Impact of Foreign Direct Investment On Manufacturing Sector in Nigeria

Filed in Insurance by on July 2, 2020

Impact of Foreign Direct Investment On Manufacturing Sector in Nigeria.

ABSTRACT

This study employed an economic method to analyze the impact of foreign direct investment to the growth of manufacturing output in Nigeria using annual time series data of the choice variables from 1981 to 2015.

The data used were secondary data obtained from central bank of Nigeria.

The findings revealed that manufacturing foreign direct investment (MFDI), previous years manufacturing output (PMGDP) were positively  and statistically significant in explaining the variation in the manufacturing output, while interest rate (INT) is positively and statistically-insignificant in explaining manufacturing output.

The co-integration result revealed that there is no long run relationship between foreign direct investment in the manufacturing sector and manufacturing out in Nigeria.

The result further revealed that FDI and previous manufacturing output significantly influenced the current output of the manufacturing sector.

Policy implication is that the economy should channel more foreign direct investment inflow towards manufacturing sector, as this will lead to higher growth of the aggregate output.

It was recommended that there should be more attention towards attracting FDI into manufacturing sector which can be done through fiscal incentives such as tax holidays, tax reliefs and other policies that would ensure a stable macroeconomic environment.

Secondly, lowering interest rate to see if it will boost the manufacturing output since from economic theory it has been argued that low interest rate increases investment and output.

INTRODUCTION

Background to the Study

The decline in the performance of the manufacturing sub-sector has been attributed to low investment due to low savings in the domestic economy.

Other factors include; poor inflows of foreign investment as a result of poor enabling environment, deficient infrastructural facilities, weak raw material base, poor business ethics, debts, poor  technological base, and high cost of energy.

However, foreign direct investment (FDI) provides much needed resources to developing countries such as capital, technology, managerial skills, entrepreneurial ability, brands, and access to markets.

These are essential for developing countries to industrialize, develop, and create jobs for the mass unemployed in their countries.

Foreign direct investment recipients benefit from acquiring technologies and from getting involved in international production and trade networks.

As a result, most developing countries recognize the potential value of FDI and have liberalized their investment regimes and engaged in investment promotion activities to attract various countries.

The current state of the Nigerian economy as a mono-product economy (oil based economy) gives rise to the need to diversify.

An increase in investment requires the mobilization of both domestic and international finance. Given the unpredictability of capital availability, volatility of world oil market, the low share of the country in world trade, high volatility of short term capital flow and the low savings rate of the country, the deserved increase in investment has to be achieved through an increase in foreign direct investment flows, at least in the short run (De Gregorio, 2003).

This makes it a priority for her manufacturing sector to accommodate FDI as a medium of increasing investment in the sector.

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CSN Team.

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