89,043.62 16.55
2015 69,780.69 59,056.74 17,003.39 94,144.96 16.85
2016 68,652.43 86,059.84 16,185.73 101,439.43 16.87
2017 69,205.69 130,358.44 21,128.90 113,711.63 17.56
2018 70,536.35 130,062.78 21,904.04 127,736.83 19.33
2019 72,094.09 436.79 25,890.22 144,210.49 15.53
2020 70,800.54 377.99 38,589.58 152,324.07 12.32
2021 73,382.77 1,874.62 42,054.50 173,527.66 11.55
CENTRA BANK OF NIGERIA (CBN) STATISTICAL BULLETIN, 2021 EDITIO
L N

70
 Appendix II
UNIT ROOT TEST FOR LRGDP
Null Hypothesis: LRGDP has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 4 (Automatic - based on SIC, maxlag=9)

t-Statistic Prob*
Augmented Dickey-Fuller test statistic -3.718291 0.0360
Test critical values 1% level -4.284580
5% level -3.562882
10% level 10% -3.215267

*Mackinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(LRGDP)
Method: Least Squares
Date: 04/19/23 Time: 06:37
Sample (adjusted): 1991 2021
Included observations: 31 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

LRGDP(-1) -0.167323 0.045000 -3.718291 0.0011
D(LRGDP(-1)) -0.346501 0.159815 2.168144 0.0403
D(LRGDP(-2)) 0.123643 0.194599 0.635369 0.5312
D(LRGDP(-3)) -0.078871 0.196939 -0.400483 0.6923
D(LRGDP(-4)) 0.515438 0.181760 2.835813 0.0091
C 567.5115 504.2296 1.125502 0.2715
@TREND(“1986”) 337.6935 92.64166 3.645158 0.0013
R-squared 0.614215 Mean dependent var 1667.825
Adjusted R-squared 0.517769 S.D. dependent var 1587.873
S.E of regression 1102.664 Akaike info criterion 17.04453
Sum square resid 29180839 Schwarz criterion 17.36833
Log likelihood -257.1901 Hannan-Quinn criter. 17.15008
F-statistic 6.368483 Durbin-Watson stat 1.858446
Pro (F-statistic) 0.000411

71
 APPENDIX III

UNIT ROOT TEST FOR FDI

Null Hypothesis: D(FDI) has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic Prob*
Augmented Dickey-Fuller test statistic -5.098717 0.0012
Test critical values 1% level -4.252879
5% level -3.548490
10% level -3.207094

*Mackinnon (1996) one-sided p-values.

Augmented Dickey-Fuller test Equation

Dependent variable: D(FDI)
Method: Least squares
Date: 04/19/23 Time: 06:40
Sample (adjusted): 1988 2021
Included observations: 34 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

ECM(-1)) -0.912592 0.178985 -5.098717 0.0000
C 10907.88 20495.74 0.532202 0.5984
@ TREND(“1986) -590.4845 980.3651 -0.602311 0.5513
R-squared 0.456114 Mean dependent var -6.481471
Adjusted R-squared 0.421024 S.D. dependent var 73159.06
S.E of regression 55667.06 Akaike info criterion 24.77626
Sum square resid 9.61E+10 Schwarz criterion 24.91094
Log likelihood -418.1965 Hannan-Quinn criter. 24.82219
F-statistic 12.99861 Durbin-Watson stat 1.971654
Pro (F-statistic) 0.000080

72
 APPENDIX IV

UNIT ROOT TEST FOR CPS

Null Hypothesis: D(CPS) has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic Prob*
Augmented Dickey-Fuller test statistic -5.592509 0.0003
Test critical values 1% level -4.252879
5% level -3.548490
10% level -3.207094

*Mackinnon (1996) one-sided p-values.

