Background of the Study
Foreign Direct Investment (FDI) is the ownership or control of some portion of companies or firms by foreigners in a domestic economy. According to Piana (2005), it consist of acquisition or creation of assets (e.g firm’s equity buildings, oil drilling rigs, etc) and in some cases these companies join together with the government of the domestic economy and termed as joint ventures companies. s obtainable in Nigeria, some factors determine the inflow of capital either in form of financial resources or real capital for investments. These factors could be economical or political and Nigerian security situation determines largely the aggregate investments in the country. Since Independence in 1960, FDI has been given prominence in the quest for the growth and sustainable development of Nigeria. According to Udeaja, Udoh and Ebong (2008), Nigeria like other developing countries is trapped in low savings-investment cycle is dependent on foreign capital flows to stimulate economic growth and as oil exporting country has attracted more FDI compared to other Sub-Sahara African (SSA) countries.
According to Dinda (2009), Nigeria dominates the recipient of the FDI to African continent which received 70% of the sub-regional total and 11% of Africa’s total and out of this; Nigeria’s oil sector alone received 90% between 1970 and 2006. There have been factors which are seen to drive the growth of FDI in Nigeria which over time have not been performing positively, especially the business environments in the oil rich region of the Niger Delta and recently the security threats in the northern region of the country coupled with high cost of production brought about by poor electricity supply and poor transport infrastructure.
According to Udeaja et al (2008), causes of capital flow to domestic economy include improvement in creditor relations, adoptions of sound fiscal and monetary policies and neighbourhood externalities and the presence of natural resources, etc, that offer a strong locational specific advantage in attracting FDI to a host country.
Advancement in technology and communication has made the world to become more globalized, witnessing an increasing growth in international economic transactions. Arising from this, foreign direct investment (FDI) has gained importance as the avenue for international resource flows, especially from the developed to the developing nations. Gorge and Greenaway (2004), found evidence that FDI can affect development by complimenting domestic investment and facilitating international trade, transfer of skills and technology. Recognised as an engine of growth, FDI provides investment capital, boost competition and aids local firms in adapting more efficient technology and management styles in their operation. FDI also serves as a source of infrastructure, employment generation, resource utilization and access to the international markets as well as managerial and technological transfers. Given the expected role of FDI in enhancing socio-economic transformation, countries are generally interested in attracting it. Most countries are therefore taking steps to improve their scores on the principal factors influencing the location of choices of foreign direct investors.
Emerging and developing economies have thus realised the potency of FDI as the panacea for stimulating aggregate demand and are positioning themselves as preferred investment destinations (World Bank, 2003).In recognition of the role of FDI in economic transformation, researchers and policy makers are interested in those factors that can swing FDI one way or the other. They also want to know its effect on the domestic economy, by asking if FDI actually leads to development in all cases and at all times. In doing this, some scholars have isolated a two-way casual relationship between economic development and FDI. For them, though they recognise the empirical evidence which suggest that FDI impact positively on economic growth, they see economic growth itself as a determinant of FDI.
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