Ieraioal Joural of Busiess ad Maageme; Vol. 7, No. 24; 2012 ISSN 1833-3850 E-ISSN 1833-8119 Published by Caadia Ceer of Sciece ad Educaio The Deermias ad Impacs of Foreig Direc Ivesme i Nigeria Uwubamwe, Ahmed E. 1 & Ajao, Mayowa G. 1 1 Faculy of Maageme Scieces, Uiversiy of Bei, Bei Ciy, Edo Sae, Nigeria Correspodece: Ajao, Mayowa G., Dep. of Bakig ad Fiace, Faculy of Maageme Scieces, Uiversiy of Bei, Bei Ciy, Edo Sae, Nigeria. E-mail: mayourwah@yahoo.com; ajao.mayowa@uibe.edu Received: Augus 31, 2012 Acceped: November 7, 2012 Olie Published: November 21, 2012 doi:10.5539/ijbm.v724p67 URL: hp://dx.doi.org/10.5539/ijbm.v724p67 Absrac This paper examies he deermias ad impac of FDI i Nigeria from 1970 hrough 2009. As a ool for ecoomic developme ad meas of bridgig he gaps bewee he rich ad poor aios, emergig ecoomies gra special iceives o arac FDI, bu he empirical lieraure is coroversial abou he effec of FDI o he growh ad developme of emergig ecoomies. This sudy uilizes he Vecor Error Correcio Model (VECM) o examie his issue. Grager causaliy mehodology was used o aalyze ad esablish he aure of relaioship (if ay) bewee FDI ad is deermias o oe side ad ecoomic developme o he oher. Our empirical aalysis reveals ha macroecoomic variables (exchage rae, ieres rae, iflaio) ad opeess of he ecoomy are amog he major ad impora facors ha deermie he iflow of FDI io Nigeria durig hese periods. The GDP ad goverme size exhibied posiive bu isigifica ifluece o FDI. The aalysis revealed he presece of a log-ru equilibrium relaioship bewee FDI ad GDP, bu FDI does o have ay sigifica effec o he growh as well as he developme of Nigeria ecoomy durig his period. The sudy herefore recommeds ha goverme should esure sable macroecoomic policies (as moivaig facor for he aracio of FDI io Nigeria) ad also icrease is expediure i he area of ifrasrucural developme as ways o accelerae he growh of Nigeria ecoomy which will reduce he excessive depedece of Nigeria o FDI. Keywords: FDI, ecoomic growh, VECM, grager causaliy, opeess, Nigeria 1. Iroducio Ecoomic growh as explaied by he eoclassical growh heory emaaes from icreases i he quaiy of facors of producio as well as he efficiecy i heir allocaio. I a simple world of wo facors (i.e. labour ad capial), i is kow fac ha developig ecoomies (such as Nigeria) have abuda mapower bu scarce capial due o shorage of domesic savigs mobilizaio which places limiaios o capial formaio ad ecoomic developme. Eve whe domesically geeraed capial ad mapower are i abuda supply, icreased producio may be cosraied by shorage of foreig ipu (machies) upo which maufacurig of goods ad services i developig ecoomies deped. This herefore makes ieraioal capial flow a impora aspec of he effors by developig couries o close heir ivesme - savigs gap. Accordig o Moiel ad Reihar (2002), oe impora compoe of ieraioal capial flows is he Foreig Direc Ivesme (FDI) which refers o moveme of fiacial ad huma capial from abroad for ivesme i aoher coury. This ype of capial ca be owed by a idividual, a corporae body or a goverme. Basically, he commo deomiaor of FDI is ha a foreig firm or idividual mus have corollig equiy shares of such firm. Perceived from eiher he meaig or raioale for FDI as see from he foregoig, here is lile or o doub ha FDI direcly augme he real resources available for producio i he hos coury. Ideed, he opiios i lieraure is ha FDI is a good choleserol ecessary for closig he exisig ivesme - savigs gap i developig ecoomies. While he presece of marke failures forifies goverme ierveio i ieraioalizaio of producio, such ierveio may equally be ecessary o boos he ecoomic effeciveess of FDI i mos hos ecoomies. Based o his, aracio of FDI io developig ecoomies (such as Nigeria) is usually premised o he implici assumpio ha greaer iflow of FDI will accelerae he level growh ad developme (measured by GDP) ad mobilizaio of domesic capial as well as improveme i he balace of paymes. Besides, FDI simulaes produc diversificaio hrough ivesmes io ew busiesses, 67
