FOREIGN DIRECT INVESTMENT AND THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES

CHAPTER TWO

LITERATURE REVIEW

1. Conceptual Literature

There is no doubt that the appropriate growth strategy has remained an unresolved economic problem in the literature. However, economists generally recognized the importance of investments in the growth process and efforts are made to rekindle investment. Several models of economic growth exist and the role of investment has been stressed. Also, the domain of discussions has been on the issues concerning the source of investment finance, the determinants of investment behavior as well as impact of investment. All these are necessary to show if an economy is likely to grow or stagnate.

1. Foreign Direct Investment and EconomicGrowth

Foreign direct investment is not just a capital movement. Devrim (2009), In addition to capital, a controlled subsidiary often receives direct input of managerial skills, technology, and other tangible and intangible assets. Unlike portfolio investors, foreign direct investors have substantial control over the management of foreign subsidiary. According to Thomas and Peter (2000) FDI is any flow of lending to, or purchase of ownership in a foreign enterprise that islargely owned by the residents of the investing country. Also, FDI has been described as investment so as to acquire a lasting management interest (for instance 10% of voting stocks) and at least 10% of equity shares in an enterprise operating in another country other than that of investors’ country (Nwillima, 2003; World Bank,2007).

According to Ndiyo and Ebong (2003), foreign direct investment is an inflow of foreign resources in the form of capital, technology, management skills and marketing enterprises into the hostcountry.

According to CIA reports (2010), “FDI is the sum of equity capital, other long term capital as shown in the balance of payment and that there are two types of FDI: inward and outward, resulting in a net FDI inflow (positive or negative) and stock of foreign direct investment”, which is the cumulative number for a givenperiod.

According to Guide-whois (2010), FDI can be classified into horizontal and vertical FDI. Horizontal FDI arises when a firm duplicates its home country- based activities at the same value chain stage in a host country through FDI. While vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains, i.e. when firms perform value adding activities stage by stage in a vertical fashion in a host country.

According to World Bank (2010) foreign direct investment has many forms. These include Greenfield investment, Cross border merger and acquisition, and reinvested earnings. Greenfield investment refers to the establishment of a new firm that in turn enables to create productive assets in a host country. A transfer of ownership of local productive assets to foreign investors is referred to international or cross border merger and acquisition. Reinvested earnings mean part or all of the profit that is not repatriated to the investor’s country.

Interest in the study of economic growth has experienced remarkable ups and downs in the history of economics. Economic growth is commonly measured as the annual rate of increase in a country’s gross domestic product (GDP). In other words, economic growth is defined as long term expansion of the productive potential of the economy. According to the neoclassical pointof view, economic growth is entirely driven by the accumulation of input factors and technical progress while Endogenous growth approaches stress the role of entrepreneurship and innovations. Kuznet defined economic growth as a long term rise in the capacity to supply increasingly diverse economic goods for the country’s population.

Economic growth depends on the rate of investment which in turn largely depends on savings. However, gross domestic savings are very low in least developed countries (LDCS). Foreign direct investment is an alternative source to fill the gap between savings and the required investments. Todaro (1992) argue that foreign firms bring not only financial capital but also managerial, entrepreneurial, and technological skills that lack in LDCSand these skills can be transferred to domestic firms through different channels. Also government’s budget deficit can be filled by tax on profit that may be collected from transnationalcompanies.

The total amount of foreign exchange that can be obtained from export and foreign aid falls short of foreign exchange that is required by LDCS. Todaro (1992) FDI can help to fill the gap by reducing part or the entire deficit in the balance of payments. Moreover, multinational companies products that can be exported can generate net positive export earnings. The Organization for Economic Cooperation and Development, OECD (2002) reports stated that FDI can play important role by creating employment opportunities, other economic benefits and by integrating the host country economy into the global economy.

Todaro (1994) summarizes the benefits of FDI under four contributions as:

1. FDI fills the resource gap between desired investment and locally mobilizedsavings.
2. FDI fills gap between targeted foreign exchange requirement and those derived from net export earnings plus net public foreignaid.
3. FDI fills the gap between targeted government tax revenues and locally raisedtaxes.
4. FDI helps to fill the perceived management, entrepreneurial, technological and skill acquisition gaps by the local operations of private firms. Having identified the benefits of FDI, Todaro (1994) also presented his argument against FDI activities of MNCsas:

1. Multinational corporations most times use their economic power to influence government policies in direction that is unfavorable to the development of their hosteconomies.
2. The contributions of MNCs to public revenues in the form of corporate taxes is likely to be less than anticipated due to liberal tax concessions, disguised public subsidies and tariff protection provided by the host government.
3. Multinational corporations can cause balance of payment crisis as a result of substantial importation of intermediate products and capital goods, and the overseas repatriations of profits, interest, royalties, management fees and otherfunds.
4. They may lower domestic savings and investment rates by stifling competition through exclusive production right agreements with the host government failing to plough back much of their profits and generating domestic incomes from groups with lower saving propensity.
5. Multinational corporations most times reinforce domestic economic structure and cause incomeinequality.

