Nigerian Journal of Energy and Environmental Economics Volume 6, No.2, December, 2014

ANALYSIS OF THE IMPACT OF GLOBALIZATION ON NIGERIAN ECONOMIC GROWTH

(1986-2010)

By

Caleb K. Gagbanyi* & John Naphtali **

*National Examinations Council, Benin

**Department of Economics, Federal University, Lokoja

Abstract

The world has witnessed increased interdependence in the last two decades through the forces of globalization. The main driving forces of this process are technology, policy and competition and it subordinates domestic economies to global market conditions and practices. Nigeria has made progress with economic reforms and the government has maintained prudent macroeconomic policies, strengthened financial institutions and, is undertaking reforms to transform the economy structurally. Notwithstanding these positive developments, the Nigerian Economy remains confronted by many serious challenges. Structural imbalance and lack of diversification- with the economy excessively dependent on oil- are preventing the domestic economy from developing. This research work studies the international competitiveness of the Nigerian economy in the global market by analyzing the relationship between globalization and economic growth in Nigeria. The study used secondary sources of data over the period 1986-2010, obtained mainly from the Central Bank of Nigeria (CBN) statistical bulletin and International Financial Statistics of the International Monetary Fund (IMF). The research utilized Kwiatkowski-Philips-Schmidt-Shin (KPSS) Unit Root Test, Co-integration, Multiple Regression, Serial Correlation and VAR Granger Causality Test to analyze the data. The findings of the study show that Nigeria increased her participation in globalization but the economy remains confronted by many serious challenges such as structural imbalance and lack of diversification, with the economy excessively dependant on oil. Using econometric analysis, the study found that there is unidirectional causality from economic growth to openness and liberalization, and no causality with foreign direct investment in Nigeria. This research concludes that unbridled openness may have deleterious effect on the economic growth of the Nigerian economy. The study recommended proactive need for effective regulatory framework so as to achieve the maximum benefits from globalization; diversification of the economy; and facilitation of closer integration of the oil sector to the economy of Nigeria.

INTRODUCTION

Globalization is a powerful aspect of the new world system and it represents one of the most influential forces in determining the future course of the universal economic order. Its impacts cut across sectoral bounds such as economic, political, and geographical. Over the past decades, the economies of the world have become increasingly linked through international trade in services, primary and manufactured goods, and through foreign direct investment (FDI). Such linkage is generally known as “globalization”. The concept has been popularized by the laissez-faire policies of international financial institutions under the various forms of economic policies including privatization, commercialization, and liberalization of trade and finance and generalized deregulation of markets (Alege, 2006).

Todaro and Smith (2003) referred to globalization as the increased openness of economies to international trade, financial flow and direct foreign investment. O’Rourke and Williamson (1999) saw globalization as an increase in interaction across borders in areas such as economic cooperation (international trade and investment), technology, personal contact and political engagement.

Nigeria is making progress with economic reforms and the government has maintained prudent macro-economic policies, strengthened financial institutions and, is undertaking reforms to transform the economy structurally. The reform effort, aided by revenue from high oil prices, has led to significantly improved macroeconomic outcomes, including weaker inflation and strong GDP growth. Real GDP growth rose from 5.4% in 2005 to an estimated 8.4% in 2010. The growth in 2010, in the aftermath of the global financial and economic crisis, underscored the resilience of the Nigeria’s economy and to some extent, the prudence of its economic policies. Medium-term prospects are also bright, with real GDP growth projected to remain strong and stable at 6.9% in 2011 and 6.7% in 2012 (CBN, 2010).

Notwithstanding these positive developments, the Nigerian Economy remains confronted by many serious challenges. Structural imbalance and lack of diversification- with the economy excessively dependent on oil- are preventing the domestic economy from developing. Much of the studies in this area only examined how the phenomenon of globalization affects or poses a challenge to organizations operating in the third world countries, especially Nigeria without linking it to growth. Moreover, variables such as Openness, Balance of Trade, Broad Money Supply and Exchange Rate were not incorporated into the model in precious studies and as such this study went further to incorporate them into the model.

