IMPACT OF FOREIGN DIRECT INVESTMENT ON THE ECONOMIC GROWTH IN NIGER: 1991-2009

【Abstract】Generally，it is not possible，for a developing country like Niger to grow without import of capital because of the gaps exist in domestic savings and capital requirements.The main objective of the paper is to investigate the impact of Foreign Direct Investment(FDI)on economic growth during the period 1994-2010 in Niger.Using exchange rate and total domestic savings as the explanatory variables and the dependent variable GDP， and using the ordinary least squares (OLS) regression， the result showed that Foreign Direct Investment has significant impact on economic growth in Niger during 1991-2009.Although the relationship between FDI and economic growth was found to be statistically insignificant，there still exists a goal positive relationship.Therefore，to attract more Foreign Direct Investment to Niger the government should encourage more domestic investment，ensure stability and make politic guided openness of the economy in order to make FDI enhancing growth in Niger.

【Key words】Economic growth;Foreign Direct Investment;Ordinary Least Square (OLS)

1.INTRODUCTION

The most and strategic factor influencing economic growth in any country is investment.It is characterized as the main key to charges level of economic productivity.A strong correlation between investment and economic growth was revealed by both theoretical and empirical studies by economists in both developed and developing economics of the world. Niger’s economic growth over the past several decades has been relatively modest except for a brief period during the uranium boom years of 1975-1982 when economic activity intensified.When growth came to an abrupt end with the collapse of the world uranium market， the economy fell into a prolonged period of recession，a slowdown in investment and a weakening of the financial sector.

The Above situation in the country has created savings and foreign exchange gap but it is often claimed that FDI is an important source of capital，that it complements domestic investment，creates new jobs opportunities and is in most cases related to the enhancement of technology transfer，which of course can boost the economic growth of a country like Niger.So the FDI has been chosen as a strategy to enhance the economical growth.The major objective of this article is to present the relationship Between the Foreign Direct Investment and Economic Growth in Niger.

This article includes a literature review of the Foreign Direct Investment and Economic Growth in Niger，and an explanation of the problem that was investigated.The research analysis and results are then discussed.Thereafter the analysis results are discussed followed by conclusions and recommendation.

2.REVIEW OF LITERATURE

2.1 The Foreign Direct Investment

The foreign capital inflows have enormous role.It affects the each year economic growth of positively and negatively.Large number of studies has proven empirically the constructive and destructive impact of foreign inflows on economic growth.Most studies of these have studied the relationship between FDI flows and economic growth. The classical paper of Findlay(1978) represents a first formal example of the potential link between foreign direct investment and technology transfer while the models of the“new growth theory” provides a very useful tool to analyze how the introduction of new inputs and technologies influences the production function of a given economy and how externalities affect the research efforts of the economic agents and the diffusion of knowledge. Hence， endogenous growth theory constitutes the predominant theoretical framework within which recent research studies the impact of foreign direct investment on growth(Borensztein et al(1998);and Martin and Ottaviano，(1999)).

The agreement between the academic world and international organizations that MNCs play positive roles in the development and growth process permit many developing countries to design policies that attracted foreign investment from industrialized countries. This notwithstanding De Mello(1997) in his survey about FDI and growth in developing countries noted that “whether foreign direct investment can be deemed to be a catalyst for output growth，capital accumulation and technological progress is less controversial hypothesis in theory than in practice”.The available empirical literature on the impact of foreign direct investment on growth provides contrasting results not only about the existence of a significant link between foreign direct investment and growth rates of the recipient country，but also about the signs of such relationships.For instance，Hein(1992) find no significant relationship; the coefficient of FDI is significantly positive in Balasubramanyam et al， (1996)while in other papers such influence is positive or negative according to the level of development of the recipient country Borensztein et al，(1998) and De Mello(1999).The presence of diverging results is due to econometric issues and to sampling differences.

There are some factors that may discriminate between positive and negative experiences or FDI include trade policy regime followed by host countries.The impact of FDI flows is significantly positive in economies which pursue an“Export promotion strategy and insignificant in countries which are characterized by an Import Substitution” policy (Balasubramanyam，et al(1996) and Bhagwati(1973).In essence，both differences in development level and trade policy strategy may theoretically help to explain how the influence of foreign direct investment on host country may vary.

2.2 The economic growth in Niger and FDI

In Niger， the ability to sustain growth and meet its external obligations depends on adequate inflow of foreign investment resources， given low level of per capital real income， high average and marginal consumption propensities， low savings and restricted new productive capital formation. It is discovered that there exists a gap between the domestically available supply of savings， foreign exchange， government revenue and skills， and planned level of these resources necessary to achieve growth targets Todaro， (1977).

As Chete and Anyanwu (1998) examined separately the determinants of FDI in Niger using error correction model，Chete concluded that the growth of the economy proxies by GDP growth rate exerts positive effect on FDI but became significant only at the third lag;while Anyanwu identified the size of the domestic market， openness of the economy and exchange rate as the core determinants of FDI flows into Niger.He concluded that there is a positive relationship between the growth of the Niger economy and foreign direct investment.Oseghale and Amenkhienan (1987)examined the relationship between oil exports， foreign borrowing and direct foreign investment in Niger on one hand and economic growth on the other hand， and the impact of these on sectoral performance between 1960 and1984.They concluded that foreign borrowing and FDI impacted negatively on over-all GDP but positively on three principal sectors(manufacturing， transport and communication and finance and insurance).

