Background to the study
Manifestations of corruption had also found right footing in Nigeria even before independence and kept assuming different dimensions after independence. For instance, Nnamdi Azikiwe as Premier of Eastern Nigeria was exposed by the Foster Suffon Tribunal of Enquiry of 1956 into the African Continental Bank (ACB) to have abused his office and divert huge sums of Eastern Nigeria’s government funds into his own bank, the ACB. Similarly, the GBA Coker Commission of Inquiry of 1962 revealed how Obafemi Awolowo diverted huge sums of money and shared it with his colleagues and party members (Osoba, 1996).
The desire rid Nigeria of ‘corruption’ was part of the justifications the military gave for intervening in the democratic governance of Nigeria in 1966. Yet its anti-graft war was such that “corruption was used to check corruption by corrupting the system all the more” (Mathew et. al., 2013).
Goodluck Ebele Jonathan’s administration appears to have paid no attention to corruption and its scandalous manifestations. Jonathan’s quest and ambition for second term in office beclouded his sense of judgment and totally bamboozled his political will from fighting corruption to cementing loyalists in all regions of the ountry through dubious transactions
Scandalous cases of embezzlements, misappropriation, and diversion of public funds characterized his tenure in office. Jonathan was known to have pampered corruption and had once vindicated his cronies by stating that “stealing is not corruption”. Between May 6, 2010 when Jonathan stood in for late Yar’adua and 2012, over N5 trillion of government funds were stolen. According to the Nuhu Ribadu led Petroleum Task Force Report, Nigeria lost 250,000 barrels of crude oil daily at the cost of $6.3 billion (N1.2 trillion) a year. This puts the total amount lost through oil theft in the two years of Jonathan government at over $12.6 billion (N2 trillion). In July, 2012, The House of Representatives Committee on Environment discovered a tree seedling fraud worth N2 billion awarded by Ecological Fund Office. In the Nigerian telecommunication sector, the 450MHz frequency which was valued at $50 million, was allegedly sold for less than $6 million (a difference of $44m or N6.9b) by Nigerian Communication Commission. Corruption manifested in Jonathan’s first two years in office such that KPMG, a global audit and financial advisory firm, resolved that Nigeria accounted for the highest number of fraud cases in Africa in the first half of 2012 (Adeyemo, 2012).
Despite the evidence to proof the scandalous allocation of N255 million for two bulletproof BMW cars by the Aviation Minister Ms. Stella Oduah, nothing was done and the ‘honourable’ minister completed her tenure.
Wide spread corruption seems to be one of the main factors that prevent poor and developing countries to catch up with the rich and developed ones. Although corruption was not given an explicit recognition in the traditional economic theories, it has in recent times become a globally recognized policy variable especially in less developed countries.
Corruption exists all over the world in developing and developed countries. However, it is found worse off in those countries where institutions such as the legislature and judiciary are frail; where neither rule of law nor adherence to formal rules are strictly observed; where political support is standard practice; where the independence and professionalism of the public sector has been eroded; and civil society lacks the means to bring public pressure against corruption in the government (Lawal 2007). According to the Transparency International (2014), the Corruption Perceptions Index (CPI) in the year 2013 indicates that no region ocountry in the world is immune to the damages of corruption, the vast majority of the 183 countries and territories assessed score below 05 on a scale of 0 (highly corrupt) to 10 (very clean). New Zealand, Denmark and Finland were found on top of the list, while Myanmar North Korea and Somalia are at the bottom. The World Bank identified fraud and corruption as great impediments to economic and social development. Corruption makes economic development sluggish by distorting the rule of law and weakening the institutional foundation on which economic growth depends. The harmful effects of corruption are especially severe on the world’s poorest people, who are most reliant on the provision of public services, and are least capable of paying the extra costs associated with fraud and corruption (see World Bank, 2004; Al-Sadig, 2009; Wang & You,2012). Azam et al. (2013) found that FDI positively and corruption negatively affects economic growth in a set of five South East Asian countries
There are two major views as regards the impact of corruption. The first school of thought perceived corruption as having a relatively low transaction costs compared to the benefits derived from increase in employment and income. Bribery is perceived to help grease the wheel from immediate transaction and contractual businesses. This view was based mainly on “coarsion theory” which states that market transactions are costless; a rearrangement of right will always takes place if it leads to an increase in production value (Prakasam.2008). Also, corrupt practices such as speed money is perceived to be capable of enabling individuals to avoid bureaucratic delays and that government employees who are allowed to levy bribes would work harder thus having a positive return on investment (Leff, 1964).
The importance of foreign capital for the development of the economies of third world nations like Nigeria has been well researched and documented (Dutse, 2008). Many studies have shown that the single largest component of net capital inflows to emerging markets is foreign direct investment (Deutsche Bundesbank, 2003). Many experts have argued that foreign direct investment (FDI) is capable of accelerating the process of economic growth of a developing country (Obiwona, 2001).
Research has shown that most developing countries including Nigeria have not appreciably exploited Foreign Direct Investment (FDI) as a source of external financing of the economy due to a non-conducive investment climate and the attitude of the host nations (e.g Asiedu, 2002; Balasubramanyam, 2001).Empirical evidence has shown that foreign direct investment responds to economic fundamentals, official policies and financial market practices (Dinda, 2009; Taylor and Sarno, 1997).Among the benefits that are said to be associated with the inflow of properly utilized FDI are the assistance if offers developing counties to acquire advanced technology and critical managerial skills which can increase local productivity, create additional jobs, lower production costs and provide workers with higher wages (Cohen, 2007). In addition to the foregoing, it has been argued that FDI helps developing countries in supplementing their domestic savings by making available capital from overseas which is very important because domestic capital markets in such countries are usually inadequate for the financing of the corporate sector (Adeoye, 2009).