The best way to assess the role and impact of FDI in developing countries is to study the objectives of foreign investment and host economies. If FDI is to be truly a win-win game for both parties, cost and benefits should be weighed carefully by host countries that are searching for economic growth and development, Asiedu(2003).

2.2 SMALL AND MEDIUM SCALE ENTERPRISES: A CONCEPTUAL DISCOURSE

Small and medium scale enterprises have been long recognized as an instrument of economic growth and development. This growing recognition has led to the commitment of World Bank group on SMEs sector as core element in its strategy tofostereconomicgrowth,employmentandpovertyalleviation.Intheyear2007 the World Bank group has approved roughly $2.4 billion in support of micro small and medium enterprises (World Bank, 2001, Ayyagari et. al 2007) While the importance of small and medium scale enterprises has not been in doubt, unfortunately classifying businesses into large and medium scale is subjective and premised on different value judgment. Such classification has followed different criteria such as employment, sales or investment for defining small and medium scale enterprises. According to extant literature the definition vary in different economies but the underlying concept is the same. Ayaggari et.al (2003) Buckley (1989:1) contends that the “definition of small and medium scale enterprises varies according to context, author and countries”. In country such as USA, Britain and Canada small scale business is defined in terms of annual turnover and the number of paid employees. (Ekpeyong and Nyang, 1992: 4) In Britain for example small scale business is conceive as that industry with annual turnover of 2 million pound or less with fewer than 200 paid employees.(Ibid; 4) In the case of Japan it is conceptualized as type of industry, paid up capital and number of employee. Consequently small and medium scale enterprises are defined as those manufacturing with 100million yen paid up capital and 300 employees. Those in wholesale trade with 300million paid up capital with 100 employees while those in retail trade with 100million paid up capital with 50 employees. (Ibid; 4)

In the case of Nigeria hardly do you see a clear-cut definition that distinguishes between small and medium scale enterprises. However, the Central Bank of Nigeria in its monetary policies circular No. 22 of 1988 view small scale industry are those enterprises which has annual turnover not exceeding 500,000 naira.(CBN; 1988) Similarly in 1990 the Federal Government of Nigeria defined small scale enterprises for the purpose of commercial bank loans as those enterprises whose annual turnover does not exceed 500,000 thousand naira andfor merchant bank loan those enterprises with capital investment not exceeding 2 million naira (excluding the cost of land) or a minimum of 5 million naira. Ogechukwu (2006) contends that in the wake of SFEM, and SAP era in 1993, this value has now been reviewed and subsequently, increased to five million naira. Since this happened, there may be a need to classify the small scale industry into micro and super-micro business, with a view to providing adequate incentives and protection for the former. In that context, any business or enterprise below the upper limit of N250, 000 and whose annual turnover exceeds that of a cottage industry currently put at N5, 000 per annum is a small scale industry. (Ibid; 5) The National Directorate of Employment (NDE) concept of a small scale industry has been fixed to a maximum of N35, 000. (Ibid; 5). In other words a business unit of not less than $240 dollar is characterized as a small scale business in Nigeria. That may not be the same in other countries, but that classification may be useful in developing countries, because of the low capacity of its small scale industry.

That is why Kozak, (2007) argues that we cannot explain SME other than to say they are companies with metric (usually no of employees or annual turnover that fall bellow certain threshold. It is these indicators, number of employees and orrate of turn over that tend to define the context within which different countries and economies situate their understanding of small and medium scale enterprises. This is to say that, even though SMEs is definable with much or less the same indicator (No of employees, rate of turnover .etc) the indicators are not the same in all countries all the time. In other words while number of employee and rate of turnover are the indicator, the number of employee and total amount of turn over for defining SMEs in different countries are certainly not the same. For instance, the employee requirements in Britain is 200, with 2million pound turnover, the samecannotbesaidofJapanwith100millionJapaneseyenaspaidupcapitaland 300paid employees. While in Nigeria, thepaid employees are usually not considered important, but more importantly is the turnover of 500,000 especially for the purpose of Commercial and Mortgage bank loans. Balunywa (2010) however affirmed that the number of employee may not be a good indicator, especially where the company is labour intensive. This is true in country like India, where labour intensive is a policy approach to industrialization. However, that is not to say that in some cases, trading organization cannot transact big business, but yet employed few employees. In that case, capital employed may be used as indicator for defining small and medium scale enterprises.

