FOREIGN DIRECT INVESTMENT AND MANUFACTURING OUTPUT IN NIGERIA: AN ARDL APPROACH

Rebecca Folake Bank-Ola, Abel Abiodun Akintaro, Michael Olamide Adediwura

Abstract


Foreign direct investment in Nigeria is poised to expose the real sector to latest capital equipment purchase, human capital development, growth processes facilitation, technological advancement and eventual economic development; but inconsistency in policies, political instability and continual dependence on earnings from oil, hindered the sectorial growth, leading to decline in output and closure of some businesses. This necessitated the study to examine the impact of foreign direct investment on manufacturing output in Nigeria from 1986 to 2018. Foreign direct investment, trade openness, gross fixed capital formation and inflation on consumer prices were the independent variables while manufacturing output was the dependent variable. The Auto-Regressive Distributed Lag (ARDL) model was employed using time series data. The results of the analysis showed that foreign direct investment has a positive effect on the country’s manufacturing output. Inflation on consumer prices also has a positive effect, whereas trade openness and gross fixed capital formation were negative on manufacturing output. The conclusion derived from the results is a positive though insignificant relationship between foreign direct investment and manufacturing output in Nigeria while the reverse holds for trade openness and gross fixed capital formation. The recommendation is that the Nigerian government and policy formulators should embrace productivity enhancement of the manufacturing sector by implementing investor friendly policies geared towards attracting, encouraging, promoting and retaining foreign direct investment within a conducive and enabling environment, thereby making the sector more vibrant.

Keywords


Foreign Direct Investment, Manufacturing Output, Trade Openness, Inflation, Auto-Regressive Distributed Lag Model.

Full Text:

PDF

References


Afolabi, A., Laseinde, O. T., Oluwafemi, I. J., Atolagbe, O. D. &Oluwafemi, J.F (2019). Correlation between Manufacturing Sectors and Foreign Direct Investment. International Conference on Engineering for Sustainable World Journal of Physics: Conference Series 1378, 1-14.

Agbarakwe, W. C. (2019). Foreign Direct Investment and Manufacturing Output in Nigeria: Empirical Evidence from VECM Model. International Journal of Business School Annals, 6(1), 1-12.

Alfaro, L., Chanda,A., Kalemli-Ozcan, S.&Sayek, S. (2004). FDI and Economic Growth: The Role of Local Financial Markets. Journal of International Economics, 64, 89-112.

Ali, H. &Asgher, M. T. (2016). The Role of the Sectoral Composition of Foreign Direct Investment on Economic Growth: A Policy Proposal for CPEC and Regional Partners. The Pakistan Development Review Papers and Proceeding Islamabad, 12, 89-103.

Anderson, L. & Babula, R. (2008). The link between Openness and Long-run Economic Growth. Journal of International Commerce and Economics, 7, 1-20.

Anowor, O. F., Ukweni, N. O., Ibiam, F. O. & Ezekwem, O. S. (2013). Foreign Direct Investment and Manufacturing Sector Growth in Nigeria. International Journal of Academic Scientific and Technical Research, 5, 41–54.

Ayanwale, A. B. (2007). FDI and Economic Growth: Evidence from Nigeria. AERC Research Paper 165 African Economic Research Consortium, Nairobi, 4, 1-42.

Azeroual, M. (2016). The Impact of Foreign Direct Investment on the Productivity Growth in the Moroccan Manufacturing Sector: Is Source of FDI important? Journal of International and Global Economic Studies, 9(1), 29-45.

Babalola, O. O., Danladi J. D., Akomolafe K. J. & Ajiboye, O. P. (2015). Inflation, Interest Rates and Economic Growth in Nigeria. European Journal of Business and Management, 7(30), 91-102

Central Bank of Nigeria (2018).Statistical Bulletin. Retrieved from www.cenbank.org/out /2018/ publications/statistics/2019/PartB/PartB.html[Accessed July 15, 2020]

Chenery, H. B. & Stout, A. (1966). Foreign Assistance and Economic Development. American Economic Review, 55, 679–733.

Denisa.V. (2010), Foreign Direct Investment Theories: An Overview of the main FDI Theories. European Journal of Interdisciplinary Studies, 2(6), 102–106.

Ekine, D. I., & Nnadi, E. U. (2018). Inflows of Foreign Direct Investment in chosen Sectors and Economic Growth in Nigeria. International Journal of Research and Innovation in Social Science, 2(10), 83–87.

