Impact of Foreign Direct Investment on Human Development Index in Nigeria

Abstract

Economic growth is a necessary condition for human progress, but not sufficient in itself to guarantee it; therefore, other dimensions and determinants of human development must be investigated by researchers. This paper explores the impact of foreign direct investment (FDI) on the human development index (HDI) in Nigeria for the period of 1972-2013. Johansen cointegration test results reveal a long-term relationship between FDI and human development indices (e.g., school enrollment, life expectancy at birth, and gross national income). Toda-Yamamoto test results show long-run bidirectional causality between FDI and life expectancy at birth. There is also unidirectional causality from FDI to gross national income. These results indicate that FDI has a significant impact on the HDI in Nigeria during the sample period. The striking message our empirical findings conveys is that the effect of FDI on the HDI is a complicated issue, so to obtain optimum results policy-makers should be aware of and take into account the pros and cons of FDI inflows on several aspects of human development.

Impact of Foreign Direct Investment on Human Development Index in South Africa

“…In Africa, we have identified 8 academic papers: Gohou and Soumare (2012), Israel (2014), Gökmenoğlu et al (2018), Tsaurai (2018), Yohanna (2013), Ukamaka et al (2016), and Fauzel (2016) and Magombeyi and Odhiambo (2017). Gohou and Soumare (2012), Israel (2014), Gökmenoğlu et al (2018), Tsaurai (2018), Yohanna (2013), Ukamaka et al (2016), Fauzel (2016) using different samples, different econometric techniques and different indexes of poverty measures found a positive relation between FDI and poverty reduction in the sense that FDI has a positive impact on poverty reduction in Africa .…”

“…Concerning the endogenous variable used for poverty reduction measure, we noticed that apart from Gohou and Soumare (2012), Gökmenoğlu et al (2018) and Fauzel (2016) who used Human Development Index (HDI) as the endogenous variable in their research, other authors used different index of poverty. It is the case of Israel (2014) who used the headcount poverty index, Yohanna (2013) used Per capita income index, Ukamaka et al (2016) used the absolute number of poor people living under the poverty line and Tsaurai (2018) used three measures of poverty namely life expectancy at birth, household consumption expenditure as a ratio of gross national product and mortality rate and infant.…”

“…The second difference is that most of these authors also used different econometrics methodologies. Tsaurai (2018), Gohou and Soumare (2012) used panel Data analysis, Yohanna (2013) and Ukamaka et al (2016) used OLS (Ordinary least Square) technique, Israel (2014) used Error Correction Model (ECM) estimation, Gökmenoğlu et al (2018) used the technique of cointegration and Fauzel (2016) used the dynamic vector autoregressive model. Magombeyi and Odhiambo (2017) in opposite found mixed evidence in their research in south Africa while using three different indicators of poverty namely household consumption expenditure, infant mortality rate, and life expectancy…”

The Common Market for Eastern and Southern Africas (COMESA) Free Trade Area (FTA) and Foreign Direct Investment (FDI) Nexus

“…Likewise, in their new approach to explain the relationship between the FDI and total factor productivity (FDI-TFP) in 51-developing countries during the period 1984 -2010, Li and Tanna (2019) find that both human capital and institutional quality are necessary for the developing countries. Gökmenoğlu et al (2018) studied the relationship between the human development index and FDI in Nigeria and found long-run bidirectional causality between FDI and life expectancy. Morita and Sugawara (2015) find a sufficiently substantial human capital in a -small open economy‖ to be efficient in attracting FDI.…”

“…Albeit, the relationship between FDI and other macroeconomic variables has intensively addressed in the literature. Still, the need for FDI as a source of finance for bridging the gap in development as alternative source to capital loans and ODA is persistingly increased (Agiomirgianakis, Asteriou, & Papathoma, 2003;Buckley, 1985;Dunning, 1979;Dutta, Kar, & Saha, 2017;Gökmenoğlu, Apinran, & Taşpınar, 2018;Okafor, Piesse, & Webster, 2015;Porter, 1990;Prasanna, 2017;UNCTAD, 1999a). Importantly, FDI is considered as a stable source of finance, which promotes technology transfer and generating employment.…”