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Journal of Policy Modeling 26 (2004) 627–639

Foreign direct investment and growth in Nigeria An empirical investigation
A. Enisan Akinlo∗,1
Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria Received 7 January 2004; accepted 15 April 2004 Available online 25 May 2004

Abstract The paper investigates the impact of foreign direct investment (FDI) on economic growth in Nigeria, for the period 1970–2001. The ECM results show that both private capital and lagged foreign capital have small, and not a statistically significant effect, on the economic growth. The results seem to support the argument that extractive FDI might not be growth enhancing as much as manufacturing FDI. In addition, the results show that export has a positive and statistically significant effect on growth. Financial development measured as M2/GDP ratio has significant negative effect on growth, which might be due to high capital flight it generates. Finally, the results show that labour force and human capital have significant positive effect on growth. These findings suggest the need for labour force expansion and education policy to raise the stock of human capital in the country. © 2004 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.
JEL classification: G12; H24 Keywords: FDI; Economic growth; Error correction; Nigeria

1. Introduction Measuring the effects of foreign direct investment (FDI) on economic growth occupies a substantial body of economic literature. Many theoretical and empirical

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A large proportion of inward inflows to these countries are concentrated in the oil sector. backward and forward linkages are less important in extractive FDI. Theoretical issues Several studies have articulated theoretically and empirically the ways in which inward FDI can contribute to the growth of the host countries economy. extractive industries are subject to large economies of scale. Section 4 provides the empirical results. 3 Over the years. The paper will complement few empirical works that have been done on the subject matter in the case of Africa. constitutes the objective of this paper. Finally. the presence of multinationals may not spur new entrants than in manufacturing. 2. Thus. (2002) and de Mello (1997.g. Theoreti2 For a detailed literature survey. Two.3 Several factors suggest that the indirect benefits of FDI may be less in extractive especially oil industries.E. Nigeria and Angola have been two most successful countries in attracting FDI because of their comparative location in oil despite their unstable political and economic environment. This.628 A. In Section 2. when compared with other regions. probably due to relatively small level of foreign direct investment to Africa. given the pattern of FDI flows to Nigeria (mostly in oil sector) and the apprehensions as regards the benefits from extractive FDI. Moreover. as production in the natural resources sector requires fewer inputs of materials and intermediate goods from local suppliers due to its high capital intensive nature cum the fact that sales are foreign market oriented. a brief summary of theoretical and empirical issues on the relationship between FDI and growth is provided. most existing studies were based on economies where large share of FDI is concentrated on the manufacturing industries. Theoretical and empirical issues 2. e. The remaining discussion is organized into four sections. as such. Moreover. More importantly. 1999) among others. see Akinlo (2003). No known study to our knowledge has been focused on an economy where extractive industries take the lion share of inward FDI as in the case of Nigeria. it is imperative to examine empirically the situation in Nigeria. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 studies have identified several channels through which FDI may positively or negatively affect economic growth.2 However. . The last section contains the concluding remarks. extractive sector (such as oil subsector) is often an enclave sector with little linkages with the other sectors. the transfer of technology between foreign firms and domestic ones may be less in extractive industries where the technology often embodied is extremely capital intensive production.1. not many studies have been reported on the effects of FDI on economic growth. Latin America and Asia. One. it will provide evidence on whether or not extractive FDI leads to growth as many empirical studies have demonstrated in the case of manufacturing FDI. Buckley et al. of course. The specification of the model is contained in Section 3.