The impact of globalization can be seen in the economic development within a country. Many developing nations in the anal of globalization have not been able to profit from the aforesaid and are still maintaining status quo i.e. in terms of avalanche of problems encountered for decades. It is in the light of this that this study examined the impact of globalization on the Nigerian economic growth. The specific objectives are to:

i. evaluate Nigeria’s absorptive capacity to trade liberalization;

ii. assess the impact of foreign direct investment on Nigeria’s GDP growth; and

iii. analyze the relationship between openness and economic growth.

Conceptual Issues/Literature Review

Globalization means different things to different people and thus it has been used in several ways in the literature. It is a process of integrating not only the economy of nations but also their culture, technology and governance. Generally, it may be referred to as the widening, deepening and speeding up of world-wide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, and the financial to the spiritual (David, Anthony, David, & Jonathan, 1999). This, in essence illustrates the way in which contemporary globalization connects communities in one region of the world to development in another continent.

Mohammed (1996) defined globalization as the “movement of people i.e. labor, knowledge and technology across international borders.” There are also cultural, political and environmental dimensions of globalization. The breakdown of boundaries as barriers to economic exploitation that globalization represents means that every country of this world, rich/developed or poor/developing would have access to every other country. That is, the developing nations would have access to the markets of the developed countries, unrestricted: and vice-versa. “It will be a borderless world” (Mohammed, 1996). This again, has raised so many questions and increasing debate on the subject of the power of the state and the continuous relevance of the principles of sovereignty, independence and the understanding of international relations.

Economic growth, according to Lipsey (1986), is the positive trend in the nation’s total output over long term. This implies a sustained increase in Gross Domestic Product (GDP) for a long time. According to Dolan (1991) economic growth is most frequently expressed in terms of increase in Gross Domestic Product (GDP), a measure of the economy’s total output of goods and services. This GDP as a measure of economic growth, like any other economic quantities, must be expressed in real terms. That is, it must be adjusted for the effects of inflation so as for it to provide a meaningful measure of growth overtime. Economic growth is the increase in the market value of goods and services produced by the economy overtime. It is conventionally measured as the percentage rate of increase in real gross domestic product (GDP) (IMF 2000), of more importance is the growth of the ration of GDP to population (GDP per capita), which is also called per capita income.

Empirical Literature

Ben-David (2003) studied the issues surrounding the paradox of globalization and provides a framework for underdeveloped countries to circumvent the overbearing effect of globalization in their efforts towards industrialization, economic growth and development. In his study, he discovered that trade liberalization being the cardinal instrument of globalization ensures that industrialized countries have access to world markets, which enhances further industrialization of industrialized countries while incapacitating the industrialization process of the underdeveloped economies.

Yusuf (2003) concluded in his study of the influence of globalization on the Nigerian economy that if necessary measures are not put in place Nigeria may be excluded in this process and globalization of poverty rather than prosperity will occur. In a more recent study by Wokoma and Iheriohanma (2010) examined how the phenomenon of globalization affects or poses a challenge to organizations operating in the Third World countries, especially Nigeria. As a result of some skewed and embarrassing features discovered from their study such as inadequate skilled manpower, lack of critical social, legal and economic structures, among others, and the challenging forces and propellants of globalization such as 349 technological innovations, economic liberalization, among others, third World economies have not gained the advantage of global world economies.

Until recently, empirical literature had perceived FDI as being parasitic and retarding for the development of domestic industries for export promotion. Hence, research interest in FDI stems from the change of perspectives among policy makers from hostility to conscious encouragement, especially among developing countries. Caves (1996) observed that the rationale for increased efforts to attract more FDI by host countries emerges from the belief that FDI are productivity gains, technology transfers, introduction of new processes, management skills, and know how in the domestic market, employee training, international production networks and access to markets.

