The primary objective of this work is to investigate the nature of the relationship between foreign direct investment (FDI) and trade liberalization in Nigeria and to ascertain the direction of causation between FDI and trade Liberalization.
The work seeks to empirically examine the interlinkages between trade openness and foreign direct investment in Nigeria by relying on annual time series data spanning the period 1990-2018 and using the Engle-Granger two-step co-integration test to establish the existence of a stable long run equilibrium relationship among the variables at 5 percent level of significance.
The study employed the Ordinary Least Square (OLS) regression technique and the pairwise granger causality test to validate the nature of the relationship existing between trade openness and foreign investment in Nigeria. Sequel to the regression result, the author found that although openness is statistically insignificant, foreign direct investment responds positively to changes in trade liberalization. Similarly, the granger causality reveals a zero causality between TOPEN and FDI.
Table of Contents
1 CHAPTER ONE
1.1 BACKGROUND TO THE STUDY
1.2 STATEMENT OF THE RESEARCH
1.3 RESARCH QUESTIONS
1.4 RESEARCH OBJECTIVES
1.5 RESEARCH HYPOTHESIS
1.6 SIGNIFICANCE OF THE STUDY
1.7 DELIMITATION OF THE STUDY
2 CHAPTER TWO. SURVEY OF RELEVANT LITERATURES
2.1 CONCEPTVAL FRAMEWORK
2.2 THEORETICAL LITERATURE
2.2.1 TRADE THEORIES
2.2.1.1 THE MERCANTILIST TRADE THEORIES (1500-1600)
2.2.1.2 THE ABSOLUTE ADVANTAGE TRADE THEORY (1776)
2.2.1.3 THE COMPARATIVE COST ADVANTAGE THEORY (1817)
2.2.1.4 THE HECKSHER-OHLIN MODEL
2.2.1.5 THE NEW GROWTH MODEL
2.3 EMPIRICAL LITERATURE
2.3.1 FOREIGN STUDIES
2.3.2 DOMESTIC STUDIES
2.4 SUMMARY, LIMITATIONS OF PREVIOUS LITERATURE AND VALUE ADDITION
3 CHAPTER THREE. RESEARCH METHODOLOGY
3.1 THEORETICAL FRAMEWORK
3.2 MODEL SPECIFICATION
3.2.1 MODEL ONE FOR OUR PRIMARY OBJECTIVE
3.2.2 MODEL TWO FOR OBJECTIVE TWO
3.3 ESTIMATION TECHNIQUE
3.4 METHOD OF EVALUATION
3.4.1 ECONOMIC CRITERIA: A PRIORI EXPECTATIONS
3.4.2 STATISTICAL CRITERIA: FIRST ORDER TEST
3.4.3 THE ECONOMETRIC CRITERIA: THE SECOND ORDER TEST
3.5 THE PRE-TESTS
3.5.1 STATIONARITY TEST
3.5.2 CO-INTEGRATION TEST
3.5.3 ERROR CORRECTION TEST
3.6 SOURCES OF DATA
3.7 SOFTWARE PACKAGE
4 CHAPTER FOUR
4.1 DESCRIPTIVE ANALYSIS
4.1.1 TIME SERIES PLOT OF THE DATA AND THE TREND ANALYSIS
4.2 PRE-ESTIMATION TEST
4.2.1 THE UNIT ROOT TEST RESULT
4.2.2 ENGLE-GRANGER TWO-STEP CO-INTEGRATION TEST RESULT
4.3 PRESENTATION OF REGRESSION RESULTS
4.4 EVALUATION OF RESULTS
4.4.1 EVALUATION BASED ON ECONOMIC (A PRIOR) CRITERIA
4.4.2 EVALUATION BASED ON STATISTICAL CRITERIA
4.4.2.1 ADJUSTED R2 (CO-EFFICIENT OF DETERMINATION)
4.4.2.2 THE T-STATISTIC
4.4.2.3 THE F-TEST
4.4.2.4 THE ASSUMPTION OF NO SERIAL CORRELATION
4.4.2.5 TEST FOR HETEROSCEDASTICITY
4.4.2.6 TEST FOR THE PRESENCE OF MULTICOLLINEARITY
4.4.2.7 PRESENTATION OF ERROR CORRECTION REGRESSION RESULTS.
4.5 THE SECOND MODEL FOR OBJECTIVE TWO
4.5.1 THE RESULTS OF THE GRANGER CAUSALITY TEST.
5 CHAPTER FIVE
5.1 THE SUMMARY OF THE STUDY
5.2 POLICY IMPLICATION OF THE STUDY.
5.3 CONCLUSION.
5.4 RECOMMENDATIONS OF THE STUDY.
5.5 LIMITATION OF THE STUDY AND SUGGESTION FOR FURTHER STUDY
Research Objectives and Topics
The primary objective of this research is to empirically investigate the relationship between trade openness and foreign direct investment (FDI) in Nigeria between 1990 and 2016. By utilizing annual time series data and econometric testing, the study seeks to determine if trade liberalization serves as a significant catalyst for foreign investment and to ascertain the direction of causality between these variables.