2. high savings rate and open trade regimes. 6 These studies include the works of Aitken and Harrison (1999) and Weinhold and Klasen (1991) among others. Other channels identified in empirical works through which FDI bolstered growth include higher export in host country and increased backward as well as forward linkages with affiliates to multinationals (Markusen & Venables.6 At the macro level. Clegg. open trade regime and high technological product would benefit from increase FDI to their economies. & Cross. and their exposure to fierce competition. 7 Some case studies and related discussions are reported in UNCTAD. At the firm level. the degree of openness and the level of technological development. FDI may have negative effect on the growth prospect of the recipient economy if they give rise to a substantial reverse flows in the form of remittances of profits.5 2.4 However. 1998). some identified channels include increased capital accumulation in the recipient economy.E. However. the extent to which FDI contributes to growth depends on the economic and social condition or in short. Host countries with high rate of savings. These conditions include introduction of advanced technology and the degree of absorptive capacity in the host country. in general most of the existing studies were focused mainly on economies with high manufacturing FDI. sufficiently high level of human capital in a recipient economy and some degree of complimentarity between domestic investment and FDI. increase economic growth rate and higher productivity growth. This quality of environment relates to the rate of savings in the host country. the productivity of foreign capital is dependent on initial conditions of host country. World Investment Report (1992).A. . Whether the same findings 4 Evidence of this is provided in the works of Aitken. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 629 cally. Empirical evidence Many empirical works have been provided on the causal relationship between FDI and growth. However. In addition. and Harrison (1997) and Blomstrom and Kokko (1997. Hanson. improved efficiency of locally owned host country firms via contract and demonstration effects.7 Most studies found that FDI inflows led to higher per capita GDP. Essentially. technological change. several studies provided evidence of technological spillover and improved plant productivity. FDI inflows in developing countries tend to “crowd in” other investment and are associated with an overall increase in total investment. Wang. and human capital augmentation and increased exports. 1999). and dividends and/or if the transnational corporations (TNCs) obtain substantial or other concessions from the host country. 2002). the quality of environment of the recipient country (Buckley. what the above reviewed empirical studies suggest is that ways in which FDI affect growth depends on the economic and technological conditions of the host country. 5 Details of this negative effect could be found in Ramirez (2000).

additions to the FDI stock crowd out private capital over time and diminish the growth potential of the host country. Kp . we obtain: ␴ Yt = At (␭L)␣ Kp [{(␭L). Kp and Kf . z is the return to education relative to raw labour input. A is the efficiency of production. L is raw labour input. (4) we generate the following dynamic production function: ␺y = ␺A + z[␣ + ␥(1 − ␣ − ␤)]␺H + [␣ + ␥(1 − ␣ − ␤)]␺L + [␤ + ␥(1 − ␣ − ␤)]␺Kp + [␴␥(1 − ␣ − ␤)]␺Kf (5) where ␺ is the growth rate of i = Y. E is the externality generated by additions to the stock of FDI. Kp .630 A. if ␥ < 0. Kf }␥}]1−␣−␤ ␤ (3) If we factor out Eq. However. respectively.E. Kp is private capital stock.9 If we combine Eqs. (5) says that given ␴ and ␥ > 0 and z is also positive. additions to stock of FDI will augment the elasticities of output with respect to raw labour. unlike most previous ones that used only raw labour. H. intertemporal complimentarity prevails and. such that there are diminishing returns to the labour and capital inputs. L. such that a larger stock of FDI yields a positive externality to the economy. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 are true of extractive FDI is an empirical issue which this study attempts to explore using Nigeria as a case study. we introduced human capital in our model to ascertain its impact on growth. Kf (2) where ␴ and ␥ are. Let ␴ > 0. ␮1−␣−␤ . ␮} = At (␭L)␣ Kp . 9 The same argument have noted in the work of Borsworth and Collins (1999) and Ramirez (2000). H is the measure of educational level. can be represented by a Cobb–Douglas function of the form: ␴ ␥ } ␮ = {(␭L). Eq. 8 A variant of this model has been used by previous researchers such as de Mello (1997) and Ramirez (2000). The externality. the marginal and the intertemporal elasticities of substitution between private and foreign capital. The model We begin by specifying a production function in which foreign direct investment is explicitly incorporated as a factor of production:8 Yt = Af {(␭L). ␮. A. capital and human capital by factor ␥(1 − ␣ − ␤). (1) and (2). It is assumed that ␣ and ␤ are less than one. This is considered because in most cases FDI requires high-level manpower to work with in host country. (3). . ␣ and ␤ are the private capital and labour shares. 3. we obtain: Yt = At (␭L)␣+␥(1−␣−␤) Kp ␤+␥(1−␣−␤) Kf ␴␥(1−␣−␤) (4) Substituting ␭ = Hz and taking logarithms and time derivatives of Eq. ␭ is the level of human capital. Kp . ␤ where ␭ = H z (1) Yt is real output. If ␥ > 0. respectively.