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 simulaes employme geeraio, icrease wages ad accelerae decliig marke secors of he hos ecoomies (Aremu, 2003). I is i view of he foregoig reasoig ha i becomes reasoable o argue ha developig couries ha are desirous of achievig rapid ad susaiable ecoomic growh may fid wisdom i formulaig ad implemeig appropriae policies ad programmes ha ed o faciliae he ehroeme of ivesme-friedly eviromes. Oaikhea ad Ughulu (2006) persuasively argued ha ivesors geerally perceived a ecoomic evirome as ivesme friedly whe here exiss ax iceives, expor promoio, correc macroecoomic policies ad a poliy i which he safey of lives ad propery is reasoably guaraeed. Also see Iyoha (2001) ad (2009) o his. The effors by several Africa couries o improve heir busiess climae sems from he desire o arac FDI. I fac, oe of he pillars o which he New Parership for Africa s Developme (NEPAD) was lauched was o icrease available capial iflow io he coie hrough a combiaio of reforms, resource mobilizaio ad coducive evirome for FDI (Fuke ad Nsouli, 2003). Nigeria as a coury, give her vas aural resources base ad large marke size, qualifies o be a major recipie of FDI i Africa. However, he level of FDI araced by Nigeria is low compared wih he resource base ad poeial eed (Asiedu, 2002, 2003). Furher, he empirical likage bewee FDI ad ecoomic growh i Nigeria is ye uclear despie umerous sudies ha have examied he ifluece of FDI o Nigeria s ecoomic growh wih varyig oucomes (Oseghale ad Amokhiea, 1987; Odozi, 1995, Adelega 2000; Iyoha 2001, ad Akilo, 2004). However, i is perie o oe ha he relaioship bewee FDI ad growh varies from oe period o he oher especially i a volaile ecoomy such as Nigeria wih high level of usable macroecoomic variables. Give he poeial imporace of FDI o growh, his sudy ivesigaes he ecoomic deermias ad impacs of foreig capial flows o Africa usig Nigeria as case sudy. 2. The Review of Relaed Lieraure A exesive body of boh heoreical ad empirical sudies o Foreig Direc Ivesme (FDI) exiss i he lieraure. Mos of such sudies focus maily o why firms wa o become muliaioals; bu, here is dearh of sudies o where muliaioal corporaios wa o ives heir capial. Rascuie (2006) argues ha local marke, poliical, ecoomic, legal evirome ad macroecoomic variables sabiliy are amog he impora facors ha deermie where ad how mos muliaioals chael heir ivesmes. FDI is a ivesme made o acquire a log erm owership ad corollig ieres (a leas oe-eh of he equiy) i firm operaig ouside he ivesors ow coury (World Bak, 1996). Asiedu (2005), Dupasquier ad Osakwe (2005), Todaro ad Smih (2004) perceives FDI as ivolvig much more ha he chaelig of capial or he creaio of a firm i a emergig ecoomy, i ivolves moveme of echical kow-how, culure, ase, diversiy ad cuig-edge busiess pracices. Caves (1996) opies ha he reasos for aracig more FDI is based o he fac ha FDI impac posiively o he developmeal challeges of hos ecoomies. Fidlay (1978) posulaes ha FDI icreases he rae of echological developme i mos emergig ecoomy hrough a coagio effec from he echology ad busiess pracices adoped by muliaioal corporaios. As a moivaig facors, hos ecoomy s govermes usually provide special iceives ad eablig evirome o ecourage muliaioal compaies o esablish firms i heir couries. Despie he raioale behid FDI, paricularly hose locaed i developig ecoomies, some sudies such as Sadik ad Bolbol (2001) discovered ha emergig ecoomies should be careful of overdepedece o he beefis of FDI as meas of esurig ecoomic developme. I is someimes quesioed wheher FDI coribues o he broader aspecs of ecoomic growh as well as reivesme of icome i hos ecoomies. Besides, he presece of foreig firms ca affec he efficiecy of local idusry (refer o as adverse spillover argume) (Blomsrom ad Kokko, 1998). This argume eds o be more eable whe he muliaioal corporaios are producig for he hos coury s marke. Aike, Harriso ad Lipsey (1999) showed for example, ha he ery of foreig firms disurb he exisig marke equilibrium i he hos coury, which cosraied he producio capaciy of local idusry; ad furher icrease heir cos of producio. This eveually leads o e domesic produciviy declie despie he echological rasfer from muliaioal compaies. 2.1 Empirical Lieraures The exa lieraure is domiaed wih several sudies o he impac of FDI o emergig ecoomies (wih special focuss o Nigeria). Ezirim, Emeyeou ad Muoghalu (2006) sudied he deermias of FDI i Nigeria ad foud ha FDI relaes posiively wih exchage raes, iflaio raes, ad expeced raes of reur o ivesmes; corariwise, FDI relaes egaively wih he rae of ecoomic growh, ieres raes, socio-poliical idex, axaio ad previous FDI. Based o hese resuls, Ezirim e al (2006) coclude ha FDI occur i order o 68