Augmented Dickey-Fuller test Equation

Dependent variable: D(CPS)
Method: Least squares
Date: 04/19/23 Time: 06:42
Sample (adjusted): 1988 2021
Included observations: 34 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

CPS(-1)) -1.002255 0.179214 -5.592509 0.0000
C -1240.520 1057.689 -1.172859 0.2498
@ TREND(“1986) 134.0397 54.46415 2.461063 0.0196
R-squared 0.502323 Mean dependent var 101.8682
Adjusted R-squared 0.470215 S.D. dependent var 3881.951
S.E of regression 2825.530 Akaike info criterion 18.81488
Sum square resid 2.47E+08 Schwarz criterion 18.94956
Log likelihood -316.8529 Hannan-Quinn criter. 18.86081
F-statistic 15.64471 Durbin-Watson stat 2.005686
Pro (F-statistic) 0.000020

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 APPENDIX V

UNIT ROOT TEST FOR LAB

Null Hypothesis: D(LAB) has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic Prob*
Augmented Dickey-Fuller test statistic -4.446487 0.0062
Test critical values 1% level -4.252879
5% level -3.548490
10% level -3.207094

*Mackinnon (1996) one-sided p-values.

Augmented Dickey-Fuller test Equation

Dependent variable: D(LAB,2)
Method: Least squares
Date: 04/19/23 Time: 06:44
Sample (adjusted): 1988 2021
Included observations: 34 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

D(LAB(-1)) -0.970634 0.218292 -4.446487 0.0001
C -3408.629 1193.953 -2.854910 0.0076
@ TREND(“1986) 452.6413 100.2305 4.516003 0.0001
R-squared 0.408273 Mean dependent var 622.2794
Adjusted R-squared 0.370097 S.D. dependent var 3438.011
S.E of regression 2728.627 Akaike info criterion 18.74508
Sum square resid 2.31E+08 Schwarz criterion 18.87976
Log likelihood -315.6664 Hannan-Quinn criter. 18.79101
F-statistic 10.69451 Durbin-Watson stat 1.739492
Pro (F-statistic) 0.000294

74
 APPENDIX VI

UNIT ROOT TEST FOR INT

Null Hypothesis: D(INT) has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic Prob*
Augmented Dickey-Fuller test statistic -5.863031 0.0002
Test critical values 1% level -4.262735
5% level -3.552973
10% level -3.209642

*Mackinnon (1996) one-sided p-values.

Augmented Dickey-Fuller test Equation

Dependent variable: D(INT)
Method: Least squares
Date: 04/19/23 Time: 06:45
Sample (adjusted): 1989 2021
Included observations: 33 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

INT(-1)) -1.792761 0.35774 -5.863031 0.0000
D(INT(-1),2) 0.219977 0.175857 1.250884 0.2210
C 1.525520 1.508192 1.011489 0.3201
@ TREND(“1986) -0.091153 0.071327 -1.277960 0.2114
R-squared 0.748021 Mean dependent var 0.006970
Adjusted R-squared 0.721954 S.D. dependent var 7.194949
S.E of regression 3.793900 Akaike info criterion 5.617879
Sum square resid 417.4167 Schwarz criterion 5.799273
Log likelihood -88.69632 Hannan-Quinn criter. 5.678912
F-statistic 28.69632 Durbin-Watson stat 1.754203
Pro (F-statistic) 0.000000

75
 APPENDIX VII
GRANGER CAUSALITY
Pain/vise Granger Causality Tests
Date: 04/19/23
Time: 06:49
Sample: 19862021
Lags: 2
Null Hypothesis: Obs F-Statistic Prob.