The results of the ADF test are as presented below 1. otherwise negative. h is human capital proxied by the share of university. Empirical results 4. Having established that the variables are I(1). T is the time trend to capture secular trend in output during the period of study. d6 will be negative. we then applied the Johansen–Juselius (1990) technique to determine whether there is at least one linear combination of . 4. The results in Table 1 show that all the variables are integrated of order one. as it should. it will have negative sign. as in the case of Nigeria. where it fails. it will have positive value. However. Where adjustment enhances efficiency. our data were tested for a unit root (nonstationarity) by using the Augmented Dickey–Fuller test (ADF) (Dickey & Fuller. it will have positive sign. 1 for adjustment period 1986–2001 and 0 otherwise. the sign should be positive.1. If it reduces capital flight. If accretions of foreign capital stock complement private capital formation. Fn stands financial depth measured as ratio of money supply broadly defined to GDP. depending on the way the adjustment works. polytechnics and colleges of education students in the population. The estimation techniques and presentation of estimation In order to do any meaningful policy analysis with the results. d4 . I(1). 1981) with a constant and a deterministic trend. it is important to distinguish between correlation that arises from a share trend and one associated with an underlying causal relationship. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 631 Hence derived from Eq.E. To achieve this. Bg is budget balance over GDP. where government consumption compliments private consumption d6 will be positive. If government expenditure crowds out private consumption expenditures. y is the natural log of real GDP. depending on whether financial development reduces or increases capital flight. d8 is also indeterminate. cg is real government consumption. d2 . d9 is also indeterminate. it could be negative. If it increases capital flight. x is real export. d5 and d7 will be positive. kp and kf are stock of private and foreign capital respectively. the equation estimated in our case takes the form: y = d0 + d1 l + d2 kp + d3 kf + d4 h + d5 x + d6 cg + d7 Bg + d8 Fn + d9 D + d10 T + ε (6) Lower case letters denote natural logarithms.A. d10 can be positive or negative depending on whether annual growth rate in the country increased or decreased over the period under consideration. However. l is the labour. d6 is also indeterminate depending on whether or not government expenditure crowds out private consumption. (5) above. and is the difference operator. We anticipate that d1 . d3 is indeterminate. We have included few other variables to determine their impacts on the growth of the economy. D is the adjustment dummy.

(6).12∗ −0. They are both greater than their critical values.68 kp kf −0.29 −3.68 −2.08∗∗ −2.33a −3. .80∗∗ −2.E.58 −4.61 −3.87∗∗ −2. The co-integrating equation (normalized on the growth variable) is as shown in panel B of Table 2.58 −4.30 −3.68 l −2.97 −3. 11 The reported results here are without constant.40∗ −2.54 −3.97∗ −3.97 −3.99∗ −3.65 −3.54 −4.97∗ −3. sample period 1970–2001 −3.29∗∗ bg −3.99∗∗ −2.38 −4. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 Levels First difference Critical value (5%) Critical value (1%) Panel (A): Nigeria: unit root tests for stationarity with constant and time trend.38∗∗ −2.70 −4.77 −3.08 −3.11 10 Given that a co-integrating relationship is present among the selected variables in level. the results obtained were not significantly different.97 −3.97 −3.29 −3.29 kp −1.43 −4.68 fn −0.62 −3.58 −3.58 −4.24∗ −2. The coefficients are all significant as shown by the t-ratios indicated in parentheses.29 cg Panel (B): Nigeria: unit root tests for stationarity with constant only. as an additional exercise. ∗ Denotes significance at the 5% level ∗∗ Denotes significance at 1% level.97 −3. a Variable is stationary at the 10% level. we included a constant term in the procedure and carried out the entire analysis.97 −3. these variables that is I(0).29 fn −0.41a −2.97 −3. Mackinon critical values for rejection of hypothesis of a unit root.68 −2.29 kf x −2.58 −4. an error correction (EC) model can be estimated that is.97∗∗ −3.e.50a −4. 0 can be rejected either using ␭-max or the trace tests statistics.10 The results of the ␭-max and the trace tests are as shown in panel A of Table 2.68 bg −2. However.39 −4. The co-integrating equation (normalized on growth variable) shown in panel B of Table 2 indicates that raw labour and private capital have negative sign while foreign capital and human capital are positive (the sign are reversed because of the normalization process).68 x −2. a model that combines both the short-run properties of the economic relationships in the first difference form as in Eq.58 −4.68 Notes.95 −4.61 −3.97 −3.58 −4.07∗ −2.97 −3.78 −3.58 −4.33∗∗ cg −1.29 y −1.58 −4.27a l −3.58 −4. The results in panel A of Table 2 shows that the null hypothesis of no co-integration i.632 Table 1 Variables A.84 −3.29 h −1.68 h −2. sample period 1970–2001 y −0.29 −2. as well as the long-run information provided by the data in level form.