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 exploi he beefis associaed wih exchage rae depreciaio, persisely risig price level ad marke imperfecios i heir ques for maximum profis i he hos ecoomies. Ariyo (1998) observes he impac of FDI o Nigeria s ecoomic growh ad discovered ha oly domesic ivesme coribued o raisig GDP growh raes durig he period 1970-1995. Adelega (2000) explored he seemigly urelaed regressio model o examie he impac of FDI o ecoomic growh i Nigeria ad foud ha FDI is pro-cosumpio ad pro-impor ad egaively relaed o gross domesic ivesme. Akilo (2004) foud ha foreig capial has a small ad saisically isigifica effec o ecoomic growh i Nigeria. Amadi (2002) examied he impac of he macroecoomic evirome o foreig direc ivesme i Nigeria usig he ordiary leas square regressio echique for he period 1970-1997. While some macroecoomic variables such as GDP per capia, ieres rae ad exchage rae had sigifica ad very srog ifluece o FDI, ohers variables like iflaio rae, uemployme record had weak relaioship wih FDI. The sudy cocluded ha macroecoomic evirome plays a vial role i deermiig he volume of FDI iflows. Usig he co-iegraio echique, Salako ad Adebusuyi (2001) examied he empirical deermias of FDI i Nigeria. Their resuls idicaed ha exchage rae, ifrasrucures developme ad credi o he domesic ecoomy were some of he mai facors ha ifluece FDI flows o Nigeria. I was also observed ha FDI was sesiive o domesic ieres rae ad real per capia icome while here is eed o maiai poliical sabiliy i order o arac FDI o Nigeria. Ayawu (1998) ideified chage i domesic ivesme, chage i domesic oupu or marke size, idigeizaio policy ad chage i opeess of he ecoomy as major deermias of FDI. He furher oed ha he abrogaio of he idigeizaio policy i 1995 ecouraged FDI iflow io Nigeria ad ha effor mus be made o raise he aio s ecoomic growh so as o be able o arac more FDI. There may be o gaisayig he fac ha he exesive review of he lieraure, as demosraed from he foregoig reveals ha he sudies ad discussio o he deermias of FDI ad is impac o ecoomic growh will coiue for a log ime due o he perceived beefi of FDI o hos ecoomies. However facor deermiig FDI iflows as well as is impac seems o be coury ad period (ime) specific ad ca have beeficial, adverse or isigifica effecs depedig o he exisig codiios i he hos ecoomy. This sudy herefore aims a examiig he deermias as well as he impac of FDI i Nigeria ecoomy bewee 1970 ad 2009. 2.2 Theoreical Framework The eoclassical ad edogeous growh models ca be cosidered as a heoreical foudaio for FDI led ecoomic growh hypohesis of a coury. The eoclassical growh heories assume ha FDI ca chael required fuds o he producive secors of a capial deficie ecoomy which, i ur, would help o icrease he ecoomic growh rae by icreasig he margial produciviy of capial. I oher words, he eoclassical perspecive is based o a basic priciple i ecoomics which suggess ha ecoomic growh requires capial ivesme i he form of log-erm commime (Adams, 2009). The eoclassical ecoomiss also view FDI as more reliable ad less volaile sources of capial for he developig ecoomies ha ca augme ecoomic growh (Blomsorm e al 1994, Borezsei e al, 1995, Balasubramayam e al 1996, lipsey 1999, Moosa & Cardak 2006). O he oher had, he edogeous growh heories sae ha he log-ru growh of a coury is o oly iflueced by he volume of physical ivesme bu also depeds o he efficiecy of uilizig ivesme. Therefore, edogeous growh model have focused o icorporaig orgaizaioal, maagerial, echical ad huma skills, iovaio ad echological progress, ad accumulaio of kowledge edogeously i he growh heories ha are ofe brough by FDI (Romer 1986, Lucas 1988, Makiw e al 1992, Pugel 2007). I he edogeous