FDI Impact on RGDP in Germany & Nigeria - Essay Sample

Introduction

This study majorly estimated the impact of FDI on both Germany and Nigeria's economic performance. Dwelling on the empirical literature, this study used several variables to determine the effect of ICT on the economic growth of these two nations. The Real gross domestic product (RGDP) was used which served as the independent variable while the explanatory variables were rear exchange rate (RER), foreign direct investment (FDI) and openness index (OPI).

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RGDP is term that is used in macroeconomics to measure the value of the economic output regarding a country for a particular period provided for price changes (Hanemann and Huotari, 2015). The other term, RER usually refers to the strength, price or the value of the local currency when measured against that nation's currency adjusted for price changes. On the other hand, NFDI is a macroeconomic term that is used to describe the difference that exists between capital inflows as well as outflows. The Openness Index is the sum of the imports and exports of a nations services and goods when divided by its GDP at a particular period of time. These terms are essential as they are better positioned to explain issues relating to currency, GDP and economic growth of a country.

Most of the data was also obtained from World Development Indicators which were published by the World Bank. A majority of the data on Nigeria was collected from the secondary sources such as the Central Bank of Nigeria as well as other relevant publications such as CBN Annual Reports and CBN statistical Bulletin. The analysis was majorly based on the two countries; Germany and Nigeria although there were also some other nations which were used to compare the economic growth stimulated by FDI among different countries. The purpose of this comparison was to determine how Germany compares to other developed countries and how Nigeria compares to the developing countries.

Research Design

A research design looks at the conceptual structure through which research will be carried out. Besides, it encompasses the preparation whose main role is to facilitate research to be both effective and efficient to the greatest level. It also provides for the collection of related and usable evidence with minimal expenditure of effort, time and money. The design of this project will want to determine the link between FDI and economic growth in Nigeria and Germany.

Population

This study will examine all the data that relates to economic growth and foreign direct investment (FDI) in both Germany and Nigeria. To determine the economic growth, the study will look at the Gross Domestic Product (GDP) as the measure of the economic growth of a country. As such, data related to GDP of both Nigeria and Germany will be collected and analyzed. The level of ICT in both countries will also be put into consideration. The research will be keen on identifying the growth which is as a result of the implementation of the ICT infrastructure in both countries.

Sample

Sampling is an essential concept in research as it helps to obtain data which acts as a representative of the entire population. The sample for this study will be taken from the above-mentioned population. The most appropriate sampling method for this study is purposive or deliberate sampling. Data that varies in years will be obtained to determine the extent of ICT on economic growth of both countries. The data to be obtained will range from 2002-2015. This data will include several annual observations.

The State of ICT and Economic Growth in Germany and Nigeria

Economic activity tends to cluster geographically. Even if it is an a specific country, there is that region of the country that economic growth tends to be higher than the rest of the parts. Thus, in the calculation of the economic development of the entire nation, it is such regions which boost the other regions which are lesser developed. In Germany, the ICT infrastructure is mostly dominant in cities and large towns. Here, the connectivity of the internet and the investment in ICT is high since it is used in almost every other operation. The level of ICT in rural Germany stand at a wanting position. There is very low connectivity to the ICT in many rural areas in Germany. Therefore, such areas tend to be slow in embracing ICT as a means of steering economic growth. In Germany, there have been spatial patterns of production growth as well as employment in the German ICT sector. Due to its quick growth over the recent past, ICT-clusters in Germany has attracted great attention. There is a lot of optimism and hope about the ICT sector in Germany as well as its potential to foster growth in the rest of the economy. Over the recent past, the high growth rate of the ICT sector as well as its contribution to economic growth has gained great attention in Germany. The ICT sector in Germany seems to support the fact that the growth of industries is usually in clusters. This means that the growth of one sector of the economy leads to the growth of the other. For instance, the growth of the ICT industry has a direct impact on the employment of people since more jobs will be created. The ICT sectors provides new investments where more people are absorbed and the revenue of the country is generated. It is to be noted that many nations lag behind due to their inability to promote productivity growth, provide employment and increase equality among people. Once a nation is able to address these factors, then it is on its way to economic stability. Although there are many sectors which have the ability to address these concerns, in the era today, ICT seems to be the most viable option for addressing such concerns.