The insignificance of private capital might be due to small nature of private investment in the economy.32) −0.07 3. while the coefficients on the EC term represents the speed of adjustment back to the long-run relationship among variables. which incorporated such policies as financial liberalization.17 52. This result should not come as surprise because the oil sector where the lion share of FDI is concentrated in Nigeria is highly disconnected from the economy.25 0.019 (1. be pointed out that Bils and Klenov (2000) and Easterly and Levine (2000) among others have argued that factor accumulation is not the key to growth.68 7.15 The results show that labour and human capital have significant positive effects on economic growth.13 Contemporaneous private capital has positive effect but not significant. 16 The large literature on growth stemming from the works of Barro (1991. It must however.96) Note. tests to generate a set of EC models that capture the short.764 (6.84 28.41 16.R.and long-run behaviour of the output relationship.46 27.16 The results seem to demonstrate the importance of labour In fact. stabilization and privatization.52 47. 1987 among others). This was a result of the discovery of oil in large quantities in 1970s.20) Trace 96. 1983.134 (−6. 1989 and Ram.76 Panel (B): Estimates of co-integrating vector y l h kp 1.12 33.21 29. the economy has been dominated by the government sector. 15 Empirical studies by previous researchers equally indicated positive relationship between export and growth (see the work of Feder. Moschos. t ratios are in parentheses.93 7.104 (−9.68 15. Table 3 provides the results for the output growth relationship for the period 1970–2001.000 0. Over the years. Several other studies have noted the enclave nature of the Nigeria oil sector (see Iwayemi. 13 12 .07 20.97 14. The changes in the relevant variables represent short-run elasticities.14 Growth rate of real export has significant positive effect on growth. Next we use the information provided by the L. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 Table 2 Co-integration results (with a linear trend) where r is the number of co-integrating vectors Panel (A): Estimates of ␭-max and trace tests Null Alternative r ␭-max Critical value(95%) 0 ≤1 ≤2 ≤3 ≤4 1 2 3 4 5 48.13 0.34 23.A. The results show that foreign capital only has positive impact on growth in Nigeria after a considerable lag and it is not significant. 1995).E.41 3. 1997) and Gemmel (1996) have consistently found some measure of human capital significant in determining growth.56) 0. the contemporaneous and the first lag of foreign capital have negative sign. 14 Government attempt at reversing the situation was put in place in 1986 with the implementation of the structural adjustment programme.76 kf −0.12 633 Critical value (95%) 68. Government realized a lot of revenue from oil and as such dabbled into almost all the activities that are better provided by the private business actors thereby crowding out private investment.12 This result seems to support our argument that extractive FDI might not be growth inducing as much as manufacturing FDI.

03 (0.22 (1.14 (2.63) 0.64) 0.70 0.43) 0.058) 0.01 (4. AR (1) 1 0.08) 0.06) 0.18) 0.43) 4 0.11) 0.71) 0.97) −0.008 1.03 (−3.13) 0.71) −0.22) −0.76) 5 0.007) 2 ln Yt ) A.01 (0.008 1.03 (−4.87) 0.29 (2.51) −0.75 0.02 (1.28 (3.005 (0.16 (1. .03 (5.93) 0.02 (1.70 0.08 (2.17 (2.08) −0.50) 0.43 0.24 (3.99) 0.01 1.70 – Note.40) 0.55 0.001 (−0. All variables are as defined earlier.36) 6 0.59) 0.44) −0.007 (3.07 (2.58 0.60 0.W.21 (2.05 (0.008 (0.001 (0.88 0.10 (1.13 (2.54) 0.02 (1.27) −0. D.13) −0.03 (−5.32) −0.26) −0.009 1.32 (3.07) 0.84) 0.74) −0.41) 0.005 (2.001 (−0.38 (−4.48) 0.09) −0.33 (−3.47) 0.62) 0.001 (0.002 (−0.52) 0.01 (3.13) 0.16) 0.23) 0.634 Table 3 Nigeria: Error Correction Model (dependent variable OLS regressions Variables Constant ln Lt ln Ht ln Kp ln Kft−3 ln Kft−4 ln Kft−5 ln X ln Cgt−1 Fn D Bg T Ect−1 R −2 S.008 1.05) 0.38 (−3.E.47) 0.32 (−4.18 0.004 (0.03 (−4.82) −0.92) 0.59 0.01 (4.28 (2.80 – 0.05 (2.01 (0.60 0.20) −0.01 (0. t statistics in parentheses.11 0.07 (2.11 (1.08 (2.24 (3.74) 0.60 0.008 1.17 −0.E.20) 0. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 3 0.004 (−0.001 (0.15) −0.

