THE CONTRIBUTION OF FOREIGN DIRECT INVESTMENT TO NIGERIA’S MANUFACTURING OUTPUT: AN EMPIRICAL INVESTIGATION

Abstract

he attraction of Foreign Direct Investment to a nation is a macroeconomic goal that is worth pursuing because of it impact on the economic growth and development to the recipient economy. Therefore, this paper seeks to investigate the contribution of FDI flows to Nigeria’s manufacturing sector. FDI is seen as an external source of capital to domestic firms and it is expected to impact positively on productivity. The major objective of the paper is to determine whether the manufacturing sector in Nigeria has benefitted from FDI flows in terms of improving productivity from 1990 – 2009. The paper equally seeks to know whether political environment is a key factor in determining FDI flows to Nigeria. To achieve the first objective a simple regression was carried out to determine the impact of FDI on manufacturing output. For the second objective the study employed a Cho-test to determine whether there has been a structural change in FDI flows to Nigeria as a result of transition from military to civilian rule. The paper found out that FDI has not impacted significantly on manufacturing output however; there has been a structural change in the flow of FDI between military and civilian regimes. The structural break occurred in 1999. Therefore the paper recommends that Nigeria should improve its infrastructural provision, sustain its democratic rule, reduce the cost of doing business and monitor the activities of international finance agencies/multinational cooperation in order to benefit from FDI flows.