In countries where the number of employees is an indicator, the number of employee required differs from country to another. In Uganda the figure of employees for SMEs is between 5-50, (Ngobo, 1995) in India it is 30-100, while in the US, is less than 500. (Stoner et.al, 1996) In Kenya, 10 or fewer people are called micro business, while 11-50 are referred to small enterprises and 51-100 are called medium enterprises. (Kibera and Kibera, 1997). That is why in the United State of America, small business administration is defined as one that is independently owned and operated, is not dominant in its field and meet up employment or sales standard developed by the agency. (Stoner et.al 1996)This shows the same trend with other countries like Nigeria and Japan except that the exchange value differs in the financialcriteria.

In a more general and comprehensive term Ogechukwu (2005) chronicled a general criteria for defining small and medium scale enterprises in different countries. These includes number of employees, annual turnover, local operations, sales volumes, financial strength, managers and owners autonomy, relatively small markets compared to their industries and capital usually supplied by individual or shareholders etc. There are so many small scale business units in Nigeria which qualifies within this context most of them are in the commercial sector. Howevera common trend in Nigeria today is the gradual classification of service provider, hotels, fast food and restaurants as small and medium scale enterprises.

As a result of this definitional differences and lack of universal definition, the European Union in 2003 adopted a universally accepted definition of small and medium scale enterprises and micro business as companies with less than 250 employees, with respect to financial criteria, revenues must not exceed 50 million Euro(measure as turn over) or 43million euro(measure as balance sheet) In addition, the European Commission specifies term of ownership stating SMEs must be independent with less than 25% being owned by outside interest.(European Commission; 2007). In a report of enterprises association, Macqueen (2007) conceive of SMEs as enterprises employing 10-99 full time employees or with a fixed capital investment ofUS$1000-500,000.

Small and medium scale enterprises are certainly not transnational company, multinational cooperation, publicly owned enterprises or large facility of any kind. However they can depend on business and ownership structure to become a large business unit (Macqueen 2006) while it can be argued that 80% of the financing of SMEs come from owners, friends and families, business form can take different form including private ownership, limited partnership, contract and sub-contracts, cooperatives or associations. (Kozak, 2007) Small and medium scale enterprises have a narrow context within which its operation is carried out. However, where it is effectively operated it has capacity to sprout the economic growth and national development.

2.3 SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA: REVISITING GOVERNMENT INTERVENTION

In every economies small and medium scale enterprises has been seen has a pivotal instrument of economic growth and development either in developed or developing economies. Several studies have confirmed this. (Ogujiuba; et. al 2007, Onugu; 2005, Ihua; 2009) Data from the federal office of statistics in Nigeria affirmed this importance when it reveal that about 97percent of the entire enterprises in the country are SMEs and they employed an average of 50% of theworking population as well as contributing to50 percent of the country industrial output. As Ariyo (1999) and Ihua (2009) averred, SMEs in Nigeria are not only catalyst of economic growth and development, but are also the bedrock of the nation. Although small business activities had existed since the period of independence in Nigeria, however, conscious effort on small and medium scale enterprise as instrument of economic and national development started in 1970-1979 when Nigeria adopted the policy of indigenization through its national development plan programme. The development plan articulated the need for the Nigerian economy to be self reliant through industrialization, entrepreneurial development employment generation and development through increasing export trade. (NDP, 1970)

The federal government singled out small and medium scale enterprises as the key area of intervention. This was premised on the government desire of giving support to small scale industries in the country as a measure of meeting up with its commitment to the development plan and the indigenization policy. The intention was that it would be a reaction against the dominance of the economy by the international capitalist entrepreneur and on the account that revitalizing small and medium scale enterprise would enhance the capacity of the indigenous capitalist class, as a potential player in economic growth and national development.