FDI does not Granger Cause LRGDP 34 0.40915 0.6680

LRGDP does not Granger Cause FDI 0.24862 0.7815

CPS does not Granger Cause LRGDP 34 0.81142 0.4541

LRGDP does not Granger Cause CPS 1.22041 0.3098

LAB does not Granger Cause LRGDP 34 0.67506 0.5169

LRGDP does not Granger Cause LAB 0.74699 0.4827

INT does not Granger Cause LRGDP 34 1.50299 0.2393

LRGDP does not Granger Cause INT 4.00993 0.0290

CPS does not Granger Cause FDI FDI 34 0.32458 0.7254

does not Granger Cause CPS 1.68846 0.2025

LAB does not Granger Cause FDI FDI 34 0.60488 0.5529

does not Granger Cause LAB 0.49089 0.6171

INT does not Granger Cause FDI FDI 34 0.06045 0.9415

does not Granger Cause INT 0.44337 0.6461

LAB does not Granger Cause CPS CPS 34 10.8731 0.0003

does not Granger Cause LAB 1.07428 0.3547

INT does not Granger Cause CPS CPS 34 0.10009 0.9051

does not Granger Cause INT 4.63084 0.0180

INT does not Granger Cause LAB 34 0.10711 0.8988

LAB does not Granger Cause INT 4.57020 0.0188

76
 APPENDIX VIII

OLS MODEL

Dependent Variable: LRGDP

Method: Least Squares
Date: 04/19/23 Time: 06:51
Sample (adjusted): 1987 2021
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 24970.00 2387.169 10.46009 0.0000
D(FDI) 0.018216 0.033127 0.549889 0.5865
D(CPS) 0.438141 0.639164 0.685491 0.4983
D(LAB) 3.263578 0.364331 8.957724 0.0000
D(INT) -61.01869 416.3190 -0.146567 0.8845
R-squared 0.777714 Mean dependent var 41657.45
Adjusted R-squared 0.748076 S.D. dependent var 2.223.13
S.E of regression 10150.40 Akaike info criterion 21.41998
Sum square resid 3.09E+09 Schwarz criterion 21.64217
Log likelihood -369.8496 Hannan-Quinn criter. 21.49668
F-statistic 26.24036 Durbin-Watson stat 1.165988
Pro (F-statistic) 0.000000

77
 PPENDIX IX
ENGEL AND GRANGER COINTEGRATION
Null Hypothesis: ECM has a unit root
Exogenous: Constant; Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=8)

t-Statistic Prob*
Augmented Dickey-Fuller test statistic -3.580741 0.0467
Test critical values 1% level -4.252879
5% level -3.548490
10% level -3.207094

*Mackinnon (1996) one-sided p-values.

Augmented Dickey-Fuller test Equation

Dependent variable: D(ECM)
Method: Least squares
Date: 04/19/23 Time: 06:56
Sample (adjusted): 1988 2021
Included observations: 34 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

ECM(-1) -0.799672 0.223326 -3.580741 0.0012
C -5059.977 3892.904 -1.299795 0.2033
@ TREND(“1986) 277.5053 198.1152 1.400727 0.1712
R-squared 0.308468 Mean dependent var -452.4807
Adjusted R-squared 0.263853 S.D. dependent var 10440.32
S.E of regression 8957.691 Akaike info criterion 21.125719
Sum square resid 2.49E+09 Schwarz criterion 21.25719
Log likelihood -356.0827 Hannan-Quinn criter. 21.16844
F-statistic 6.914009 Durbin-Watson stat 1713367
Pro (F-statistic) 0.003289

78
 APPENDIX X
ERROR CORRECTION MODEL
Dependent Variable: LRGDP
Method: Least Squares
Date: 04/19/23 Time: 08:08
Sample: 19872021
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 3767.627 2264.961 1.663440 0.1074
D(FDI) -0.024596 0.028922 -0.850429 0.4023
D(CPS) 0.465928 0.572348 0.814063 0.4225
D(LAB) -0.961804 0.411216 -2.338927 0.0267
D(INT) -119.4677 353.6032 -0.337858 0.7380
ECT(-1) -0.510727 02.38075 2.145231 0.0408
R-squared 0.332346 Mean dependent var 1.87E-12
Adjusted R-squared 0.189277 S.D. dependent var 9534.636
S.E of regression 8585.001 Akaike info criterion 21.13028
Sum square resid 2.06E+09 Schwarz criterion 21.44135
Log likelihood -362.7799 Hannan-Quinn criter. 21.23766
F-statistic 2.322981 Durbin-Watson stat 1.521433
Pro (F-statistic) 0.060329

79
 APPENDIX XI
NORMALITY TEST

12-
Series: Residuals
Sample 1987 -2021
10- Observations 35

8- Mean 1.87e-12
Median -2936.308
Maximum 27955.67
6- Minimum -22379.19
Std. Dev. 9534.636
4- Skewness 0.866614
Kurtosis 4.347566
2-
Jarque-Bera 7.029186
Probability 0.029760
0-

-20000 -10000 0 10000 20000 30000

80