3.EMPIRICAL ANALYSIS AND DISCUSSION

This section presents the methodology used in this study to analyze the factors determining the impact on FDI on economy growth in Niger. In order to judge the contribution of various components of foreign direct investment on economic growth of Niger，Ordinary Least Square(OLS) method of regression analysis has been applied using the annual data of GDP and FDI.

Sources of data:Total 19 observations over-the study of period 1991 -20 09 have been used for analyzing the relationship.The data for the study have been taken from the Niger Investment Promotion Agency， Chief of the Government statisticians(INS)，Journals，reports，and website. The equation may be expressed as follow.

GDP=b0+b1b2EXR IDF+ +b+ ε3TDS

Where

Real GDP=Gross Domestic Product

Private FDI=Foreign Direct Investment

EXR=Exchange Rate

TDS=Total Domestic Savings

ε-Error term.

GDP = 86061.32 +0.8567 IDF +140.7076 +0.03134 EXR TDS

(28.18) (1.68) (0.92) (0.92)

R2=0.86

T-Values in Parenthesis

The regression coefficient of FDI in the estimated regression line is 0.8567 which implies that 85.67% of the increase in GDP within the period under study was accounted for by the inflow of FD I.The calculated t-statistics for the parameter estimates of foreign direct investment is 1.68.The tabulated t-statistics is 2.13.In the regression the value of the calculated t-statistics for foreign direct investment is less than the value of the tabulated t-statistics.This finding indicates that，the relationship between GDP and FDI is not statistically significant.

The regression coefficient of Exchange rate in the estimate regression lines is 140.7076，which implies that 14070.76% of the increase in Gross domestic product within the period under study was accounted for by the exchange rate policing.The calculated t-statistics for exchange rate is 0.92%.The tabulated t-statistics is 2.13.The value of the calculated t-statistics for exchange rate is less than the value of the tabulated t-statistics.This finding indicates that the relationship between Gross domestic product and exchange rate policy is not statistically significant.

In the estimated regression line above，the regression coefficient of total domestic savings is 0.03134 which implies that 31.34% of the changes in Gross domestic product within the period under study was accounted for by the total domestic savings in the economy.The calculated t-statistics for total domestic savings is 0.92 and the tabulated t-statistics is 2.13.The value of the calculated t-statistics for total domestic savings is less than the value of the tabulate t-statistics.This finding indicates that the relationship between gross domestic Product and total domestic savings is not statistically significant.

The coefficient of determination(R2) is 0.86.It shows that 86% of variation in gross domestic product(our proxy for economic growth) is caused by variations in the explanatory variables(foreign direct investment， exchange rate and total domestic savings).The study set out initially to settle the controversies concerning the effectiveness of stimulating the rate of economic growth in Niger.The regression coefficient of 0.8567 for FD I as shown in the result above indicates that up to 85.67% of the increase in GDP within the period under study is actually accounted for FDI.The t–statistics shows that the relationship between FDI and GDP is not statistically significant to warrant the undue emphasis that FD I can actually fill the investment gap that will give the desired rate of economic growth in Niger.

4.CONCLUSIONS AND RECOMMENDATIONS

The study has revealed that though there is a positive relationship between FDI and economic growth as 85.67% increase in GDP was accounted for by FDI，the relationship was found to be statistically insignificant. It therefore become necessary to advice then that，for FDI to have the desired impact on economic growth in Niger，there is the need for the government to improve the macroeconomic environment. Macroeconomic indices such as price level，interest rate and exchange rate have to be closely monitored.

The study also suggest the need for proper management of foreign exchange market and the reduction of inflationary pressure on the economy as exchange rate accounted for about 85.67% of variation in GDP within the period understudy.Monetary and fiscal policies directed at improving the performance of the economy need to be vigorously pursued.The government should be consistent with policy.

【參考文獻】

［１］Borenztein，DC，et al.，How does Foreign Direct Investment Affect Economic Growth?J. Int. Econ.1998，45:115-135.

［２］Brewer， TL.\"Foreign Direct Investment in Developing Countries:Pattern，Policies and Prospects\"，World Bank Policy Research Working Paper.1991:712.

［３］De Mello，LR and Luiz，R.\"FDI and Growth in Developing Countries\"，The Journal of Development Studies.1997，Vol.34 No.1，pp.1-34.

［４］Jhingan，ML\"Macroeconomics Theory\"10th Edition，pp.603 Vrinda Delhi.2002.

［５］Moshirian，F.In 2008.Globalization，Growth and Institutions.Journal of Banking and Finance，Vol. 32， Issue 4:472-479.

［６］World Bank.\"Financial Flows and the Developing Countries\"， A World Bank Business Quarterly，Quarter 3.2003.

［７］www.stat-niger.org.