Curiously, the empirical evidence of the benefits both at the firm level and at the national level has been ambiguous. De Gregorio (2003), while contributing to the debate on the importance of FDI, notes that FDI may allow a country to bring in technologies and knowledge that are not readily available to domestic investors, and in this way increases productivity growth throughout the economy. FDI may also bring in expertise that the country does not possess, and foreign investors may have access to global markets.

The vast majority of research work on the relationship between FDI and economic growth are not situated in Africa; however, there have been some studies on investment and growth in Nigeria with varying results and submissions. Odozi (1998) reported in his study on the factors affecting FDI inflow into Nigeria in both the Pre and Post- structural adjustment programme (SAP) eras and found that the macro policies in place before the SAP were discouraging foreign investors. This policy environment led to the proliferation and growth of parallel markets and sustained capital flight.

Ariyo (1998) studied the investment trend and its impact on Nigeria’s economy growth over the years. He found that only private domestic capital consistently contributed to raising GDP growth rates during the period considered (1970-1995). Furthermore, there is no reliable evidence that all the investment variables considered in his analysis have any perceptible influence on economic growth. He therefore suggested the need for an institutional rearrangement that recognizes and protects the interest of major partners in the development of Nigerian economy.

Empirical literature indicates that a country’s capacity to take advantage of FDI externalities might be limited by local conditions. Further, there is increasing resistance to further liberalization within the economy. This thus limits the options available to the government to source funds for development purposes and makes the option of seeking FDI much more critical.

Following recent developments in growth theory and in international economics, more elaborated way of measuring trade openness taking into account two additional dimensions of countries’ integration in world trade: the quality and the variety of the exported basket. Indeed, according to the existing literature both these factors are likely to affect positively growth, which call for considering them when measuring countries’ trade openness in view of examining the relationship between trade and growth.

On the one hand, endogenous growth theory has provided a framework for a positive growth effect of trade through innovation incentives, technology diffusion and knowledge dissemination (Young, 1991; Grossman & Helpman, 1991). Inspired from these theoretical developments, Haussmann, Hwang, and Rodrik (2007) proposed an analytical framework linking the type of goods (as defined in terms of productivity level) a country specializes in to its rate of economic growth. In order to test empirically for this relationship, they defined an index aiming at capturing the productivity level (or the quality) of the basket of goods exported by each country. Using various panel data estimators during the period 1962 – 2000, their growth regression showed that countries exporting goods with higher productivity levels (or higher quality goods) have higher growth performances. These results suggest that what countries export matters as regards the growth effect of trade. Hence, our measurement of trade openness should consider this quality dimension as a complement to the trade ratio (or the dependency) dimension.

On the other hand, monopolistic competition trade models with heterogeneous firms and endogenous productivity provide theoretical support for a positive impact of trade openness on growth. Indeed, the theory predicts a productivity improvement in the country due to the exit of less efficient firms after trade liberalization -or a reduction in transport costs for example- (Melitz, 2003). Furthermore, a higher share of the most productive firms will start exporting, which translates into an increase in the variety of exports. As exporters are more productive on average than domestic firms, an increase in exports variety can be associated to rising country productivity.

Based on this literature, Feenstra and Kee (2008) developed a model allowing to link, across countries and over time, relative export variety to total factor productivity using a GDP function. They tested this relationship on the basis of exports to the US for a panel of 48 countries over the period 1980-2000 using three stage least squares regressions. Their empirical results indicated that there is a positive and significant relationship between export variety and average productivity. Furthermore, computing the gains from trade in the monopolistic competition model of Melitz (2003), Feenstra and Kee (2008) show that countries with a greater export over GDP ratio will experience higher gains in terms of GDP per capita growth, from export variety. Once again, these results suggest that, in addition to the trade dependency ratio, the structure of countries’ exports matters regarding the growth effect. Hence, our measurement of trade openness should also consider this variety dimension.

Our empirical application draws on the Barro and Lee (1994)’s model, which has been extended to take into account set of three indicators of trade openness: trade dependency ratio, quality index and variety index. Barro and Lee (1994) study empirical determinants of growth. They are in line with the endogenous growth theory. Unlike the usual neoclassical growth model for a closed economy (Solow, 1956), endogenous growth models take into account the sources of technological progress (human capital, role of government for instance).