It is further argued that FDI helps developing countries to gain access to foreign markets for goods and services for the people of the recipient country (Obiwona, 2001). In summary, the protagonists of FDI are of the view that it can make a positive contribution to the host economy by supplying capital, technology and management resources that would otherwise not be available in addition to bringing jobs to a host country that would otherwise not be created there (Hill, 2003). All of these benefits have been identified as indispensable factors for the economic growth and development of a third world nation. However, some critics of FDI have argued that the damage FDI has done to the economies of their host nations is enormous. The positive contribution arising from the resource transfereffects are said to be negated by the possible adverse effects of FDI on competition within the host nation, the adverse effects on the host country’s balance of payments and the perceived loss of national sovereignty and autonomy (Hill, 2003). Some other frequently mentioned criticisms of FDI include the domination and exploitation of host countries to the exclusive benefit of the home source of the FDI can cause to host countries in some primary sectors in the process of providing goods and raw materials for advanced country markets (Kragman and Obstfeld, 2006).Although these criticism appear logical, credible and convincing, empirical evidence and statistical reports suggest that the benefit which FDI offers outweigh its costs to the host countries (OECD, 2002). Indeed, the criticisms notwithstanding, many Federal and State Government officials in Nigeria including Federal Ministers and State Governors continue to visit advanced nations of the world including USA, Europe, Canada, Australia, South Korea, China and Japan to look for foreign investors in addition to offering incentives to foreign firms such as tax incentives, low interest loan, grants, subsidies, increased spending on infrastructure, the creation of export processing zones and other concessions. While such efforts appear necessary to facilitate the inflow of foreign capital for the development of Nigeria’s economy, the success of the initiative may be short lived because it depends largely on whether the Nigerian government is able to create an appropriate and positive business environment that can reduce the incidence of corruption and free investors from its negative impact. In a country where the state of business and economic infrastructure such as roads, power and security is generally considered deficient and parlous, a high incidence of corruption may further discourage foreign investors and the inflow of FDI.
Statement of the problem
One of the major economic problem in Nigeria is corruption and low capital formation to finance the necessary investment for economic growth. Capital was one regarded by most economists as the principal obstacle to economic development and this is lot attentions were paid to capital formation. The role of capital in economic growth is still regarded as very crucial both the theory of ‘big push’ and the concept of ‘vicious cycle’ all a test to the crucial role of capital in the growth process. The theory of ‘big push’ simply state that the stagnant and undeveloped economies need huge and sudden injection of large capital from foreign direct investment.
However, FDI inflow is found to be related to export growth while human capacity building is found to be related to FDI floe.
Corruption makes investment expensive and therefore, slowdowns the process of economic development and it is assumed that in the absence of corruption more FDI can be enhanced. Therefore, this study will contribute well in the literature and will certainly give another look at the effect of endemic corruption on FDI inflows in Nigeria. Therefore, the study intend to find out how corruption, and foreign direct investment have effect on economic growth in Nigeria
Objective Of The Study
The major objective of this study is to investigate the effect of corruption and foreign direct investment inflow on economic growth in Nigeria
The specific objectives of the study are as follow
- To find out the level of corruption on FDI inflow in Nigeria
- To investigate the level of economic growth and the level of FDI inflow into Nigeria
- To assess the effect of corruption and FDI inflow on economic growth in Nigeria
The following research question will be use to guide the study
- Does the level of corruption have effect on FDI inflow in Nigeria
- To what extent does the level of economic growth have effect on FDI inflow in Nigeria
- What effect does corruption and FDI inflow have on Nigeria Economic
The following null hypothesis are forumulated at 0.05 level of significance
- There is no significant relationship between the level of Corruption and the level of FDI inflow
- There is no significant relationship between the level of economic growth and the level of FDI inflow into Nigeria.
Significance Of The Study
This study is one of the most important topics, not only in developing countries that need presence of FDI like Nigeria but globally as testified by the number of papers, books and international conferences on this subject that have taken place over the last few years. Also, the subject matter is very important to the Nigerian government now that it has big challenge of reshaping the economy.
this study would be a great deal of interest to the following;
– Investors, The government, The academics, The policy makers, Researchers, and The general public
Investors: This study is vital for investors in the sense that it would provide information on the determinants of FDI in Nigeria and would also help them to analyze every aspect of their targeted investments in the country.
Government: This study plays an important role in shaping, designing and implementing fiscal policies and at the same time would help the government to think about new and better ways of doing things and provides new understandings and discoveries that benefit our society.
Academics: This study would impact knowledge to academics in the area of FDI and its determinants in Nigeria.
Policy makers: The study would help the policy makers in the country to better plan and address issues and come up with solutions.
Researchers: This study would enable the researchers to investigate and understand trends and relationships of variables involved in this study and probably build on it in their studies on FDI inflow and corruption
SCOPE OF THE STUDY
The focus of the study is to verify if there has been any effect toward the economic growth and development of the Nigeria economics via gross domestic product (GDP) through corruption and foreign direct investment for the period.(1997-2014)
This study will however be limited to investigate the effect of corruption and FDI inflow on Nigeria Economic growth
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