In its intervention effort, government promulgates different regulation for the basis of protecting the small scale industries. Some of the regulations include Nigeria Enterprises Promotion No. 3 of 1977, Patent Right and Design Act No 60 of 1979 Custom Duties (dumped and subsided goods Act No. 9 of 1959, Industrial Promotions act No. 40 of 1979, Industrial development Tax Act No. 2 of 1971 among others. (Alawe, 2007). Apart from the promulgated act government supported SMEs through favorable investment policies, institutional and fiscal policies, protective business law and financial incentives to encourage the national development and indigenization policy which small and medium scale are very central to. Several micro lending institutions were established to enhance the capacity and development of small and medium scale enterprises. Such micro- credit institutions include Nigeria Bank for commerce and industry (NBCI) National Economic Reconstruction Funds (NERF) People`s Bank of Nigeria (PBN) Community Bank (CB) National Export and Import Bank (NEIB) and the liberalization of the banking sector to enhance the banking institutions for effective participation in the growth and capacity building of small and medium scale enterprises. (Ogujiuba; et. al2007).

Government also established Raw Materials and Research Development Council (RMRDC) of finance and research institutions in 2001, the research report of this institution is useful to SMEs and business organization in their product choice decision, product development delivery strategies to increase SMEs business effectiveness and efficiency. To complement this effort, government also created some polytechnics and university to provide manpower scheme and also set up some manpower training institutions. Such as Centre for Management Studies, (CMD) Administrative Staff College of Nigeria (ASCON) Industrial Training Institute (ITI) etc. (Ogechukwu; 2006) A number of recommendations and findings of these institutes and centre were geared towards developing small and medium scale enterprises.

In addition to this, the government through the bankers’ forum at the initiative of CBN as an interventionist strategy also established small and medium industry equity investment scheme (SMIEIS) in 2001. This scheme requires bank to set aside 10 percent of their profit before tax to fund SME in an equity participation framework. In 2002, government further intervened to enhance the capacity of SMEs through direct policy as consisting of direct investment and the establishment of more SMEs, promotion institution agencies (technological development institutions, credit lending institutions, technical and management institutions and the provisioning of infrastructures such as industrial estate, nationalization of foreign firms and provision of incentives and subsidies for the promotion of small and medium scale companies. (Alawe2007)

The establishment of anti-corruption bodies such as Economic and Financial Crime Commission (EFCC) and Independent Corrupt Practices Commission (ICPC), investment in power generation, road maintenance and construction and enactment of pension funds were addition effort geared towards improving the SMEs sector. (Onugu, 2005). In spite of the participation and effort of the government in developing SMEs, the contribution index of manufacturing to GDP was 7% in 1970-1979 (Odedokun, 1981). In 2007, a survey conducted by manufacturer association of Nigeria revealed that only about 10percent of industries run by its members are fully operational. Similarly Joshua (2008) contends that about 70percent of the small and medium scale enterprises in Nigeria are between operational or on the verge of folding-up, while the remaining 30 percent operate on low level capacity and are vulnerable to folding up in the nearest future.

In 2009, the constraint was further compounded by a sharp drop of manufacturing to GDP of 4.19 percent while industrial capacity utilization droppedto 48.8percent. (National Bureau of Statistics, 2009). This portends danger for the Nigeria economy given the fact that manufacturing industries are critical agent of real growth and development for the country. According to Mr. Jide Mike the Acting Director General of the Manufacturing Association “the debris of dilapidated manufacturing concerns across the country is the outcome of years of harsh operating conditions”. He averred that in spite of the small and medium industries equity investment scheme, funding as post a serious threat to SMEs. He therefore concluded by saying 30percent of SMEs have closed down, about 60percent are ailing and only 10percent operate at a sustainablelevel.

2.4 FOREIGN DIRECT INVESTMENT AND SMES GROWTH

The impact of foreign direct investment on SMEs development has generated little volume of empirical studies overtime, with mixed findings using cross sectional, time- series and panel data on the data gathered. Rodriquez &Rodrick (2000) argued that business policy does affect the volume of business, but there is no strong reason to expect the effect of development to be quantitatively similar to the consequences of change in trade volumes that arise because of reductions in transport, which cause an increase in the world demand. Business restrictions should represent policy responses to real or perceived market imperfections or are used as mechanism for rent extraction. They believed that business policy works differently from natural or geographical barriers to business and other exogenous determinants.

In other stimulating study, Weisbrot & Baker (2002) argued that business may not be the only key to rapid SMEs growth and development. They noted that the success of some countries that experienced accelerated development did not follow simple path to trade liberalization. However, there are many arguments in the regards to business and growth; one suggests that foreign direct investment improves resources allocation in the short run or raises the growth rate permanently. There are other arguments that suggest the contrary.