METHODOLOGY

Sources of Data

This study used secondary data in form of time series sourced mainly from the publications of the Central Bank of Nigeria (CBN) Statistical Bulletin of various years and International Financial Statistics of the IMF.

Analytical Tools

The study utilized the Multiple Least Square to analyze the impact of globalization on economic growth. The model applied is drawn from the work of Obaseki (1991) and Ndiyo and Ebong (2003). The model is based on the national income accounting framework in an open economy which shows that aggregate demand (Y) is expressed as follows: Y=C+I+G+(X-Z)----- 1;

Where,

Y =aggregate demand

C=Consumption expenditure;

I=Investment Expenditure;

G=Government Expenditure;

X= Value of export of goods and services;

M= value of import of goods and services.

The functional form of the models is specified:

GDP= ﻌ0+ ﻌ1OPEN+ ﻌ 2FDI+ ﻌ 3EXR+ ﻌ 4EXCHR+ ﻌ 5INF+ ﻌ 6MS+ ﻌ 7BOT+µ---------------(2)

Where,

GDP = gross domestic product and is a proxy for economic growth;

OPEN = openness of the economy (Exports plus Imports divided by GDP);

FDI = foreign direct investment;

EXR = external reserves;

EXCHR = exchange rate;

INF = Inflation rate;

MS = Broad Money Supply;

BOT = Balance of Trade and is a proxy for trade liberalization.

The explicit form of the model used in this study is expressed as:

GDP=β0+β1OPEN+β2FDI+ β3EXR+ β4EXCHR+ β5INF+ β6MS+B7BOT+µ---------------(3)

The a priori expectation on all the coefficients in equation (3) is that (β1,β2,β3,β4, β5, β6 and β7 >0), should be positive to indicate that all the variables are positively related to economic growth.

The VAR Granger test was used to test the direction of causality between globalization and economic growth. The Kwiatkowski-Philips-Schmidt-Shin (KPSS) was used to test the stationarity of all the time series used in this study. Finally, the t-test and the f-ratio test were used to test the significance of the coefficients of the explanatory variables.

RESULTS AND DISCUSSION

This section of the study presents the empirical results of the unit root test and estimated regression. The methods of analysis adopted commenced with Unit roots test and co integration tests carried out initially to test for the robustness of the data.

From the result of the regression in table 3, the variables EXR, EXCHR and INF were found to be redundant in the regression analysis thereby having insignificant impact. The variables FDI and MS were large, hence the need to take their logs.

Using conventional econometric analysis, the research work tested if the relevant variables are stationary and determined their order of co-integration. The study used the superior Kwiatkowski-Philips-Schmidt-Shin (KPSS) test to test the unit root in the series in table 1.

Table 1: Unit Root Test (KPSS)

Variable

KPSS

Critical

Value

Level of

significance

Order of

Co-integration

Trend

GDP

0.67

0.46

5%

I(0)

No

trend

OPEN

0.63

0.46

5%

I(0)

No

trend

LOGFDI

0.67

0.46

5%

I(0)

No

trend

LOGMS

0.73

0.35

5%

I(0)

No

Trend

BOT

0.59

0.46

5%

I(0)

No

Trend

Source: Authors’ Computation, 2013.

Results from table 1 revealed that all the KPSS values without trend is bigger than the critical values at 1%, 5% and 10% levels of significance for all the variables. Therefore, all the variables are stationary at level. This is a necessary condition for co-integration relations amongst the variables in the model.