growh model, he log-ru ecoomic growh is viewed as depedig o he level of echological developme arisig from echology rasfers ad kowledge spillovers (Grossma ad Helpma 1991, Romer 1994, Nair Reicher ad Weihold 2001). The argume ha FDI is posiively correlaed wih ecoomic growh is siuaed i growh heory ha emphasizes he role of improved echology, efficiecy ad produciviy i promoig growh (Lim, 2001). Besides, Duig (1994) also proposes he eclecic heory of FDI which saes ha firm mus possess some absolue advaages over oher firms i he area of he firm s core compeece like echology ad rademarks. These core compeece are mos effecive whe combied wih local ipu abroad hus, providig raioales for FDI. The depedecy heory which comprises of eo-marxis ad srucuralis heories, flourished bewee he 1960s ad 1980s. I seeks o achieve more equal wealh, icome ad power disribuios hrough self relia ad collecive acio of aios (Yakubu, 2005). The heory saw he cause of uderdevelopme primarily i exploiaio by he idusrialized aios. Is major coribuio o he FDI sudies was is focus o he 69
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 cosequeces of FDI i developig couries ad is criical aalysis of weser developme paradigms ha regards FDI as explicily posiive. Based o hese heoreical posulaios, his sudy aalyzed he deermias ad impacs of FDI from he ivesors ad hos couries perspecives. 3. Mehodology ad Empirical Desig 3.1 Variables Descripio Daa aalyzed for his sudy were hose sigifica i he aracio of FDI io he hos couries, as well as hose relaig o he measureme of he impac of FDI i he hos couries over he years. The daa ad heir relaioships are defied hus: (a) The Real Gross Domesic Produc (RGDP): This is usually employed o deoe marke size, which is idicaive of he level of ecoomic aciviy. A large marke size is suggesive of a prosperous busiess climae ad hece serves as a facor aracig foreig ivesors i oe had, ad a meas of measurig he impac of foreig ivesme i he hos couries o he oher had. (b) Foreig Direc Ivesme (FDI): Capial ivesme (oher ha porfolio ivesme) made o acquire a log erm corollig ieres i a firm operaig i aoher coury oher ha ha of ivesors coury. (c) Opeess of he ecoomy (OPN): This is he raio of rade (impors ad expors) o GDP. This is oe of he pull facors ha ifluece FDI flows o hos couries. (d) Goverme size (GSIZ): This is measured as he raio of goverme cosumpio o GDP. I is expeced o bear a direc relaioship o ecoomic growh ad FDI because a higher level of goverme cosumpio should raslae io provisio of social ifrasrucure ha should ecourage producio, growh ad FDI. (e) Reur o Capial (INTR): I his sudy, his cooes he ieres rae paid o deposis by baks i Nigeria. FDI will ge o couries ha pay a higher reur o capial, which is idicaive of a higher level of produciviy ad ecoomic growh. (f) Iflaio Rae (INF): This measures he rae of chage of he price level ad he purchasig power of he hos coury currecy. High iflaio rae have egaive ad sigifica impac o ecoomic growh ad FDI. (g) Exchage Rae (EXR): This measures he price of oe currecy i erms of aoher currecy. I his sudy, he exchage rae of Nigeria (Naira) o USA (Dollar) is adoped. A weak/depreciaed exchage rae makes impor expesive ad expor cheap, ad hece may likely impac posiively o FDI. All hese daa have bee gleaed from he Ceral Bak of Nigeria (CBN) saisical bullei ad Naioal Bureau of Saisics (NBS) official publicaios. 3.2 Models Specificaio This paper seeks o race he relaioship bewee Foreig Direc Ivesme (FDI), Real Gross Domesic Produc (RGDP), Goverme Size (GOVSIZ), Trade Opeess (OPN), Exchage Rae (EXR), Iflaio Rae (INF) ad Ieres Rae (INTR) i a bi-direcioal maer wih emphasis o he deermias of FDI ad he impac of FDI o ecoomic growh (RGDG) i he coex of Nigeria ecoomy for he years 1970 hrough 2009. As par of he mehodological desig, he basic esimaig equaios i log liear form are specified as follows: LNFDI = α 0 +α 1 LN RGDP+α 2LNGOVSIZ+α 3 LNOPN+α 4 LNEXR+α 5 LNINF+α 6 LNINTR (1) where: α 0, α 1 - α 6 are parameers o be esimaed e is sochasic error erm assumed o be idepedely ad ideically disribued I order o execue he empirical desig, he aure of he daa disribuio is examied usig he descripive saisics (mea, media, sadard deviaio, skewess ad kurosis) while he ormaliy of he daa disribuio is asceraied by he Jarque Bera es. The ime series propery of each variable is ivesigaed hrough he Augmeed Dickey-Fuller (ADF) es for he ui roo followig Dickey ad Fuller (1981). The Phillips-Perro (PP) es is also used o cofirm he ADF es followig Phillips ad Perro (1988). The geeral form of ADF ad PP es is esimaed i he followig forms. ADF : Y Y Y e (2) 0 1 1 1 i PP : Y Y e (3) 0 i 1 70
