A Developing Country’s Absorptive Capacity: The Link between FDI and Economic Growth in Nigeria

Uyiosa Omoregie

Corporate Planning Department, Brass LNG Limited, Lagos, Nigeria.

DOI: 10.4236/oalib.1102137                

Abstract

Developing countries’ surest route to sustained poverty reduction is economic growth. Policymakers encourage foreign direct investment (FDI) for the enhancement of productivity in-country and the promotion of economic development, through the “multiplier” effect. It is generally agreed among researchers that local conditions (absorptive capacities) are important factors contributing to the effect of FDI on economic growth. FDI has contributed to output growth in Nigeria, especially in the petroleum sector, where even more FDI should now be encouraged through investor incentives. However, the efficacy of FDI in generating the desired growth may be limited by the level of infrastructural and human capital development in Nigeria.

Keywords

Foreign Direct Investment, Absorptive Capacity, Economic Growth, Gross Domestic Product, Nigeria

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	Fischer, S. (2003) Globalization and Its Challenges. American Economics Association, Washington DC.
[2]	Jerven, M. (2015) Africa: Why Economists Get It Wrong. Zen Books Ltd., London.
[3]	Samuelson, P.A. and Norhaus, W.D. (2010) Economics. 19th Edition, McGraw-Hill, New York.
[4]	Arrow, K.J. (2011) Personal Communication.
[5]	Alfaro, L., Chanda, A., Kalemli-Ozcan, S. and Sayek, S. (2006) How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages. NBER Working Paper Series, Working Paper 12522.
[6]	Kosack, S. and Tobin, J. (2006) Funding Self-Sustaining Development: The Role of Aid, FDI and Government in Economic Success. International Organization, 60, 205-243. http://dx.doi.org/10.1017/S0020818306060097
[7]	The International Monetary Fund (2004) Definition of Foreign Direct Investment (FDI) Terms. Issues Paper (DITEG), 20.
[8]	Li, X. and Liu, X. (2005) Foreign Direct Investment and Economic Growth: An Increasing Endogenous Relationship. World Development, 33, 397-407. http://dx.doi.org/10.1016/j.worlddev.2004.11.001
[9]	Borensztein, E., De Gregorio, J. and Lee, J.-W. (1998) How Does Foreign Direct Investment Affect Economic Growth. Journal of International Economics, 45, 115-135. http://dx.doi.org/10.1016/S0022-1996(97)00033-0
[10]	Alfaro, L. and Charlton, A. (2007) Growth and the Quality of Foreign Direct Investment: Is All FDI Equal. HBS Finance Working Paper, 07-072. http://dx.doi.org/10.2139/ssrn.981163
[11]	Alfaro, L. and Charlton, A. (2009) Intra-Industry Foreign Direct Investment. American Economic Review, 99, 2096-2119. http://dx.doi.org/10.1257/aer.99.5.2096
[12]	Saleh, D. (2015) FDI and Economic Growth in Developing Countries. A Cross Comparison between Egypt and Turkey. GRIN Verlag GmbH, Munich.
[13]	Lange, O. (1943) The Theory of the Multiplier. Econometrica, 11, 227-245. http://dx.doi.org/10.2307/1905676
[14]	Parker, J. (2011) On Measuring the Effects of Fiscal Policies in Recessions. Journal of Economic Literature, 49, 673-685. http://dx.doi.org/10.1257/jel.49.3.703
[15]	Ramey, V. (2011) Can Government Purchases Stimulate the Economy? Journal of Economic Literature, 49, 703-718. http://dx.doi.org/10.1257/jel.49.3.673
[16]	Hasan, P. (1960) The Investment Multiplier in an Underdeveloped Economy. Energy Digest, 21-29.
[17]	Kale, Y. (2014) Measuring Better: Preliminary Results of the Rebased Nominal Gross Domestic Product (GDP) Estimates for Nigeria 2010-2013. Nigerian Bureau of Statistics.
[18]	Leke, A., Fiorini, R., Dobbs, R., Thompson, F., Suleiman, A. and Wright, D. (2014) Nigeria’s Renewal: Delivering Inclusive Growth in Africa’s Largest Economy. McKinsey Global Institute, McKinsey & Company.
[19]	The Economist (2012) Africa’s Economy Bulging in the Middle. http://www.economist.com/news/middle-east-and-africa/21564856-boom-sub-saharan-africa-attracting-business-talent-rich-world
[20]	Adegbite, E. and Ayadi, F. (2010) The Role of Foreign Direct Investment in Economic Development: A Study of Nigeria. World Journal of Entrepreneurship, Management and Sustainable Development, 6, 133-147. http://dx.doi.org/10.1108/20425961201000011
[21]	The Center for Global Development (2015) http://www.cgdev.org/initiative/nigerian-debt-relief.
[22]	Umoh, O., Jacob, A and Chukwu, C. (2012). Foreign Direct Investment and Economic Growth in Nigeria. Current Research Journal of Economic Theory, 4, 53-66.
[23]	The International Monetary Fund (2014) IMF Country Report No. 14/103, Nigeria, April 2014, 10 and 25.
[24]	Amao, I. (2015) Ibilola: Nigeria Must Review Oil Contracts to Encourage Investments. http://www.ngrguardiannews.com/20/15/10/ibilola-nigeria-must-review-oil-contracts-to-encourage-investments/