CO-INTEGRATION MODEL

Table 2 provides the result of co-integration

Table 2: Co integration Results

Relationship

Maximum Eigen Value Test

Probability

Trace Test

Probability

GDP

70.56

(33.88)*

115.40

(69.82)*

OPEN

27.06

(27.58)

44.84

(47.86)

LOGFDI

12.88

(21.13)

17.78

(29.80)

LOGMS

4.51

(14.26)

4.90

(15.49)

BOT

0.38

(3.84)

0.38

(3.84)

Source: Authors’ Computation, 2013

Note: Critical values in parentheses

Since GDP, OPEN, LOGFDI, LOGMS were found to be stationary at level but BOT is integrated at first difference which is a necessary condition for a long run relationship, co integration test was conducted. As seen from Table 2 , both maximum Eigen value and the trace statistics confirmed the presence of one co integration equation at the 0.05 significance level as were compared with their critical values. This indicates that the variables GDP, OPEN, LOGFDI, and LOGMS share a common trend in the long run, while BOT does not share the same trend. Thus, the estimated parameter values from these equations when normalized on GDP are long run elasticities. Theses coefficients represent estimates of the long run elasticities of economic growth in Nigeria with respect to all the exogenous variables. The likelihood ratio confirms that there is one co-integration equation. Therefore, we reject the hypothesis of no co integration relationship between GDP, OPEN, LOGFDI, LOGMS and BOT. The co-integration is indicative of a long run relationship between GDP and the determinants over the period 1986-2010.

Regression Output

The result of the multiple regressions using GDP as a dependent variable and OPEN, LOGFDI, LOGMS, and BOT as independent variables is presented in Table 3

Table 3: Multiple Regression Result

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

-368792.7

83918.39

-4.394659

0.0003

OPEN

-50494.60

23035.34

-2.192050

0.0404

LOGFDI

-140800.8

53254.17

-2.643939

0.0156

LOGMS

248714.5

45497.98

5.466495

0.0000

BOT

0.109793

0.036832

2.980881

0.0074

R-squared

0.965821

Adjusted R-squared

0.958986

Durbin-Watson stat

1.131342

Source: Authors’ Computation, 2013.

GDP=-368792.7-50494.6OPEN-0800.8LOGFDI+248714.5LOGMS+0.109793BOT---- (4)

(-4.3946)(-2.19205)* *(-2.6439) * *(5.4664) * ** (2.9808) * *

Note:

i. t-statistics is in parenthesis R2=0.96,

R-2 =0.958, DW=1.13

ii. *, **and *** represent significant levels at 10%, 5% and 1% respectively.

A look at equation (4) shows the relationship between GDP, OPEN, logFDI, logMS and BOT. The equation shows negative sign for the openness coefficient but significant t- statistics at 5% level. The negative sign is contrary to expectation implying a negative balance of trade during the study period. The result indicates that openness is negatively related to economic growth in Nigeria, meaning that openness does not lead to increase in economic growth. An increase in the Openness of an economy of Nigeria by one percent resulted to a negative in economic growth by 368792.7.

The coefficient of logFDI is significant but negatively related to GDP. The response of GDP to a percentage increase in FDI is -140800.8. The result shows that there is no significant contribution of FDI to economic growth in Nigeria. Therefore, one percentage increase in FDI reduced economic growth in Nigeria by 14800.8. This is an indication that the government need to encourage productive FDI and discourage the siphoning of profit from FDI to parent countries. This could be explained by the fact that there is no favorable environment for business to flourish and for foreign investors to invest in the country. Theory postulates a positive relationship between FDI and GDP growth. Note also that this negative coefficient is significant at 5%level.

The coefficient of money supply is positive and consistent with the a priori expectation. It is also highly statistically significant at 1% level of significance and a very low probability value. The result shows that an increase in MS by one percent increases the GDP by 248714.5. Government can concentrate in forming favorable monetary policies that would bring about economic growth without increasing inflation.

The coefficient of BOT is significant using both the statistical and econometric criteria in table 3. This result is not surprising if one consider how Nigeria is making progress with economic reforms and the government has maintained prudent macroeconomic policies, strengthened financial institutions and, is undertaking reforms to transform the economy structurally. The positive sign is in line with a priori expectation; the coefficient was 0.109793 and significant in explaining globalization in Nigeria. This is a clear indication that much needs to be done by the government to encourage export promotion laws, like tax free exports and placing duties on imports i.e. encouraging outward- oriented policies on economic growth.