1042 0. via the higher education system has increased particularly with the reforms. and education on the growth prospect of the Nigerian economy.0743 0.0870 0. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 Table 4 Nigeria: Forecast Evaluation for Error correction Models Equation Sample: 1970–2001 Root mean square error (RMS) Mean absolute error (MAE) Theil inequality coefficient (TIC) Bias proportion (BP) Variance proportion (VP) Covariance proportion (CP) Sample : 1970–1996 RMS MAE TIC BP VP CP Sample : 1980–2001 RMS MAE TIC BP VP CP 3 0. However.0013 0.0092 0.8281 Note.1407 0.0878 0.9588 0.0044 0.2209 0.0040 0.1207 0.0776 0.0645 0.0006 0.9116 0. It might be that in Nigeria. Collier. Also.9711 0.0042 0.0312 0. Our measure of financial development has significant negative sign in all the reported regressions. and Maurinde (1998) actually found a negative and significant effect of demand deposit on capital flight. the efficiency with which the stock of technical knowledge is translated into technologies in the market. The two are largely offsetting with the result the coefficient of labour becomes insignificant.8773 0.0181 0.0866 0.0039 0. 18 The study by Lensink.0001 0. It could be that financial deepening encourages capital flight by facilitating international capital transfers.0036 0.0944 0.0966 0.0038 0.0851 0.1126 0.0049 0.0042 0.0. Since the financial markets have been liberalized and the international market deregulated.1657 0. Hermes.E.18 Budget 17 It must be pointed out that the introduction of export variable counterbalanced labour variable.9774 0. and Pattillo (2001) using M2/GDP ratio as a measure of financial deepening find that it has no statistically significant effect. firm statement cannot be made on this as the coefficient is not significant.7816 7 635 0. it could be that the personnel management systems in firms and enterprises allow well-educated employees to contribute meaningfully to the enterprises.A.0229 0.0771 0.1089 0.9344 0.0899 0.0195 0.0010 0. This suggests that financial development adversely affected growth during the period under consideration. the domestic capital might have moved abroad where risk-adjustment returns are higher. . Forecast evaluation estimates generated with EVIEWS 4.1044 0.17 Lagged government consumption has negative sign suggesting that government expenditure crowds out private consumption however.1004 0.0039 0.1406 0.0525 0.0736 0.6383 4 0. Hoeffler.0909 0.0218 0.1266 0.0970 0.

114). is what are the policy implications of these findings for the Nigerian economy? One. and as the theory predicts.19 This is suggestive as the coefficient is not significant. Concluding remarks The links between FDI and growth has been examined.E. The question. where reduction in the budget deficit facilitates private sector’s access to bank credit economic activity could be stimulated.1146). In addition. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 balance over GDP has positive sign but not significant. The results show the forecasting power of the models is relatively good as the Theil inequality coefficients are less than 0.20 Moreover other statistics as shown in Table 4 exhibit good performance as are close to their ideal values.0126). labour and human capital are positively related to growth. Government needs to provide appropriate environment to attract manufacturing FDI. The results suggest that extractive FDI especially oil might not be growth enhancing as much as manufacturing FDI. Also. The time trend has significant positive trend. 20 In general. it is found that export. It is possible that improved fiscal performance especially with introduction of reforms in mid 1980s allowed the real exchange rate to converge towards its equilibrium path and this policy mix by accelerating output growth generated an endogenous improvement in the budget balance. the forecasting power of a model is adjudged to be relatively good if the coefficient is below . Theil inequality coefficient obtained from historical simulation of the growth Eqs. opening of formerly “priority” sectors to investors and provision of adequate security among 19 In addition. then. the EC shows that a deviation from long-run growth this period is corrected by about 38% in the next year. Such measures as relaxation or elimination of restrictions on profits and capital remittances. . This possibly reflects the slight growth experienced during the period under consideration. The EC models were equally used to track the historical data on economic growth in Nigeria.3. 1986 (P = . the EC terms are negative and significant in most of the reported equation in Table 3. the results show that the growth would be enhanced if FDI inflows are channeled into sectors other than the oil sector.3 (Theil. Using regression formulation 6. (4) and (6) are as shown in Table 4. 5. The dummy variable has negative sign but not significant. 1966). The Chow breakpoint tests suggested that the hypotheses could not be rejected for significant year 1983 (P = . the results show that private capital has insignificant positive effect on growth. We conducted stability tests to determine whether the null hypothesis of no structural break could be rejected at 5%. and 1992 (P = . FDI in Nigeria only has a positive effect on growth after a considerable lag.636 A. (2). The relative fit and efficiency of EC regression is averagely alright.