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 Where Y is a ime series, is a liear ime red, is firs differece operaor, α 0 is a cosa, is he opimum umber of lags i he depede variable ad e is a radom error erm. I order o solve he spurious regressio problem ad violaio of he assumpios of he classical regressio model, coiegraio aalysis is used o examie he logru relaioship bewee LNFDI, LNRGDP, LNOPN, LNEXR, LNINF, LNINTR ad LNGOVSIZ. To es for coiegraio, Johase-Juselius es (Johase-Juselius, 1992, 1999) is used. I order o kow he disequilibrium error, equaio (1) is re-wrie as e = LNFDI α 0 α 1 LNRGDP α 2 LNGOVSIZ α 3 LNOPN α 4 LNEXR α 5 LNINF α 6 LNINTR (4) The order of iegraio of he esimaed residual, e is esed. If here is a coiegraig regressio, he he disequilibrium errors i equaio (4) form a saioary ime series, ad have a zero mea, he e should be saioary, I(0) wih E(e ) = 0. The logru equilibrium may be rarely observed bu here is a edecy o move owards equilibrium. Thus, Error Correcio Model is used o represe he logru (saic) ad shor ru (dyamic) relaioships bewee FDI ad oher variables. Accordigly, Vecor Error Correcio Model (VECM) is suiable o esimae he effec of FDI o oher variables especially RGDP o FDI. Thus, equaio (5) represes Error Correcio Model. LNFDI = lagged ( LNRGDP, LNOPN, LNEXR, LNINF, LNINTR, LNGOVSIZ ) - e -1 + (5) Where e -1 represes he residual erm a -1 i log erm. Vecor Error Correcio Model (VECM) is a es for wheher he log ru relaioship exiss i equaio oly. Followig he work of Oafowora (2003), Gomez ad Alvarez-Ude (2006). The Johaso-Juselius es is used o perform hypohesis ess abou he umber of he logru relaioship which exiss i equaio. The coiegraio es uder he Johase (1992, 1999) uses a vecor specificaio error correcio iroducig k lags as follows: Y bd Y 1 k 1 i 1 Y i 1 e (6) Where, Y is a vecor of order (2x1) variables iegraed of order oe. The coiegraio es i wo sages es is based o esimaig he followig regressio: X (7) bp k 1 di 1 i 1 C (8) Where: X ad P respecively deoe he logarihm of FDI ad oher variables K is he umber of lags U ad are error erms O he evidece of coiegraig relaioship, a vecor error correcio model (VECM) is esimaed o model he log ru causaliy ad shor ru dyamics. The purpose of VECM model is o idicae he speed of adjusme from he shor ru equilibrium o he log ru equilibrium sae. The greaer he coefficie of he parameer he higher he speed of adjusme of he model from shor ru o log ru. Cosiderig our base equaio (1), he VECM model is specified as follows: LNFDI 1 1 2 1 3 1 1 1 1 1 LNINF LNINTR LNOPN LNGOVSIZ 4 1 5 1 6 1 7 1 1 1 1 0 LNFDI LNRGDP LNEXR LNINF 1 i 1 ECM ( 1) (9) Where ε is he error erm, ECM(-1) is he error correcio erm, β i capures he log ru impac. The shor ru effecs are capured hrough he idividual coefficies of he differeced erms (α) while he coefficie of he ECM variable coais iformaio abou wheher he pas values of variables affec he curre values. The size ad saisical sigificace of he coefficie of he ECM measures he edecy of each variable o reur o he equilibrium. A sigifica coefficie implies ha pas equilibrium errors play a role i deermiig he curre oucomes. I order o deermie wheher chages i oe variable is a cause of chages i aoher, we employed he Grager (1988) causaliy es which is a mehod of ivesigaig wheher A causes B. Variable B is said o be 71