The R2=0.96 also shows that up to 96% of systematic variation in the GDP is explained by the OPEN, logFDI, logMS and BOT taken together. The log likelihood is consistent with the a priori expectation. This means that the lower or negative the log likelihood, the better the result. The log likelihood from Table 4 is -294.5559. F- Statistics measures the joint significance of coefficient which showed that they are all significant and that the model is well fitted.

The Durbin Watson is less than 2.0 indicating a serially correlated error term. With the value of Durbin Watson at 1.13, it means that there is serial correlation among the error thereby affecting the predictability of the model. Therefore, there is the need to conduct a serial correlation test to correct the anomaly.

SERIAL CORRELATION LAGRANGE MULTIPLIER TEST

Table 4 Serial Correlation Lagrange Multiplier Test

Variable

Coefficient

Std. Error

t-Statistic

Prob.  

C

43116.40

105082.4

0.410310

0.6870

LOGMS

-4798.337

24599.35

-0.195060

0.8478

LOGFDI

1354.120

24371.62

0.055561

0.9564

BOT

0.002834

0.015464

0.183272

0.8569

RESID(-1)

0.462902

0.263494

1.756784

0.0981

RESID(-2)

-0.597805

0.323853

-1.845915

0.0835

RESID(-3)

0.200646

0.358122

0.560272

0.5831

RESID(-4)

0.158346

0.390039

0.405975

0.6901

RESID(-5)

-0.507186

0.340429

-1.489843

0.1557

R-squared

0.360543

Adjusted R-squared

0.040814

S.E. of regression

35260.95

F-statistic

1.127653

Durbin-Watson stat

2.107782

Source: Authors’ Computation, 2013.

The result shows a Durbin-Watson Statistic of 2.12 after a corrective test was conducted. With this result, the model is predictable.

VAR Granger Causality Test

As part of the objectives of this study, the study employed a VAR Granger Causality test in order to ascertain the direction of causality between globalization and Nigeria’s Economic Growth. Table 5 presents the result of the causality test.

Table 5: Granger Causality Test

 Null Hypothesis:

Obs

F-Statistic

Prob. 

 OPEN does not Granger Cause GDP

 23

 0.41821

0.6645

 GDP does not Granger Cause OPEN

 47.1759

7.E-08

 LOGFDI does not Granger Cause GDP

 23

 0.89835

0.4247

 GDP does not Granger Cause LOGFDI

 0.40468

0.6731

BOT does not Granger Cause GDP

 23

 0.22104

0.8038

 GDP does not Granger Cause BOT

 29.2559

2.E-06

Source: Authors’ Computation, 2013.

The result in table 5 shows a unidirectional causality from Economic Growth (GDP) to globalization (OPEN). That is, there is no causality emanating from openness to economic growth. The probability value for the variable OPEN and GDP is 0.6645, which is greater than 0.05. This thus explains that an increase in amount of FDI could lead to a decrease in the growth of the economy. This result shows a negative relationship with GDP. The result seems to support the argument that extractive FDI might not be growth inducing. This result should not come as a surprise because the oil sector where the lion share of FDI is concentrated in Nigeria is highly disconnected to the economy. In the Second row of table 5, the probably values for the variables LOG FDI and GDP are greater than 0.05. Therefore, we conclude that there is no relationship at all between FDI and GDP. That means that an increase in FDI would not affect or bring a change in economic growth. In the third row of table 5 it shows that though BOT has a positive sign in relation to GDP in the regression, it does not cause economic growth. The causation flows from GDP to BOT. That is, if GDP increases, it would bring about a change in balance of trade.