policies to encourage private holders of external assets to repatriate their capital should be implemented. greater openness. The country must endeavor to keep legitimate private capital at home by encouraging domestic investment. Government needs to provide the legal and administrative framework for effective privatization. however. and increased private participation will no doubt lead to higher exports. For example. that these policies could have adverse effects on already weak private sector in the economy. However. much more than this. The results equally suggest the need to increase export for greater growth performance. It needs be pointed out.E. These possibly might include tax amnesties and raising the domestic interest rate. higher employment with possible multiplier effects on the economy as a whole. and improve the country’s infrastructure. This will lead to increased private participation. It will engender competition and greater efficiency. there is the need to ensure transparency in the exercise. Once the reverse flows of profits and capital are deducted from the gross inflows of FDI into the country. the contribution of FDI to the financing of private capital formulation may be highly jeopardized. the negative sign of M2/GDP ratio possibly suggests the need to stem the problem of capital flight in the country. Finally. efforts should be made to ensure that the positive “spillover” effects associated with FDI offset the short term costs associated with the implementation of these incentives. It should be emphasized that the country could benefit from increased FDI inflows into the oil sector if the sector is integrated into the economy. caution should be exercised to ensure that the necessary conditions for privatization are in place so as to avoid the failure experienced during the first privatization exercise in 1988. As a matter of fact. the results suggest reduction in government size in the economy. greater spillover from FDI inflows and higher economic growth in the country. development policies that aimed at ensuring greater private (domestic and foreign) participation in the economy will lead to increase in exports. More importantly. In sum. This tends to buttress the argument that the economy needs to be opened up through increased private participation. incorporate new technologies in the export sector.A. A major policy in this direction is the liberalization of the oil sector. . policies that facilitate closer integration of the oil sector to the economy. The findings on human capital point to the need for Nigeria to follow an educational policy to raise stock of human capital. However. This is better achieved through privatization of most government owned enterprises in the country. Undoubtedly. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 637 others should be put in place. Steps to level the legal and administrative playing field for domestic investors and to promote a stable macroeconomic environment could contribute to stemming capital flight. All the same. foreign investors participating in the debt conversion programme could be encouraged to direct their investments to projects that significantly increased production capacity.

the results were not significantly different.. 89. (1997). Do domestic firms benefits from direct foreign investment? American Economic Review. H. Selected Statistics on African Countries (2000) A. & Harrison. A.. G. B. Akinlo / Journal of Policy Modeling 26 (2004) 627–639 Appendix A A.1. 605–618. It is the flow of gross investment during period t. All real variables were obtained by deflating nominal values by CPI. J. polytechnics and colleges of education students in the population Economically active labour force Real export Government budget balance over GDP Real government consumption Time trend Financial development variable measured as ratio of money supply broadly defined over GDP (M2/GDP). Aitken. E. H L X Bg Cg T Fn References Aitken. Sources of data Source (a) Source (b) Source (c) Source (d) International Monetary Fund. J. and ␦ is the rate at which private and foreign capital depreciates in period t − 1. . apart from 5% rate of depreciation. and export behaviour. In this work. Hanson. Nigeria’s Principal Economic and Financial Indicators (various years) African Development Bank. E. However. Description and measurements of variables Y Kp Kf Real output (measured as real GDP) Private capital stock (private investment) Stock of foreign investment. where Kt −1 is the stock of capital at time t − 1. which actually made investment almost zero during the period. the initial stocks of private and foreign capital were estimated by aggregating over 10 years of gross investment 1961–1970. We adopted 10 years initial stock in view of the political crisis that engulfed the country between 1965 and 1970.638 A. M2 is narrow money (M1) figures added to quasi-money. & Harrison.E. Spillovers. (1999). we used 10. 103–132. 43. International Financial Statistics Yearbook (various years) World Bank. foreign investment. A. B.. The estimates of Kp and Kf were generated using standard perpetual inventory model of the form: Kt = Kt −1 + It − ␦Kt −1 . Human capital measured as share of university.2. Journal of International Economics. World Development Indicators (various years) Central Bank of Nigeria (CBN).

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