According to research, there is a relationship between ICT, FDI, and economic growth. In many cases, good ICT infrastructure of a country is likely to attract more investor thus, having an impact on the county's economic growth. In this study, both Nigeria and Germany have revealed how ICT is a key factor in FDI and its impact on economic growth. In the modern world, ICT is considered as a key sector that profoundly contributes to economic growth, the reason being that most of the economic activities such as trade, and FDI largely depend on modern sources of ICT. According to research, ICT positively contributes to economic growth while on the other hand, FDI has a long-run effect on economic growth. The dynamic relationship in ICT, FDI, and economic growth is being experienced in the modern world due to modern technology and globalization (Galloway and Mochrie, 2005). Most developed countries have invested in ICT which has led to their economic growth. For instance, Singapore has largely benefited from its improved ICT infrastructure, the country has experienced great FDI inflow which has led to its economic growth. Based on this study, Germany economic growth has been boosted largely by the presence of advanced ICT infrastructure. Evidently, there is a dynamic relationship in ICT, FDI, and economic growth.

In the above graph, the flow of FDI in Germany has been much higher compared to Nigeria, this is mainly experienced because of the different economic status of the two countries. Germany is a developed country, thus, many investors are likely to invest in the country, whereby, the highest inflow between 2006 and 2017 was experienced by Germany in 2007.

An analysis of the above graph shows that the flow of FDI of Nigeria is always less than that of Germany. This can be explained by the fact that Nigeria is a less developed country compared to Nigeria. As a result, it is possible to conclude that developed nations have a higher probability of benefiting from ICT than their developing counterparts. This could be driven by the fact that many nations which are developed tend to have more robust ICT infrastructure which helps in their development.

Comparison of ICT in Germany and other Countries

Compared to other countries, Germany is an ICT laggard. It is not in terms of production, trade or investment that Germany is equal to the countries that it is compared to. The figure below shows the state of ICT shares in Germany compared to other developed countries. This comparison is essential as it is only through such a comparison that one may be able to locate the place of Germany in global ICT comparison. Although this is just rudimentary evidence, the figures shown show the common impression that Germany has a long way to go to address the ICT concerns in the country. From the years 1995 to 2000, Germany did not have anything to pride itself for as regards its ICT sector. Like many other European countries, it lagged behind and its GDP still remained low. By then, Germany had not known how to harness the power of ICT to grow its GDP.

The figure below clearly reveals the ICT in business sector and the value that it added to the economy. What can be deduced from the figure is that ICT is an essential industry that grew with time. Despite the fact that there are international differences between various nations, the share of ICT in business is greater than 5% in all the countries examined. In 2000, the value of OECD grew tremendously to reach 10% in the year 2000. In both Ireland and Germany, the average growth rates for ICT were almost at the same level but that of Germany was less since the total value added was less than 0.6.

ICT shares in value added, 1995 and 2000

Source (Galloway and Mochrie, 2005)

Foreign Direct Investment and Net Outflows in Nigeria

In 2012, the World Bank reported Nigeria to have FDI, net outflows of 6.0832%. From the graph below, 2010 is the year that Nigeria recorded the highest percentage of 24.456%. However, this figure dropped greatly in the following years.

Source (Gossart, 2015).

The graph below shows the trend of the contribution of ICT to economic growth in Nigeria from 1985 to 2015. The importance of having a comparison that covers all those years is to show the long way that Nigeria has undergone in its ICT development as well as the contribution of ICT to its development. For instance, from the graph, the period between 1985 and 1999 was a period that Nigeria recorded very low figures that were as a contribution of...