Shafaeddin (2005) posits that business is necessary when an industry reaches a certain level of maturity provided it is undertaken gradually and selectively. In addition, the policy is often implemented along with the devaluation of currency in order to make the exports of the devalu- ation country’s export cheaper and is of good quality, it tends to sell more internationally there by encouraging growth and development (Agbeyegbe, 2006; Obadan, 2006). The ultimate aim is to remove taxes on exports, which will encourage further exportation of goods, and services that will further encourage growth and development, restriction on imports and reduction of imports tariffs.

Thirlwall (1997) in his work explained the possibility that export growth may set up a vicious cycle of growth such that once a country is on the path of growth; it maintains its competitive position in the world trade and performs continually better when compared to other countries.

There has been a growing theoretical evidence of positive relationships between business and development in many developed nations, such relationships have not been proven empirically in developing nations, particularly among African countries. In their attempts to establish such relationships, Edwards (1993) provides a comprehensive review of the key issues on the link between trade and growth in developing countries, particularly the continuing difficulties in obtaining reliable measures of trade policy and identifying precisely the channels through which the outward orientation facilitates growth.

Chen (2013) argued that foreign direct investment can promote SMEs growth through technology spill over and external stimulation. Similarly, Grossman &Helpman (1990) used endogenous growth models of trade which demonstrate the importance of technological progress and knowl- edge accumulation. The model generates an endogenous rate of long-run growth that relates business and development by means of diffusing technology and knowledge.

Another important consideration is trade openness. Yanikkaya (2002) revealed that there is a positive and significant association between trade openness and growth. As a country opens up its economy (imports plus exports as a ratio of GDP) and participates more in foreign direct investment, it becomes integrated into the world economy and can enjoy the static and dynamic benefits accumulating from foreign direct investment. According to Yanikkaya (2002), the most basic measure of openness are the simple trade shares, which are exports plus imports divided by GDP, and studies have found a positive and strong relationship with development.

2.5 THEORETICAL FRAMEWORK

2.5.1 Comparative Advantage Theory

David Ricardo propounded this theory. The theory assumed the existence of two countries, two commodities and one factors of production. In his theory, a country exports the commodity that has lower comparative advantage and import commodity whose comparative cost is higher. The theory also assumed that the level of technology is fixed for both nations and that trade is balanced and rolls out the flow of money between nations. However, the theory is based on the labor theory of values, which states that the price of the values of a commodity is equal to the labor time going into the production process. Labor is used in a fixed proportion in the produc- tion of all commodities (Usman, 2011).

2.5.2 Hecksher – Ohlin Trade Theory

Two Swedish economists, Eli Hecksher and Bertil Ohlin, promulgate this theory. The theory explains two issues in the theory of comparative advantage. First, what the factors that deter- mine comparative advantage of countries are, and second, what the effects of trade on the factor of income in the trading countries are. On the assumption of equal or similar technology and tastes, Hecksher – Ohlin theory focuses on differences in relative factors of endowments and the factors of prices between nations as the major determinants of trade. The model identified difference in pre-trade product prices between nations as the basis for trade (Aremu & Adeyemi, 2011).

The theory assumed two countries, two commodities and two factors. There is a perfect competition in both factors and the product market. It assumed that the factor inputs; labour and capital in these two countries, are homogeneous. Production function also exhibits a constant return to scale. The production possibility curve is concave to the origin. The model suggests that the less develop countries that are labor-abundant should specialize in the production of a primary product, especially an agricultural product because the labor requirement of agricultural is high except in the mechanized form of farming. On the other hand, the less developed countries should import capital-intensive products, mostly the manufactured goods from developed countries that are capital intensive (Weisbrot&Baker, 2002).

2.6 REVIEW OF EMPIRICAL LITERATURE

Sun & Heshmati (2010) examine the effects of international trade on China’s SMEs growth. Applying econometric and non-parametric techniques on six - year data of 31 provinces in China from 2002 to 2007, their finding reveals that an increase participation in international trade helps stimulate rapid SMEs growth in China. Thus, the international trade volume and China’s trade structure on technological exports positively affect China’s regional productions.

Li, Chen & San (2010) conducted a research on the relationship between foreign trade and the SMEs growth of East China for the period of 1981-2008. Adopting the unit root test, co-integration analysis and error correction model, they found out that foreign trade is the long-term and short-term reason of SMEs growth, but no evidence proved that there exists long-term stationary causality between the import trade and SMEs.