Finch, W. H., Bolin, J. & Kelly, K (2014), Multilevel Modeling Using R, Oxford: Chapman & Hall CRC Press.

Idoko, C. U., & Taiga, U. U. (2018). Effect of Foreign Direct Investment (FDI) on Manufacturing Output in Nigeria (1981 – 2016). Advances in Social Sciences Research Journal, 5(5) 181-197.

Jaumatte, F. (2004). Foreign Direct Investment and Regional Trade Agreement: The Market Size Effect Revisited. International Monetary Fund, IMF WP/04/206.

Jhingan, M.I (2010). Macroeconomic Theory. 12th Edition. Delhi: Nisha Enterprises.

Kaldor, N. (1970). The New Monetarism. Lloyd’s Bank Review. July Issue, 17-30.

Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. New York:

Macmillan. Lucas, R. E. (1988). On the Mechanics of Economic Growth. Journal of Monetary Economics, 22(1), 3-42.

Lucky, A. L. & Uzah, C. K. (2016). Determinants of Capital Formation in Nigeria: A Test of Jhingan’s

Preposition 1981-2014. IIARD International Journal of Banking and Finance Research, 2(1), 1–19.

Mahadeva, L. & Robinson P. (2014). Unit Root Testing to Help Model Building: Handbooks in Central Banking 22 Series, Centre for Central Banking Studies, Bank of England, London.

Martins, F. (2002). Bloody (Good) Foreigners - Foreign Investment and the Innovation Strategy, Unlimited Magazines, Online available at

http.// www.converge.org,nz/watchdog/99/01.htm [Accessed July 15, 2020]

Nigerian Economic Summit (2018). Report of the 24th Nigerian Economic Summit. Transcorp Hilton, Abuja

Oladele, A. A. (2015). Sectoral Inflow of Foreign Direct Investment and Economic Growth in Nigeria Journal of Economics and Sustainable Development, 6(17), 166–172.

Orji, A., Anthony-Orji, O. I., Nchege, J. E. & Okafor, J. (2015). Manufacturing Output and Foreign Direct Investment in Nigeria: A New Evidence. International Journal of Academic Research in Economics and Management Sciences, 4(3), 16–28.

Osisanwo, G. (2013). The Macroeconomic Effect of Financial Development on Economic Growth in Nigeria: A Long-Run Analysis, 1970-2011. Journal of African Macroeconomic Review, 4 (1) 227-245.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289-326.

Romer, P. (1987). “Growth Based on Increasing Returns Due to Specialization.” The American Economic Review, 77(2), 56-62.

Semancikova, J. (2016), Trade Openness and macroeconomic performance, Procedia Social and Behavioral Sciences, 220, 407–416.

Siyakiya, P. (2017). Can trade openness stimulate output performance? A case of chosen African countries. Journal of International and Global Economic Studies, 10(2), 55-67.

Solow, R. (1956). “A Contribution to the Theory of Economic Growth.” The Quarterly Journal of Economics, 70(1), 65-94.

Todaro, M., & Smith, S. (2015). Economic Development. Eleventh Edition, PEARSON, Boston.

UNCTAD (2006) World Investment Report. United Nations, New York.. [Accessed July 15, 2020]

UNCTAD (2015) World Investment Report. United Nations, New York. [Accessed July 15, 2020]

Wikipedia. (2020). Foreign Direct Investment. Available Online from http://en.wikipedia.org/wiki/foreign_direct_investment [Accessed July 15, 2020]

World Bank Staff. (2012). World Development Report: Building Institutions for Markets. World Bank and Oxford University Press.

World Bank. (2019). World development indicators. http://datatopics.worldbank.org/world -development-indicators/. Washington DC: World Bank.

Yakubu, M. M.& Akanegbu, B. N. (2018).Trade Openness and Economic Growth: Evidence from Nigeria. European Journal of Business, Economics and Accountancy, 6(4), 30 – 44.


Refbacks

  • There are currently no refbacks.


Copyright (c) 2020 Rebecca Folake Bank-Ola, Abel Abiodun Akintaro, Michael Olamide Adediwura

 

 

 

 

 

 

 

 

 

ISSN (PRINT):    2682 - 6135

ISSN (ONLINE): 2682 - 6127

 

 

   

 

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.