- The impact of trade liberalization on Foreign Direct Investment inflows.
- The relationship between macroeconomic variables like inflation and exchange rates and FDI.
- Assessment of long-run equilibrium relationships using the Engle-Granger co-integration test.
- Causality analysis between trade openness, exchange rates, and foreign investment.
- Policy implications for fostering a business-friendly environment in Nigeria.
Excerpt from the Book
1.1 BACKGROUND TO THE STUDY
International economics, from time immemorial, has occupied itself with issues relating to Foreign direct investment (FDI) both in developed and developing nations. In fact, the steady streams of theoretical and empirical research have been on the impulses and responses that FDI generates in an economy. Foreign Direct Investment induces growth through technology diffusion, human capital development, export promotion, employment generation and productivity growth (Li and Liu, 2005; Liu et.al, 2009; Alfaro et.al, 2010; Lee et.al 2012; Junior, 1999; Yao, 2006 and Ramirez, 2006). Consequent upon the benefits of FDI, the dominant theme of research has been on factors influencing FDI. For instance, previous studies concentrated more on firms and industry specific variables in trying to explore the movement of foreign direct investment. However, currently, attention has shifted to the spatial aspect of FDI and the subsequent consequences on the expansion of multinational enterprises into foreign market.
This shift in attention to the locational aspect of FDI can be attributed to the realization that countries compete with each other to attract a major share of FDI inflows thereby making changes in domestic policies on key factors that attract FDI. No wonder, location variables are main factors influencing FDI but their overall influence now has continued to dwindle and this explains the present emphasis on the role of macroeconomic policies in the host country on FDI inflows (Dunning, 2009), Therefore, it is not surprising that several macroeconomic policy changes were made in most developing nations in the 1980’s. These macroeconomic policy reforms were implemented in most emerging economies not only to enhance domestic investment but also to foster increased foreign direct investment. Over the years, the Nigerian government has adopted several adjustment policies to attract FDI. In particular, the government embraced the structural adjustment programme in the mid 1980’s. which entailed; the liberalization of various sectors of the economy, attraction of foreign investors to the manufacturing sector through tax incentives, privatization of government owned enterprises and liberalization of interest and exchange rates mainly to provide enabling environment for increased FDI inflows into the economy.
Summary of Chapters
CHAPTER ONE: Provides an introduction to the research, background context of FDI in Nigeria, statement of the research problem, objectives, and significance of the study.
CHAPTER TWO. SURVEY OF RELEVANT LITERATURES: Offers a comprehensive review of trade theories (Mercantilism, Absolute/Comparative Advantage, etc.) and empirical studies on the nexus between trade and FDI.
CHAPTER THREE. RESEARCH METHODOLOGY: Details the theoretical framework, model specifications, and the econometric techniques (OLS, Granger Causality) used for empirical analysis.
CHAPTER FOUR: Presents the empirical results, including descriptive statistics, unit root tests, co-integration analysis, and the evaluation of the specified regression models.
CHAPTER FIVE: Summarizes the study's findings, discusses policy implications, concludes the research, and provides recommendations and suggestions for further academic investigation.
Keywords
Trade Liberalization, Foreign Direct Investment, FDI, Nigeria, Economic Openness, Exchange Rate, Consumer Price Index, Granger Causality, Ordinary Least Square, Macroeconomic Policy, Structural Adjustment Programme, Economic Growth, Long-run Equilibrium, Investment Determinants, Econometrics.
Frequently Asked Questions
What is the core focus of this research?
The study examines the nexus between trade liberalization (openness) and Foreign Direct Investment (FDI) in Nigeria over the period 1990-2016.
What are the primary themes covered in the book?
The research covers international trade theories, the empirical relationship between trade openness and FDI, and the role of macroeconomic factors such as inflation and exchange rates.
What is the main research objective?
The primary goal is to empirically investigate the relationship between FDI and trade liberalization and to determine the direction of causality between them.
Which methodology is employed for the analysis?
The study uses the Ordinary Least Square (OLS) regression technique, Engle-Granger two-step co-integration tests, and Pairwise Granger Causality tests.
What topics are discussed in the main chapters?
The main chapters include the theoretical framework of trade, literature review, methodology, presentation of regression results, and policy implications for the Nigerian economy.
Which keywords characterize this work?
Key terms include Trade Liberalization, Foreign Direct Investment, Nigeria, Economic Openness, Granger Causality, and macroeconomic variables.
How does the exchange rate influence FDI in this study?
The research finds a statistically significant positive relationship, suggesting that changes in the exchange rate impact the volume of foreign investment in Nigeria.
What does the study conclude regarding trade openness?
The study concludes that while trade openness is positively related to FDI, it is not a statistically significant determinant of FDI inflows in the Nigerian context, likely due to bureaucratic hurdles and other factors.
- Citar trabajo
- Ugwuja Chinonso Oliver (Autor), 2020, The Trade Liberalization. Foreign Direct Investment Nexus In Nigeria (1990-2016), Múnich, GRIN Verlag, https://www.grin.com/document/512976