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 Grager-caused by variable A; if A helps i he predicio of B or if he coefficies o he lagged A s are saisically sigifica. The mai idea of causaliy is quie simple, if A causes B, he chages i A should precede chages i B (Pidyck ad Rubifield 1998). Sice he ime series variables are foud o be saioary, he Grager causaliy es is performed as follows: Y 1 11 Y Y... Y y F y F... y F 1 12 2 1 11 1 12 2 1 1, (10) F 2 21F F... F y Y y Y... y Y 1 22 2 2 21 1 22 2 2 2, (11) Where is a suiably chose posiive ieger; β j ad y j, j = 0,1 k are parameers ad α s are cosa, while U s are disurbace erms wih zero meas ad fiie variaces. ( Y is he firs differece a ime of he ime series variables). 4. Empirical Resuls 4.1 Descripive Saisics Table 1. Descripive saisics LNEXR LNFDI LNGOVSIZ LNINF LNINTR LNOPN LNRGDP Mea 1.938334 9.956591-2.753569 2.688512 2.76057-0.73129 10.08975 Media 2.04225 9.316251-2.61981 2.609962 2.91935-0.75492 9.405616 Maximum 5.003141 12.95673-1.723325 4.287716 3.58602-0.12522 15.16089 Miimum -0.6044 6.91095-4.396723 1.163151 1.79176-1.53479 5.947221 Sd. Dev. 2.205446 1.995436 0.748698 0.748418 0.43587 0.3154 2.74807 Skewess 0.138542 0.108592-0.831282 0.300241-0.13358-0.42818 0.359877 Kurosis 1.393158 1.457491 2.785198 2.455117 2.02222 2.6616 1.7939 Jarque-Bera 4.431194 4.044172 4.68377 1.095793 1.71238 1.41309 3.287875 Probabiliy 0.109088 0.132379 0.096146 0.578165 0.42478 0.49335 0.193218 Observaios 40 40 40 40 40 40 40 The variables uder sudy are foud o be ormally disribued as show i Table 1. The mea o media raio of each variable is approximaely oe. The sadard deviaio of each variable is also low (excep for LNEXR), compared o he mea showig a small coefficie of variaio, while he rage of variaio bewee maximum ad miimum is also reasoable. The coefficie of symmery (skewess) of each variable is equally low ad mildly skewed. The coefficie of flaess (kurosis) i each variable is below 3 which cofirms ear ormaliy. The Jarque-Bera es saisics also accep he ull hypohesis of ormal disribuio of each variable. 4.2 Saioariy Resuls Table 2. Ui roo es resul Augmeed Dickey-Fuller Tes Phillip-Perro Tes Variable Level 1s Diff Order Variable Level 1s Diff. Order LNEXR 0.126751 3.687033* I(1) LNEXR 0.02191 5.033365* I(1) LNFDI 0.302833 3.251872** I(1) LNFDI 0.4325 5.284174* I(1) LNGOVSIZ 0.195975 4.790207* I(1) LNGOVSIZ 0.05409 6.046979* I(1) LNINF 4.2332 7.050361* I(1) LNINF 3.66127 6.803735* I(1) LNINTR 1.514993 6.335722* I(1) LNINTR 1.94735 9.022194* I(1) LNRGDP 0.708802 6.540276* I(1) LNRGDP 0.51672 7.436318* I(1) LNOPN 1.823149 5.142475* I(1) LNOPN 2.59746 9.529244* I(1) Criical Values Criical Values 1% 3.6117 3.6171 1% 3.6067 3.6117 5% 2.9399 2.9422 5% 2.9378 2.9399 10% 2.608 2.6092 10% 2.6069 2.608 NB: * ad ** represes sigifica a 1% ad 5% respecively 72
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 All he variables uder ADF ad PP ess (excep LNINF) are foud o be osaioary i levels as show i Table 2. As a resul, all he variables have bee differeced oce o check heir saioariy. A firs differecig he calculaed ADF ad PP es saisics clearly rejec he ull hypohesis of ui roo a 1% ad 5% sigificace levels whe compared wih heir correspodig criical values, hece he ADF ad PP ess decisively cofirm saioariy of each variable a firs differecig, ad depic he same order of iegraio i.e. I(1) behaviour. Thus, he Johase-Juselius coiegraio approach is applied o examie he log ru relaioship amog variables. 4.3 Coiegraio Resuls Table 3. Johase co-iegraio es Eigevalue Likelihood Raio 5 Perce Criical Value 1 Perce Criical Value Hypohesized No. of CE(s) 0.790751 145.2884 124.24 133.57 Noe ** 0.5601 85.84761 94.15 103.18 A mos 1 0.415538 54.64174 68.52 76.07 A mos 2 0.371014 34.23335 47.21 54.46 A mos 3 0.23308 16.61482 29.68 35.65 A mos 4 0.139206 6.530673 15.41 20.04 A mos 5 0.021721 0.834486 3.76 6.65 A mos 6 *(**) deoes rejecio of he hypohesis a 5%(1%) sigificace level L.R. es idicaes 1 coiegraig equaio(s) a 5% sigificace level Table 3 preses he resul of Johase co iegraio es. Accordigly, he Eige value saisics ad likelihood raio deec oe co iegraig relaioship a 5% level of sigificace. This es idicaes he presece of a log ru equilibrium relaioship amog variables. As a resul, he vecor error correcio model is esimaed. 