European Business & Management 2016; 2(2): 40-46 http://www.sciencepublishinggroup.com/j/ebm doi: 10.11648/j.ebm.20160202.14 Effect of Foreign Direct Investment on Economic Growth in Nigeria Emmanuel Isaac John Department of Banking and Finance, Faculty of Management Sciences, Nnamdi Azikiwe University, Awka, Nigeria Email address: Johnemmanuel904@gmail.com To cite this article: Emmanuel Isaac John. Effect of Foreign Direct Investment on Economic Growth in Nigeria. European Business & Management. Vol. 2, No. 2, 2016, pp. 40-46. doi: 10.11648/j.ebm.20160202.14 Received: August 13, 2016; Accepted: November 19, 2016; Published: December 20, 2016 Abstract: There have been controversies regarding the effect of foreign direct investment on the growth of the host country’s economy. While some researchers suggest a positive effect, others found a negative effect. It is against this backdrop that this study examined the effect of foreign direct investment on economic growth in Nigeria. The study covered the period 1981 to 2015. The study used secondary data derived from the Central Bank of Nigeria statistical bulletin and publications of the National Bureau of Statistics. The study employed multiple regression technique and Gretl 1.9.8 econometric software was used for the analysis. The results showed that foreign direct investment has a positive and significant effect on gross domestic product. It was also found that exchange rate has a positive but not significant effect on gross domestic product. Thus, the study concluded that foreign direct investment has a positive effect on economic growth in Nigeria as opposed to the findings and belief of some researchers and other stakeholders that foreign direct investment has a negative effect on the growth of the economy. It was recommended that government should improve the state of infrastructures in the country in order to encourage meaningful investments in the economy. Also, the Central Bank of Nigeria should come-up with policies that will help to stabilize the Naira exchange rate vis-à-vis the major currencies of the world, like the United States Dollar. This will boost the investors’ confidence in the economy. Keywords: Foreign Direct Investment, Exchange Rate, Economic Growth, Nigeria 1. Introduction Many policy makers and academics argue that foreign direct investment (FDI) can have robust positive effects on a host economy’s development. In addition to the direct capital financing it supplies, FDI can be a source of valuable technology and know-how and enhances linkages with local firms, which can help to boost growth in an economy. Based on these arguments, industrialized and developing countries have offered incentives to encourage foreign direct investments in their economies (Melnyk, Kubatko and Pysarenko, 2014). Foreign Development Investors are mostly invited by transition and developing countries in a hope that through this international activity, the positive experience from developed countries will come to their domestic economies (Silvio, and Ariel, 2009). Thus, as foreign direct investment flow increases in an economy, export volume of that economy increases (Pulatova, 2016). For a developing country like Nigeria, foreign direct investment is considered as a way of transferring technology and capital from other developed and even developing countries to the domestic economy. According to Yu, Ning, Tu, Younghong and Tan (2011) FDI is considered to be one of the major channels of technological transfer. Melnyk, Kubatko and Pysarenko (2014) believe that when foreign direct investment comes to a domestic country (in specific business), that firm receives a competitive advantage due to the usage of new knowledge, experience, ways of production and management. Adding that current successful economic growth of developing countries is explained by “catch up effect” in technological development with developed countries. Lahiri and Ono (1998) observe that higher efficiency of foreign firms may help lower prices and hence increase consumers’ surplus. Furthermore, FDI raises employment by either creating new jobs directly or using local inputs, thus, creating more jobs indirectly. According to Koojaroenprasit (2012), FDI is an important factor which contributes to economic growth through technology transfer. Capital accumulation and augmentation of human capital