Causal Relationship between Foreign Direct Investment and International Trade in Nigeria

Abstract

Causal Relationship between Foreign Direct Investment andInternational Trade in Nigeria 1. Introduction International trade has been regarded by several economists, beginning from Adam Smith (1772) as an engine for growth and development. Ever since the time he wrote his book titled 'an inquiry into the nature and causes of the wealth of nations', international trade has received world class attention. This was based on the belief that economies need to export goods and services in order to generate revenue to finance imported goods and services which cannot be produced indigenously. All countries in the world engage in trade with at least one country or the other, and this was made possible as a result of globalization via the impact of technology. Foreign Direct Investment on the other hand has been seen as another important agent of economic development, especially in the developing countries of the world, because it enhances the supply of funds for domestic investments, increases the rate of technology transfer, promotes export capacity of the host country through improved productivity, integrate the country into the world economy and also gives access to the world market.The importance of foreign trade and foreign direct investment to nations' economy is reflected in the statistics of the world's trade and FDI. FDI in the world has grown faster than world trade and world output. FDI outflow increases at global level at an average of 13% per year between 1980 and 2015, but declined by 13% in 2016 while both world trade and world output increase at an average rate of 7% per year between 1980 and 2015 at current prices. Furthermore, the world FDI inflows increased significantly from 207 billions' US dollar in 1990 to 1975 billion US dollars in 2007 and 1.5 Trillion US dollars and 1.3 Trillion US dollars in 2015 and 2016 respectively (UNCTAD, 2016). Therefore, Nations that want the development of her economy will certainly focus meticulously on her trade and FDI policies.Nigeria Government also recognized the importance of FDI and Foreign Trade as an engine and catalyst of growth and development. This was as a result of the fact that capital has a major role in fostering real and sustainable development. In an attempt to tap into the benefits accruing from both Foreign Direct Investment and International Trade by the Nigeria government, several strategies have been employed in order to promote FDI inflow and at the same time boost International Trade. Such strategies include regulatory measures and incentive policies, enactment of investment laws, removal of laws that are inimical to foreign direct investment and foreign trade, transfer of state owned enterprises to public own enterprises etc (Shiro, 2009).