4.4 Vecor Error Correcio Model (VECM) The vecor error correcio model allows modelig adjusmes ha lead o a log ru equilibrium relaioship amog he variables where a uidirecioal log erm causal flow rus from chages i LNFDI o oher variables i Nigeria. Table 4. Vecor error correcio model (VECM) resuls Variable Coefficie Sd. Error -Saisic Prob. C -0.13049 0.116368-1.121364 0.2798 DLNFDI(-1) 1.400969 0.461556 3.035315 0.0083 DLNFDI(-2) 0.469643 0.301639 1.556971 0.1403 DLNEXR 0.220647 0.156436 1.41046 0.1788 DLNEXR(-1) -0.02309 0.148445-0.155544 0.8785 DLNEXR(-2) -0.10187 0.142588-0.714414 0.4859 DLNINF -0.10591 0.364965-0.290198 0.7756 DLNINF(-1) 0.029229 0.538134 0.054316 0.9574 DLNINF(-2) -0.23488 0.391606-0.599777 0.5576 DLNINTR 0.135491 0.219507 0.61725 0.5463 DLNINTR(-1) -0.02283 0.224078-0.101888 0.9202 DLNINTR(-2) 0.044828 0.212744 0.210712 0.8359 DLNOPN -0.32354 0.21003-1.540425 0.1443 DLNOPN(-1) 0.158067 0.250763 0.630344 0.538 DLNOPN(-2) -0.10129 0.202557-0.500059 0.6243 DLNRGDP -0.12816 0.369581-0.34676 0.7336 73
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 DLNRGDP(-1) 0.090026 0.536762 0.167721 0.869 DLNRGDP(-2) -0.16718 0.373066-0.448134 0.6605 DLNGOVSIZ -0.10874 0.26096-0.416696 0.6828 DLNGOVSIZ(-1) 0.109806 0.325067 0.337794 0.7402 DLNGOVSIZ(-2) -0.23423 0.255008-0.918516 0.3729 ECM(-1) -0.586 0.529945-2.992753 0.0091 R-squared 0.648295 Mea depede var 0.151276 Adjused R-squared 0.555907 S.D. depede var 0.218805 S.E. of regressio 0.201027 Akaike ifo crierio -0.08444 Sum squared resid 0.606175 Schwarz crierio 0.873405 Log likelihood 23.56211 F-saisic 11.31664 Durbi-Waso sa 2.253819 Prob(F-saisic) 0.296163 As show i Table 4, he esimaed coefficie (β i ) of he error correcio erm [ecm(-1)] which is egaive (-0.586), as expeced ad saisically sigifica i erms of is associaed -value (-2.992753). The chages i lagged LNFDI is posiively relaed o all oher variables. While he oe period lagged of all he variables cosidered are posiively bu isigificaly relaed o FDI, LNEXR ad LNINTR is egaively relaed o FDI. Cosiderig he wo period lagged, all he variables (excep LNINTR) are egaively relaed o LNFDI i differe magiude. Basically, he egaive relaioship bewee he opeess (LNOPN) ad LNFDI, as well as bewee exchage rae (LNEXR) ad LNFDI is due o high level of imporaio (as Nigeria is impor depede ecoomy) ad depreciaig values of exchage rae (local currecy) i Nigeria durig he period uder cosideraio. There is mixed relaioship of LNRGDP o LNFDI, while he oe period lagged LNRGDP is posiively relaed o LNFDI, he wo periods lagged is egaively relaed. The adjused coefficie of deermiaio (R 2 ) a 0.5559 shows a moderae explaaory power of he model. The F-saisics of 11.317 sugges ha good ieracive feedback effec exiss wihi he model while he Durbi Waso Sa (DW) of 2.25 idicaes a good fi ad a abse of auocorrelaio. 4.5 Causaliy Tes Table 5. Pairwise grager causaliy ess Null Hypohesis: Obs F-Saisic Probabiliy LNRGDP does o Grager Cause LNEXR 38 1.53149 0.23119 LNEXR does o Grager Cause LNRGDP 3.48308** 0.04242 LNGOVSIZ does o Grager Cause LNFDI 38 2.20883 0.12581 LNFDI does o Grager Cause LNGOVSIZ 6.08856* 0.00561 LNINF does o Grager Cause LNFDI 38 0.35666 0.70267 LNFDI does o Grager Cause LNINF 1.48854 0.24046 LNINTR does o Grager Cause LNFDI 38 2.52711*** 0.09524 LNFDI does o Grager Cause LNINTR 0.1924 0.8259 LNRGDP does o Grager Cause LNFDI 38 0.13255 0.87632 LNFDI does o Grager Cause LNRGDP 10.3129* 0.00033 LNOPN does o Grager Cause LNINF 38 0.18837 0.82919 LNINF does o Grager Cause LNOPN 0.23537 0.79159 LNRGDP does o Grager Cause LNINF 38 1.38654 0.26412 LNINF does o Grager Cause LNRGDP 11.2019* 0.00019 LNOPN does o Grager Cause LNINTR 38 0.12922 0.87922 LNINTR does o Grager Cause LNOPN 3.15752*** 0.05562 LNRGDP does o Grager Cause LNOPN 38 1.17668 0.3209 LNOPN does o Grager Cause LNRGDP 0.28231 0.75584 *,** ad *** represe 1%,5% ad 10% sigifica level respecively 74