Discussion of Findings

The variable Money Supply also conforms to the a priori expectation of positive sign and its coefficient is significant at 5 per cent as shown in table 3. This position is logical within the framework of the monetarist proposition that economic growth will be enhanced when money supply is increased in an economy. This has the propensity to rapidly heat up the economy by way of inflation which enhances the performance of real sector and financial sector. This finding is consistent with the works of Mansor (2005) who found a positive relationship between money supply and growth in their study of Monetary Policy and Sectoral Effect in Malaysia and Owoye and Onafowora (2007) in their work on Money Demand and Real GDP Growth in Nigeria. They showed how monetary policy through the increase in money supply brought about a great improvement in economic growth of the countries studied. They showed that an increase in money supply leads to increase in disposable income which in turn leads to consumption of more goods and services.

The openness variable which is the focal point of this study does not bear the expected positive sign, although it is highly significant at 5 per cent level. The magnitude of openness variable is 50494.6 as shown in table 3, suggesting that a 1 per cent point increase in openness will lead to 50494.6 per cent point decrease in GDP. This supports the finding of Chete (2003) in Nigeria. He found evidence of inverse relationship between globalization proxied as openness and growth indicator variable. This finding however, is contrary to the work of Carkovic and Levine (2002), who found a positive relationship between OPEN and economic growth. In their work, they found that outward- oriented economies as well as high exports and the sustainability of imported goods and machinery accelerate growth. They also found that trade protection reduces growth rates and suggests that capital account deregulation contribute to economic growth and investment.

The coefficient value of FDI -140800.8 as presented in table 3, which is negative implies that in the short run a one percent increase in FDI will lead to 140800.8 decreases in GDP. This finding supports the works of Bos et al (1974) who examined the effects of FDI by US companies on the host country’s growth. Their results revealed a negative relationship between FDI and OPEN. The explanation offered was that the outflow of profit back to the US exceeded the level of new investment for each year for the period examined. They pointed out that FDI has been parasitic and retarding for growth of domestic industries for export promotion, which affects economic growth adversely.

The finding of this research is however contrary to that of Osinubi and Amaghionyeodiwe (2010) in their study for Nigeria. They found a positive relationship between foreign private investment and GDP growth rate in the short run. Mileva (2008), in analyzing the impact of FDI, loans and portfolio flows on investment in 22 transition countries of former Soviet Union during the period found that FDI has the strongest impact on host countries’ domestic investment. From their (Osinubi & Amaghionyeodiwe, 2010; Mileva, 2008) views, FDI can have a spillover on all firms thereby boosting the productivity of the entire economy. Also that FDI may allow a country to bring in technologies and knowledge that are not readily available to domestic investors, and in this way increases productivity growth throughout the economy.

From the findings, BOT variable has positive relationship with economic growth. This means that increase in BOT will increase the growth of GDP. This is consistent with the finding of Ekpo (1997) who found a positive relationship between BOT and economic growth. He pointed out that there exist two types of final goods: a traditional good that is produced with the use of labor and a high-tech good that is produced with the use of differentiated intermediate goods. Invention of new intermediate goods requires labor and the stock of general knowledge generated nationally in the past.

CONCLUSION AND RECOMMENDATION

The result in table 5 shows the direction of the relationship between economic growth and FDI by using Granger causality test. According to the results of the study, there is no reciprocal causality relationship between economic growth and FDI in Nigeria. The direction of causality relationship is only from GDP to FDI and there is no causality relationship from FDI to GDP. In other words, GDP in Nigeria is one of the factors affecting the flow of FDI. The results suggest that extractive FDI especially oil might not be growth enhancing as much as manufacturing FDI. Also, it is found that OPEN is negative while MS and BOT are positively related to growth. In addition, the results show how OPEN has significant negative effect on growth and changes in growth rates are highly correlated with changes in trade volumes. In fact, there have been a number of attempts to relate trade policy variables to growth rates.

Based on the results of this study, it is recommended that the Government of Nigeria needs to provide appropriate environment to attract manufacturing FDI, should diversify the economy by taking opportunities available in agriculture and other sectors, open up avenues of negotiation capable of promoting free trade through bilateral and multilateral development cooperation, agreements and trade interests, and put up an effective regulatory framework to gain from globalization.

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