Mustafa (2011) analyzed the relationship between the foreign trade and SMEs growth in Turkey, using Vector Auto Regression model (VAR) and Vector Error Correction Model (VECM), and employed quarterly data of GDP, export and import for 1987 through 2007. He found out that in the short run, SMEs growth did not significantly depend on the export growth.

Rahmaddi & Ichihashi (2011) investigated the relationship between exports and SMEs growth in Indonesia during the period of 1971-2008, using a VAR model. Based on the analysis conducted in a VECM framework, the authors revealed that exports and economic growth exhibit a bi directional causal structure, and concluded that both exports and SMEs growth are significant to the economy of Indonesia. Sarbapriya (2011) examined the relationship between the foreign trade and SMEs growth in India, using annual data over the period of 1972–2011. The co integration and Granger causality tests confirmed that SMEs growth and foreign trade are co integrated, implying the existence of a long-run equilibrium relationship between the two, and the presence of bi-directional causality which runs from SMEs growth to foreign trade and vice versa.

Javed, Qaiser, Mushtaq, Saif-ullaha & Iqbal (2012) examined the impact of total exports to SMEs ratio, import to GDP, terms of trade, trade openness, investment to GDP ratio and inflation on the Pakistani economy using time-series data from the1973-2010. Employing the Chow test and Ordinary Least Square method, the estimated results revealed that all the explanatory variables have a positive and significant impact on Pakistan. The study further discovered that an increase in the import of raw materials boosted production, employment and output of Pakistan.

Omoke & Ugwuanyi (2010) used Granger causality and co integration tests to investigate the relationship between export, domestic demand and SMEs in Nigeria. The results from Trace and Maximum Eigen Value test conducted showed that the variables do not have a long-run relation- ship, but the Pair-wise Granger Causality test showed that SMEs Granger causes both export and domestic demand, while a bilateral causality exists between export and domestic demand.

Ezike, Ikpesu, & Amah (2012) investigate the macroeconomic impact of business on Nigerian growth. Using the Ordinary Least Square (OLS) regression technique and applying a combination of bivariate and multivariate models from the data covering the period 1970–2008 observed that the two predictors used in the study for trade, namely exports and foreign direct investment have a positive and significant impact on Nigeria’s SMEs growth during the period.

Omoju & Adesanya, (2012) investigate trade and growth in developing country using Nigeria as a case study. They make use of secondary data from 1980–2010 and applying the Ordinary Least Square (OLS) regression method. They found out that the foreign trade, foreign direct investment, government expenditure and exchange rate have a significant positive impact on growth in developing countries.

In the same vein, Eravwoke & Oyivwi (2012) studies growth perspective via trade in Nigeria, using the Ordinary Least Square (OLS) method, Augmented Dickey Fuller (ADF) and the Jo- hansen co-integration statistical approach on data covering the period of 1970-2009. They found out that the ADF reveals that the series are integrated of order one 1(1), but for a total trade the series became stationary after taking the second difference 1(2), and concludes that the variables are non-stationary. The Johansen co integration test shows that there exists one co-integration equation at 5% level of significance, which means that there is a long run relationship between the total trade, exchange rate, export and gross domestic product of Nigeria. The OLS result revealed that the total trade and export are not statistically significant in explaining growth in Nigeria, however the exchange rate is statistically significant in explaining growth in Nigeria.

Adelowokan & Maku (2013) examined the effect of trade and financial investment openness on growth in Nigeria between 1960 and 2011. Estimates from the reported dynamic regression model indicated that trade openness and foreign investment exert a positive and negative effect on economic growth respectively. Also, the partial adjustment term, fiscal deficit, inflation and lending rate were found growth increasing. It was evidenced that a long-run relationship exists among trade openness, foreign investment, and economic growth in Nigeria.

Edoumiekumo & Opukri (2013) examined the contributions of international trade (proxy with export and import values) to growth in Nigeria measured by real gross domestic product (RGDP). Time-series data obtained for a period of 27-year was analyzed using Augmented Dickey-Fuller (ADF) test, Ordinary Least Square (OLS) statistical technique, Johansen co-integration test and Granger Causality test. The results showed that a positive relationship exists between the vari- ables and there is co-integration among the variables. The Granger Causality test showed a uni- directional relationship which show that the RGDP Granger cause export and import Granger cause RGDP and export.