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The Effect Of Foreign Direct Investment On The Performance Of Manufacturing Companies In South West Nigeria.

Abstract

The research will investigate the effect of foreign direct investment (FDI) on the manufacturing companies in South west Nigeria, and its importance in the Nigeria economy in general. The main issues in this study relates to understanding the effects and impact of foreign direct investments on the manufacturing sector, as well as our ability to attract adequate funds, sufficient enough to accelerate the pace of our economic growth and development. In order to analyses the data, both econometric and statistical methods were used. The econometric regression model of ordinary least square was applied in evaluating the relationship between foreign direct investment and major economic indicators such as manufacturing output, exchange rate and interest rate.

 Chapter one

Introduction

Background of the study

Over the past decades, one of the objectives of policy makers in Nigeria has been the maintenance of economic stability. Many scholars have argued that Foreign Direct Investment (FDI) is one of the most important factors for the promotion of economic growth and development. An increase in investment is crucial to the achievement of sustained growth and development in the country.

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. The demand for foreign direct investment (FDI) in the manufacturing sector is as a result of its ability to function as a tool of economic development. It is therefore evident that Foreign Direct Investment is one of the requirements necessary for achieving greater manufacturing output level in developing economies. Nigeria as one of the economies with great demand for goods and services has attracted some FDI over the years.

Hence, Meaningful, long-lasting economic growth and development is almost entirely contingent upon securing substantial amounts of foreign direct investment. FDI is crucial for the Nigerian manufacturing sector, as it permits the transfer of technology and facilitates improvements in productivity. Ultimately, this can help alleviate Nigeria’s widespread poverty by increasing per capital income and elevating overall standards of living. FDI projects could generate greater employment and increase the productivity of the manufacturing industry.

Objective of the study

The following objectives will be assessed;

  1. To examine the effect of Foreign Direct Investment on manufacturing companies output in South West Nigeria
  2. To evaluate the effectiveness of Foreign Direct Investment in addressing fluctuation in manufacturing company’s output in South West Nigeria.
  3. To use econometrics models to investigate if a long-run relationship exists between Foreign Direct Investment and manufacturing companies output in South West Nigeria

Research hypotheses

H0: there is no effect of Foreign Direct Investment on manufacturing companies output in South West Nigeria.

H1: there is effect of Foreign Direct Investment on manufacturing companies output in South West Nigeria.

H02: there is no effectiveness of Foreign Direct Investment in addressing fluctuation in manufacturing company’s output in South West Nigeria

H2: there is effectiveness of Foreign Direct Investment in addressing fluctuation in manufacturing company’s output in South West Nigeria

H03: there is no relationship that exists between Foreign Direct Investment and manufacturing companies output in South West Nigeria

H3: there is relationship that exists between Foreign Direct Investment and manufacturing companies output in South West Nigeria

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