IMPACT OF MONETARY POLICY ON FOREIGN DIRECT INVESTMENT IN NIGERIA

0
872

ABSTRACT       

Monetary policy is believed to have huge benefits on the economy especially if it well for formulated and implemented. This study was aimed at investigating the impact of monetary policy on foreign direct investment in Nigeria within the period 1970-2016. The study used secondary data on foreign direct investment and some key of monetary variable like broad money supply, interest rate and monetary policy rate. An econometric approach of ordinary least square was used to empirically analyze the data. The finding reveals that exchange rate and gross domestic product impacted positively and significantly on foreign direct investment while monetary policy rate and broad money supply had an inverse but significant effect on foreign direct investment in Nigeria. The model has a high explanatory power of 79.72% and a significant F-statistic which indicated that the model has a goodfit and be relied upon. Therefore, the study recommends the identification of the maximum level of broad money supply that is beneficial to the economy in the area of an inflow of foreign direct investment as well as the utilization of the huge market size to the advantage of the deferent sector of Nigerian economy.

TABLE OF CONTENT

TITLE PAGE       –        –        –        –        –        –        –        i

CERTIFICATION         –        –        –        –        –        –        –        ii

DEDICATION     –        –        –        –        –        –        –        iii

ACKNOWLEDGEMENT       –        –        –        –        –        iv

ABSTRACT        –        –        –        –        –        –        –        v

TABLE OF CONTENT –        –        –        –        –        –        vi

CHAPTER ONE: INTRODUCTION

  1.           Background to the Study                  –        –        –        –        1
    1.           Statements of the problem      –        –        –        –        5
    1.           Objectives of the  study           –        –        –        –        8
    1.           Research hypotheses     –        –        –        –        –        9
    1.           Significance of the study                   –        –        –        –        10
    1.           Scope of the study                   –        –        –        –        –        10
    1.           Organisation of the study                 –        –        –        –        11
    1.           Definition of terms         –        –        –        –        –        11

CHAPTER TWO: LITERATURE REVIEW AND

THEORETICAL FRAMEWORK

2.1     Concept of monetary policy    –        –        –        –        14

2.2     Objectives of monetary policy          –        –        –        19

2.3     Instrument of monetary policy                   –        –        –        21

2.3.1  Open Market Operations                  –        –        –        –        22

2.3.2  Cash reserve requirement                  –        –        –        –        22

2.3.3  Discount window operations            –        –        –        23

2.3.4  Interest Rate                  –        –        –        –        –        –        24

2.3.5  Moral suasion      –        –        –        –        –        –        24

2.3.6  Exchange rate       –        –        –        –        –        –        25

2.3.7  Direct credit control       –        –        –        –        –        25

2.3.8  Lending by Central Bank                  –        –        –        –        26

2.3.9  Prudential guidelines      –        –        –        –        –        26

2.4     Concept of foreign direct investment                   –        –        27

2.4.1 Gains of foreign direct investment    –        –        –        30

2.5     Empirical literature on monetary policies

and foreign direct           investment  –        –        –        –        31

2.6     Theoretical framework   –        –        –        –        –        35

2.6.1  Classical theory    –        –        –        –        –        –        36

2.6.2  Keynesian theory           –        –        –        –        –        39

2.6.3  Monetarist theory                    –        –        –        –        –        43

2.6.4  Flow theory of capital movement     –        –        –        45

CHAPTER THREE: RESEARCH METHODOLOY

3.1     Research design    –        –        –        –        –        –        48

3.2     Model specification        –        –        –        –        –        48

3.3     Sources of data    –        –        –        –        –        –        50

3.4     Methods of data collection      –        –        –        –        51

3.5     Techniques of data analysis    –        –        –        –        51

3.5.1  Economic “A Priori” criteria   –        –        –        –        52

3.5.2  Statistical Criteria (first–Order Test)          –        –        –        52

3.5.3  Econometric Criteria (second–order Test)  –        –        54

3.6     Limitation of the study  –        –        –        –        –        54

CHAPTER FOUR: RESULT PRSENTATION, ANALYSIS AND

    DICUSSION OF FINDINGS

4.1     Result Presentation        –        –        –        –        –        55

4.2     Analysis of Data  –        –        –        –        –        –        56

4.2.1 A priori Expectation      –        –        –        –        –        56

4.2.2  Statistical Criteria                   –        –        –        –        –        57

4.2.3  Econometric Criteria      –        –        –        –        –        58

4.3     Test of Hypotheses        –        –        –        –        –        59

4.4     Discussion of Findings –        –        –        –        –        64

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATION

5.1     Summary of Major Findings   –        –        –        –        66

5.2     Conclusion –        –        –        –        –        –        –        67

5.3     Policy Recommendation          –        –        –        –        –        68

          References            –        –        –        –        –        –        73

CHAPTER ONE

INTRODUCTION

1 .1           BACKGROUND TO THE STUDY

Monetary policy is one of the macroeconomic instrument use in controlling the economy, it refers to the specific actions taken by the monetary authority (central bank)to regulate the value, supply and cost of  money in an economy with a view to achieve predetermined macroeconomic goals, often targeting the rate of interest (Obafemi & Ifere 2015). Monetary policy is usually used to attain a set of objectives oriented towards the growth and stability of the economy. The need to regulate money supply isbased on the knowledge that there is a stable relationship between the quantity of money supply and economic activity(Obafemi & Ifere 2015).

          Monetary policy includes a number of policies by which a country through the Central Bank Authority uses to control its money stock so as to achieve macroeconomic goals. It is a major economic stabilization tool which involves measures designed to regulate and control the volume, cost, availability and direction of money and credit in an economy with the aim of achieving specific objectives (Anyanwu, 1993). It involves all actions taken by the monetary authorities to affect the monetary base through influencing the availability and cost of credit in pursuance of sustainable growth of output, price stability and a healthy balance of payment position (Iyoha&Oriakhi 2002).

IMPACT OF MONETARY POLICY ON FOREIGN DIRECT INVESTMENT IN NIGERIA