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

Ugwuegbe; Sebastine Ugochukwu; Modebe; Nwanneka Judith; Onyeanu Edith

doi:doi:10.11648/j.ijefm.20140202.21

| Peer-Reviewed

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

Ugwuegbe, Sebastine Ugochukwu, Modebe, Nwanneka Judith, Onyeanu Edith

Published in International Journal of Economics, Finance and Management Sciences (Volume 2, Issue 2)

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

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

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), 2024. 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

[1]	Adelegan, J.O. (2000), “Foreign Direct Investment and Economic Growth in Nigeria: A seemingly unrelated model”, African Review of Money, Finance and Banking, Supplementary Issue of “Savings and Development”, 2000, 5-25. Milan, Italy.
[2]	Akinlo, A.E. (2004), “Foreign Direct Investment And Growth in Nigeria: An empirical investigation”, Journal of Policy Modelling, 26, No. 2: 627-39.
[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.
[13]	Gilpin, A. (1987), “Foreign Direct Investments Local Content Requirement and Profit Taxation”, The Economic Journal, Vol.108, pp.444-457.
[14]	Ghirmay S.G and M.Cadet (1998) “Direct Foreign Investment's Impact on Private Capital Formation in Sub-Saharan Africa”, African Economic and Business Review, Vol. 1, Num 2,
[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.
[17]	Johansen, S (1988). Statistical Analysis of Cointegrating Vectors. Journal of Economic Dynamics and Control, 12, 231-54.
[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
[24]	UNCTAD. (2001, 2004), “World Investment Report”, Geneva: United Nations Conference on Trade and Development.
[25]	World Bank (1996) “World Debt Tables: External Finance for Developing Countries”, Vol. 1 (Analysis and Summary Tables), Washington, D.C. The World Bank.
[26]	Xu, B. (2000), “Multinational Enterprises, Technology Diffusion, and Host Country Productivity Growth”, Journal ofEconomics, vol. 62, pp 477-493.
[27]	Yotopoulos, P. and J. Nugent. (1976), ―Economics of Development: Empirical Investigations, New York: Harper and Row.‖

Cite This Article

Plain Text BibTeX RIS

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

Copy | Download

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

Copy | Download

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

Copy | Download

@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}
}

Copy | Download

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  -

Copy | Download

Author Information

Ugwuegbe
Sebastine Ugochukwu
Modebe
Nwanneka Judith
Onyeanu Edith

Department of Accountancy, University of Nigeria, Enugu, Nigeria

Download PDF

Sections

Plain Text BibTeX RIS

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

Copy | Download

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

Copy | Download

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

Copy | Download

@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}
}

Copy | Download

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  -

Copy | Download