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The Impact of Foreign Direct Investment on Capital Formation in Nigeria: A Co-Integration Approach

Received: 5 January 2014     Accepted: 16 April 2014     Published: 20 April 2014
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Abstract

In this work, we investigated the impact of FDI on capital accumulation in Nigeria for the period of 1986-2012. The data was generated from CBN statistical bulletin, OLS method of estimation was adopted for the analysis of the data generated. ADF test was applied to determine the stationarity of the variables and all the variables were integrated at order one I(1). The Johanson co-integration test shows the existence of at most 2 co-integrating equation in the model. The ECM indicates that 73.24% of the disequilibrium in the model will be corrected on annual bases. The OLS estimation indicates that FDI, TCR, and INTR positively but insignificantly effect capital formation in the short-run whit GEXP exerting negative effect on GFCF. The result also indicate that in the long-run all the variables included in the model has a positive impact on GFCF with only FDI and TCR exerting a significant impact on capital accumulation in Nigeria for the period under review. There is bidirectional causality between FDI and GFCF. Effort should be made by government to attract more FDI into the country as it has the potential to improve the capital formation in the economy which in the other hand leads to growth in the economy at large. It is also important that government should improve the infrastructural facility in the country as this has a great potential for attracting more FDI into the country. The issue of insecurity should also be addressed without delay if we are to move the economy to the desired direction

Published in International Journal of Economics, Finance and Management Sciences (Volume 2, Issue 2)
DOI 10.11648/j.ijefm.20140202.21
Page(s) 188-196
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Foreign Direct Investment, Gross Fixed Capital Formation, Total Bank Credit to Private Sector, Interest Rate, Government Expenditure, Co-integration

References
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[3] Aremu, J.A. (1997), “Foreign Private Investment: Issues, Determinants and Performance”, Paper presented at a workshop on foreign investment policy and practice, organized by the Nigeria Institute of Advance Legal Studies, Lagos, March.
[4] Bakare A.S (2011) “A Theoretical Analysis of Capital Formation and Growth in Nigeria” Far East Journal of Psychology and Business, Vol 3 No 1 April
[5] Beddies, C. (1999), ―Investment, Capital Accumulation and Growth: Some Evidence from Gambia: 1964-1998.‖ IMF Working Paper 99/117, August.
[6] Bende-Nabende, A. and J.L Ford (1998), “Foreign Direct Investment, Policy Adjustment and Endogenous Growth: Multiplier effect from dynamic for Taiwan 1959-1995”, World Development 26(7): 1315-30.
[7] Buckley, P., J. Clegg, and C. Wang (2002), “The Impact of Inward FDI on the Performance of Chinese Manufacturing Firms”, Journal of International Business Studies, 33(4): 637-655.
[8] Central Bank of Nigeria (2004), Annual Report and Statement of Accounts, Abuja Nigeria. www.cenbank. org. 12/06/2010.
[9] CBN (2006): Central Bank of Nigeria Statistical Bulletin ,December
[10] Chenery, H. B. and A. Stout (1966), “Foreign Assistance and Economic Development”, American Economic Review, Vol. 55 pp.679-733.
[11] De Gregorio, J. (2003), “The Role of Foreign Direct Investment and Natural Resources in Economic Development”, Working Paper No 196. Central Bank of Chile, Santiago.
[12] Durham, J.B. (2004), “Absorptive Capacity and the Effects of Foreign Direct Investment and Equity Foreign Portfolio Investment on Economic Growth”, European Economic Review, 48(2): 285—306.
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[15] Ghura, D. and T. Hadji Michael (1996), ―Growth in Sub-Saharan Africa‖, Staff Papers, International Monetary Fund, 43, September.
[16] Ghura, D. (1997), ―Private Investment and Endogenous Growth: Evidence from Cameroon‖, IMF Working Paper 97/165, December.
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[18] Johansen, S. and Juselius, K. (1990). Maximum Likelihood Estimation and Inferences on Cointegration – with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52, 169 – 210
[19] Khan, A. (2007), “Foreign Direct Investment and Economic Growth: The role of Domestic Financial sector”, PIDE Working Paper.
[20] Orji, A and P.N. Mba (2011), “Foreign Private Investment, Capital Formation and Economic Growth in Nigeria: a two stage least square approach” Journal of Economics and Sustainable Development, ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
[21] Otepola, A. (2002), “Foreign Direct Investment as a factor of Economic Growth in Nigeria.” Africa Institute for Economic Development and Planning (JDEP), Dakar, Seregal.
[22] Shiro, A.A (2009), “the Impact of Foreign Direct Investment on the Nigerian Economy”, Department of Finance, University of Lagos, Nigeria.
[23] Umah, K.E (2007), “The Impact Of Foreign Private Investment On Economic Development Of Nigeria”, Nigeria Journal of Economics and financial research. Vol.1, No.3: 63-72
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[25] World Bank (1996) “World Debt Tables: External Finance for Developing Countries”, Vol. 1 (Analysis and Summary Tables), Washington, D.C. The World Bank.
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Cite This Article
  • APA Style