www.ccsee.org/ijbm Ieraioal Joural of Busiess ad Maageme Vol. 7, No. 24; 2012 The resuls i able 5 shows he Pairwise Grager causaliy es amog he variables aalysed. The causaliy resul shows ha LNFDI grager cause LNGOVSIZ, which idicaes ha as FDI icreases, goverme expediure icreases. LNINTR Grager cause LNFDI implies ha icrease i deposi ieres rae i Nigeria ecoomy leads o aracio of more foreig flow of ivesme. Mos imporaly, LNFDI also grager cause LNRGDP idicaes ha here is a posiive ad direc relaioship bewee FDI ad GDP, he more FDI we have i Nigeria, he higher he level of ecoomic growh ad developme. This meas ha FDI has coribued sigificaly o he growh of Nigeria ecoomy durig he period uder cosideraio. Also, LNINTR grager cause LNOPN, his meas ha icrease i ieres rae lead o opeess of Nigeria ecoomy o more radig relaioship wih he res of he world, as foreig ivesors usually seeks for higher reur o heir ivesme. However, he resul also idicaes ha exchage rae (EXR), Goverme size (GOVSIZ) ad Iflaio (INF) does o grager cause foreig direc ivesme (FDI) durig he period uder cosideraio. 5. Fidigs ad Cocludig Remarks This sudy ivesigaed he deermias ad impacs of Foreig Direc Ivesme (FDI) empirically i he coex of he Nigeria ecoomy from 1970 o 2009. FDI has bee ideified as a impora caalys of ecoomic developme hrough echological rasfer, cuig-edge maageme pracices ad oher beefis. The VECM resul idicaes ha FDI has coribued margially o he ecoomic growh of Nigeria. Though he causaliy es shows ha FDI grager causes GDP. This fidig suppors he coclusios of Akilo (2004) ad Ayadi (2008) ha foreig capial has a miue ad saisically isigifical effec o he growh of he Nigeria ecoomy. The effeciveess of FDI i brigig abou he desired growh may be cosraied by he level of ifrasrucural developmes ad oher macroecoomic variables. I erms of deermias of FDI, he lagged resuls of he empirical aalyses idicae a mixed relaioship bewee FDI ad releva macroecoomic variables aalysed. Oe period lagged of rade opeess, ieres raes, goverme size ad GDP exer posiive ifluece o FDI, while here is a egaive relaioship bewee FDI ad exchage rae which may be aribued o high level of currecy depreciaio durig his period. This fidig corroboraes he fidigs of Ayawu (1998), Salako ad Adebusuyi (2001) which observed ha ifrasrucural developme, opeess ad domesic marke size are major deermias of FDI i Nigeria. The policy implicaio of his fidig are relaively obvious, sice growh rae of he ecoomy (GDP) serves as deermias of FDI, goverme should herefore icrease is expediure i he area of ifrasrucural developme as a aveue o arac more FDI io Nigeria ecoomy. Besides, he Nigeria goverme should creae he ecessary evirome ha will regulae macroecoomic policy (exchage rae iflaio, ieres rae, rade opeess) which is highly esseial for he aracio of FDI iflows io he ecoomy. Mos imporaly, as a impor-depede ecoomy, he Nigeria goverme should also formulae expor led fiscal ad moeary policies ha will sabilize ad balace Nigeria rade relaioship wih oher ecoomies of he world. Refereces Adams, S. (2009). Foreig Direc Ivesme, Domesic Ivesme, ad Ecoomic Growh i Sub-sahara Africa. Joural of Policy Modellig, 31, 939-949. hp://dx.doi.org/10.1016/j.jpolmod.2009.03.003 Adelega, J. O. (2000). Foreig Direc Ivesme ad Ecoomic Growh i Nigeria: A Seemigly Urelaed Model. Africa Review of Moey, Fiace ad Bakig, 5-25. Aike, B., Harriso, A. E., & Lipsey, R. (1999). Do Domesic Firms Beefi from Foreig Direc Ivesme? America Ecoomic Review, 89, 605-618. hp://dx.doi.org/10.1257/aer.89.3.605 Akilo, A. E. (2004). Foreig Direc Ivesme ad Growh i Nigeria: A Empirical Ivesigaio. Joural of Policy Modellig, 26, 627-639. hp://dx.doi.org/10.1016/s0161-8938(04)0057-2 Ayawu, J. C. (1998). A Ecoomeric Ivesigaio of Deermias of Foreig Direc Ivesme i Nigeria. I Ivesme i he Growh Process: Proceedigs of he Nigeria Ecoomic Sociey Coferece 1998 (pp. 219-240). Ibada, Nigeria. Aremu, J. A. (2003). A Overview of Foreig Privae Ivesme i Nigeria. Preseed a he 12 h Aual Coferece of he Regioal Research Uis, Ceral Bak of Nigeria, Abuja, Nigeria. Ariyo, A. (1998). Ivesme ad Nigeria s Ecoomic Growh. I Proceedigs of Nigeria Ecoomic Sociey Aual Coferece 1998 (pp. 389-415). Ibada, Nigeria. Asiedu, E. (2002). O he Deermias of Foreig Direc Ivesme o Developig Couries: Is Africa Differe? World Developme, 30(1), 107-119. hp://dx.doi.org/10.1016/s0305-750x(01)00100-0 75
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