Foreign Direct Investment - Led Industrialisation: Any Direction for Spillovers in Nigeria?

Abstract

The embrace of the neo-liberal policies has seen developing countries in recent times competing for the presence of foreign direct investment (FDI). This contrasts with the restrictive policies of the import substitution policies that thrived before the reforms of the 1980s. Nigeria, which is one of the top recipients of FDI, has a paradox of a low contribution of the manufacturing sector to Gross Domestic Product (GDP). Therefore, with particular concentration on the quantum of FDI flow to the manufacturing sector, this study assesses the direction of capital inflows for industrial development in Nigeria. Focusing on three industrial indices[1]manufacturing value added, manufactured exports and manufactured output in relation to GDP- and using a data set of 1970-2015, the Granger causal test showed a uni-directional causality from manufacturing sector FDI (MFDI) to manufactured exports; but not for manufactured output nor manufacturing value added. The influence of FDI flows into the manufacturing sector is seen via the limited outcomes within the industrial sector as MFDI caused manufactured exports in Nigeria. Therefore, if there will be any direction for industrialization in Nigeria via capital inflow investment, the benefits of FDI for industrial development is contingent on the ability to domesticate inflows for developmental purposes.