Foreign Direct Investment is an essential input for economic growth. FDI, a least volatile source of capital inflow, contributes to economic growth through increasing productivity resulting from technology transfer, knowledge spillovers and through complementarities with domestic investment. It is a major source of capital formation for resource deficient emerging economies. FDI however, can fail to generate spillovers if concentrated in the capital intensive sector or if it crowds out domestic investments [2] . Spillovers of FDI are conditional on availability of efficient human capital. Usually, the relationship of FDI with human capital and domestic investment is a decisive factor in the realization of gains from FDI.
Traditional economic literatures had revealed that most investments are irreversible once made and involve sunk costs; degree of irreversibility could vary depending on the nature of investment. As a result, investors adopt a ''wait and see'' policy which gives rise to what Dixit and Pindyck (1994) called delaybility making investments sensitive to uncertainties.
Uncertainty is broadly classified into "macroeconomic uncertainty" and "political uncertainty." Macroeconomic uncertainty stemming from fluctuations in macro variables such as foreign exchange rates, inflation, etc. along with political uncertainty stemming from fear of civil conflict, unstable government and lack of property rights can be a great real impediment to FDI inflows and hence the race towards economic growth.
Uncertainty, irrespective of its root, can affect economic activities as it hampers efficiency on the part of economic agents through the raising costs of doing business. Considerable work had been done dealing the issue of uncertainty at the micro level (Johnson, et al. 1999, 2000 and 2002). Lack of property rights security creates uncertainty which deters economic performance. At macro level, on the other hand, uncertainty entering through raised business costs, can affect the trajectory of economic growth in any country (North, 1987).
PROBLEM STATEMENT
With the increasing role of FDI in the economies of the world, attracting FDI inflows has become a top priority for developing countries, as they seek to improve their economic development and standard of living. High inflow of FDI can increase efficiency of the production and introduce new products on the markets. Empirical literatures [3] have shown that foreign direct investment has had a major impact on the economic growth of a country. Some of these benefits are: a) increase in competitive potential between domestic production enterprises. b) the entrance of advanced technology. c) progress in knowledge of various fields of production resulting from contacts with foreign customers. d) possibilities for the optimal utilization of human resources and help to increase their professional skills etc.
The Nigerian economy is hampered by an unskilled labour force, inefficient human capital, a lack of physical infrastructure and alarmingly high population growth rates. These factors may hinder technology transfer or knowledge spill-overs for the country. Thus, Nigeria's dream of becoming one of the twenty top economies of the world in the year 2020 will remain a mirage if she does not put in place appropriate policies to attract FDI inflows to the country. This study will therefore analyze empirically the extent to which FDI spillover is an outcome of a mix of certain preconditions of the host economies.
Costs of uncertainty in terms of impeding FDI inflows and economic growth are of vital importance and demand a deeper analysis, but the nexus remains least addressed and explored empirically, particularly for emerging economies. The empirical literature on economic growth has ignored this issue as very few studies can be found exploring uncertainty - growth nexus. Similarly, the impact of uncertainty on FDI inflows remains much less investigated area in the empirical literature for the developing world. This study envisages filling the void and hence, focusing on Nigeria. The work will contribute in multifold to the literature on uncertainty, FDI and economic growth. To the best of my knowledge, this will be the first study to address the issue of the impact of uncertainty on FDI and economic growth for Nigeria.
OBJECTIVE OF STUDY
This study has the following objectives, namely:
Examine the extent at which macroeconomic uncertainty and political instability affect economic growth of and FDI inflows to Nigeria.
Analyze how uncertainty inhibits FDI inflows and economic growth.
Identify the underlying factors behind the different patterns of growth and FDI inflows for Emerging economy like Nigeria.
Identify and propose specific policy guidelines for future economic growth and FDI policies based on analytical and empirical findings
SINGINFICANCE OF THE STUDY
This aim of this study is not to join in the debate of whether FDI enhances economic growth but to find out if the conditions of the host economy matters in attracting FDI and how does it perform given certain conditions. The answers to these questions are important since FDI plays a vital and salutary role in stimulating economic growth and development. This study will attempt to analyze the preconditions for generating positive spill-overs of FDI and gauge the capacity of Nigeria in terms of efficient use of FDI. The study will focus on uncertainty and FDI jointly explaining economic growth.
Using Pindyck-Dixit (1994) theoretical model of investment which assumes that investments are irreversible and delayable and hence are affected by uncertainty, this study will incorporate the impact of uncertainty on FDI and growth within a simultaneous equation framework. The study in this aspect will differ from extant literatures by analyzing or testing the alternative measures of uncertainty. In the existing literatures on FDI, the unconditional variance or standard deviation is typically used as a proxy for uncertainty. This study will generate an uncertainty measure, conditional variance from GARCH processes for some selected variables. The study intends to argue that standard deviation does explains risk and not uncertainty as it is not unpredictable while conditional variance generated through GARCH gives a closer proxy for uncertainty. Hence, the study will differentiate between risk and uncertainty.
Also, the study will seek to combine both political instability and macroeconomic uncertainty as explanatory variable for FDI inflows and economic growth. This is another distinction from existing literatures as this will deviate from existing studies on uncertainties and growth relationships.
METHODOLOGY OF STUDY
The study will use an endogenous growth framework and extend the model of Borensztein et al. (1998) and incorporate a measure of uncertainty. It will be an extension in nature and scope of the original model. The study will deviate from the original model in terms of its nature as it will use simultaneous equation model (SEM) for analysis. It will propose a system of three equations measured simultaneously as compared to single equation model in Borensztein et al. (1998). The study will therefore review macro econometric methods of estimation and choose the most appropriate framework.
WORK SCHEDULE
1 - 6 months: Literature survey leading to development of the proposal.
7 - 18 months: Data collection, model formulation and empirical analysis.
19 - 24 months: Thesis report
