The Effect of Foreign Direct Investment on the Nigerian Manufacturing Sector

Abstract

This study examined the effect of Foreign Direct Investment (FDI) on the Nigerian manufacturing sector spanning 1975 – 2008. Nigeria has embarked on several policy measures aimed at enhancing the manufacturing sector’s productivity coupled with the inflow of FDI to the country. The controversy is that the policy makers are not convinced that the potential benefits of FDI could be fully realized. The methodology adopted for the study is the Vector Auto Regression (VAR), co-integration and error correction techniques to establish the relationship between FDI and the growth of manufacturing sector. The findings from the study show that FDI has a negative effect on the manufacturing productivity and is statistically significant. Arising from the findings, it is recommended that government should create an enabling environment for foreign investment and the monitoring of FDI benefits, with particular focus of NEPAD and NEEDS through the instrumentality of the MDGs; thereby mustering the capacity for sustainable growth in the manufacturing sector.

Key words: FDI; Manufacturing sector; Productivity; Growth, Policy