    Ugwuegbe, Sebastine Ugochukwu, Modebe, Nwanneka Judith, Onyeanu Edith. (2014). The Impact of Foreign Direct Investment on Capital Formation in Nigeria: A Co-Integration Approach. International Journal of Economics, Finance and Management Sciences, 2(2), 188-196. https://doi.org/10.11648/j.ijefm.20140202.21

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    ACS Style

    Ugwuegbe; Sebastine Ugochukwu; Modebe; Nwanneka Judith; Onyeanu Edith. The Impact of Foreign Direct Investment on Capital Formation in Nigeria: A Co-Integration Approach. Int. J. Econ. Finance Manag. Sci. 2014, 2(2), 188-196. doi: 10.11648/j.ijefm.20140202.21

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    AMA Style

    Ugwuegbe, Sebastine Ugochukwu, Modebe, Nwanneka Judith, Onyeanu Edith. The Impact of Foreign Direct Investment on Capital Formation in Nigeria: A Co-Integration Approach. Int J Econ Finance Manag Sci. 2014;2(2):188-196. doi: 10.11648/j.ijefm.20140202.21

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  • @article{10.11648/j.ijefm.20140202.21,
      author = {Ugwuegbe and Sebastine Ugochukwu and Modebe and Nwanneka Judith and Onyeanu Edith},
      title = {The Impact of Foreign Direct Investment on Capital Formation in Nigeria: A Co-Integration Approach},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {2},
      number = {2},
      pages = {188-196},
      doi = {10.11648/j.ijefm.20140202.21},
      url = {https://doi.org/10.11648/j.ijefm.20140202.21},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20140202.21},
      abstract = {In this work, we investigated the impact of FDI on capital accumulation in Nigeria for the period of 1986-2012. The data was generated from CBN statistical bulletin, OLS method of estimation was adopted for the analysis of the data generated. ADF test was applied to determine the stationarity of the variables and all the variables were integrated at order one I(1).  The Johanson co-integration test shows the existence of at most 2 co-integrating equation in the model. The ECM indicates that 73.24% of the disequilibrium in the model will be corrected on annual bases. The OLS estimation indicates that FDI, TCR, and INTR positively but insignificantly effect capital formation in the short-run whit GEXP exerting negative effect on GFCF. The result also indicate that in the long-run all the variables included in the model has a positive impact on GFCF with only FDI and TCR exerting a significant impact on capital accumulation in Nigeria for the period under review. There is bidirectional causality between FDI and GFCF. Effort should be made by government to attract more FDI into the country as it has the potential to improve the capital formation in the economy which in the other hand leads to growth in the economy at large. It is also important that government should improve the infrastructural facility in the country as this has a great potential for attracting more FDI into the country. The issue of insecurity should also be addressed without delay if we are to move the economy to the desired direction},
     year = {2014}
    }
    

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  • TY  - JOUR
    T1  - The Impact of Foreign Direct Investment on Capital Formation in Nigeria: A Co-Integration Approach
    AU  - Ugwuegbe
    AU  - Sebastine Ugochukwu
    AU  - Modebe
    AU  - Nwanneka Judith
    AU  - Onyeanu Edith
    Y1  - 2014/04/20
    PY  - 2014
    N1  - https://doi.org/10.11648/j.ijefm.20140202.21
    DO  - 10.11648/j.ijefm.20140202.21
    T2  - International Journal of Economics, Finance and Management Sciences
    JF  - International Journal of Economics, Finance and Management Sciences
    JO  - International Journal of Economics, Finance and Management Sciences
    SP  - 188
    EP  - 196
    PB  - Science Publishing Group
    SN  - 2326-9561
    UR  - https://doi.org/10.11648/j.ijefm.20140202.21
    AB  - In this work, we investigated the impact of FDI on capital accumulation in Nigeria for the period of 1986-2012. The data was generated from CBN statistical bulletin, OLS method of estimation was adopted for the analysis of the data generated. ADF test was applied to determine the stationarity of the variables and all the variables were integrated at order one I(1).  The Johanson co-integration test shows the existence of at most 2 co-integrating equation in the model. The ECM indicates that 73.24% of the disequilibrium in the model will be corrected on annual bases. The OLS estimation indicates that FDI, TCR, and INTR positively but insignificantly effect capital formation in the short-run whit GEXP exerting negative effect on GFCF. The result also indicate that in the long-run all the variables included in the model has a positive impact on GFCF with only FDI and TCR exerting a significant impact on capital accumulation in Nigeria for the period under review. There is bidirectional causality between FDI and GFCF. Effort should be made by government to attract more FDI into the country as it has the potential to improve the capital formation in the economy which in the other hand leads to growth in the economy at large. It is also important that government should improve the infrastructural facility in the country as this has a great potential for attracting more FDI into the country. The issue of insecurity should also be addressed without delay if we are to move the economy to the desired direction
    VL  - 2
    IS  - 2
    ER  - 

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Author Information
  • Department of Accountancy, University of Nigeria, Enugu, Nigeria

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