Ijebr vol 02 no 3 2015

IJEBR

Volume 02, Number 3, 2015

FSSH Scholarly Journals http://fssh-journal.org/

Volume 02, Number 3, 2015 Editorial Board Adam P. Howard City University of New York/Hostos Community College, United States Jeremy J. Edward East Stroudsburg University, United States Jamil M. Sharif Emirates College for Advanced Education, United Arab Emirates Dennis R. Edgar Centre for Education and Research, University of Northampton, United Kingdom Editor in Chief Adam P. Howard City University of New York/Hostos Community College, United States Editors Alfredo U. Santos Interdisciplinary Research Centre for Education and Development -ULHT, Lisbon, Portugal Jung-Hyun Kok Utah Valley University, United States Muhammad Ataf United Arab Emirates University, United Arab Emirates A Huang Min Central China Normal University, China Patrick O. John University of Nottingham, United Kingdom Suraphong Soepwongli The Political Science Association of Kasetsart University, Thailand Head Office City University of New York, Eugenio MarĂ­a de Hostos Community College 500 Grand Concourse | Bronx | New York | 10451 | 718-518-4444 Branch Offices Warwickshire (England) : 6 Leather Street, Long Itchington | Southam, Warwickshire | CV47 9RD Cairo (Egypt): Khalifa El-Maamon st, Abbasiya sq. | Cairo | Post Code 11566 | 202-26831490 Bandung (Indonesia): Jl. Raya Bandung Sumedang Km. 21 | Jatinangor | West Java | Indonesia | Post Code 45363 | 022-84288828 Canberra (Australia): The Australian National University | Canberra ACT 0200 ACT 0200 | Australia | +61 2 6125 5111 All manuscripts must be submitted electronically through the e-mail to the editor at: editor@fssh-journal.org or fssh.editor@gmail.com

TABLE OF CONTENS

The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment | DAVID S. SCHARFSTEIN and JEREMY C. STEIN.............................................1 A Theory of Dividends Based on Tax Clienteles | FRANKLIN ALLEN, ANTONIO E. BERNARDO, and IVO WELCH ................29 Total Quality Management as a Tool for Ensuring Customers Loyalty: Study of Five Selected Banks in Lagos | OLAORE, G.O ..................................................................................................63 Information Asymmetry, R&D, and Insider Gains | DAVID ABOODY and BARUCH LEV ...............................................................71 Competition on the Nasdaq and the Impact of Recent Market Reforms | JAMES P. WESTON..........................................................................................91 Foreign Direct Investment and Growth of the Nigerian Economy: ARDL Bound Testing Approach | HAMISU SADI ALI and IDRIS ISYAKU ABDULLAHI ....................................121

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International Journal of Economics and Business Research Vol. 02, No. 3, 2015 Olaore, G.O

Total Quality Management as a Tool for Ensuring Customers Loyalty: Study of Five Selected Banks in Lagos OLAORE, G.O* ABSTRACT The study examined the significance of quality product/service and the customer buying habit, the meaning of quality from both producer or service provider and consumer’s perspectives were considered, the principles of TQM, the tools of TQM. The study used structured questionnaires to elicit responses from 150 customers of the five selected banks under consideration. Data obtained were analyzed using Regression analysis to test the hypothesis and it showed that quality of product is significant at 0.05 {t = 15.043, P < 0.05} level of significance to customer buying habit. The study concluded that there is a positive relationship between quality product/service and customers loyalty.

ACCORDING TO JOEL (1999), every attention has been on cost reduction, improving sales and thereby increasing profit level. Fakokunde, (2002) Says: Several years ago, focus of industries and organizations have been making goods and services available at all times and at reasonable price, therefore management major task is to improve production efficiency and bring down price. Aluko, (2001) opines that there has been a changed from production (making goods available and affordable) to product concept, that is, quality improvement. Most scholars like Fredrick Taylor, Peter Drucker, Henry Gaunt, Frank Gilbreth and Harrington Emerson agree that a turning point in the history of quality occurred in Japan after World War II, which led to increasing success of Japanese company in the world market.

Adebisi, (2006) Says: the quest for survival in the ever increasing and competitive global market has opened organizations’ and manufacturing companies’ eyes to see that quality products are important. As a result, major business firms now realize that if their long-term objective of survival is to be achieved, adequate attention must be given to improvement in the quality of goods and services they produce.

Joel, (1999) opines that total quality management is all about the process and management techniques that are put in place not only to beat customers’ satisfaction but to go beyond their expectation. It deals with producing quality product and services for customers. A lot of products have gone to “corporate grave yard” because of the quality of such product, that is, the quality of the product is not meeting the taste of their customers in the market. Kotler, (1979) Says: a product should be able to solve customers’ problem i.e. it should satisfy particular need. Leonard (1991) opines that the ISSN 1357-1583 http://fssh-journal.org

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Nigerian banking industries have taken a bold step to give adequate attention/recognition to quality management. This in-turn has led to wide spread of standards and customers satisfaction through quality services in the banking sector.

The study focused on the extent to which Nigerian banks have embraced Total Quality Management in their quest for Competitiveness and Profitability and its effect on customerâ&#x20AC;&#x2122;s loyalty and repeated patronage. Thus the main objectives of the study are: (1) To identify the relationship that exist between quality products/services and customer loyalty and if it affects the customersâ&#x20AC;&#x2122; buying behaviour/habit. (2) To discover a way of minimizing customersâ&#x20AC;&#x2122; complains and enhances repeated patronage and loyalty. (3) To know the advantages an organization that understands and practices total quality management has over its competitors Based on the objectives above, the hypothesis stated below will be tested: H1= Quality of product/service significantly affects customers buying habit.

Theoretical Framework and Literature Review Evans (1999) said Total Quality Management (TQM) is a quality improvement body of methodologies that are customer-based and service oriented. TQM was first developed in Japan, and then spread in popularity.

However, while TQM may refer to a set of customer based practices that intend to improve quality and promote process improvement, there are several different theories at work guiding TQM practices.

Four main theories of TQM by Deming, Crosby, Juran and Ishikawa will be looked at under the Theoretical framework.

Deming's TQM Theory Deming (1982) theory of Total Quality Management rests upon fourteen points of management he identified, the system of profound knowledge, and the Shewart Cycle (Plan-Do-Check-Act). He is known for his ratio - Quality is equal to the result of work efforts over the total costs. If a company is to focus on costs, the problem is that costs rise while quality deteriorates.

Deming's system of profound knowledge consists of the following four points: (1) System Appreciation: an understanding of the way that the company's processes and systems work. (2) Variation Knowledge: an understanding of the variation occurring and the causes of the variation. (3) Knowledge Theory: the understanding of what can be known. (4) Psychology Knowledge: the understanding of human nature By being aware of the different types of knowledge associated with an organization, then quality can be broached as a topic. Quality involves tweaking processes using knowledge.

65 International Journal of Economics and Business Research Demingâ&#x20AC;&#x2122;s overall philosophy for achieving improvement is embodied in his fourteen (14) points. The principles as put forward by Roberta, et al (1998) are summarized as follows: 1. Create a constancy of purpose toward product improvement to achieve long-term organizational goals; 2. Adopt a philosophy of preventing poor-quality products instead of acceptable levels of poor quality as necessary to compete internationally; 3. Eliminate the need for inspection to achieve quality by relying instead on statistical quality control to improve product and process design; 4. Select a few suppliers or vendors based on quality commitment rather than competitive prices; 5. Constantly improve the production process by focusing on the two primary sources of quality problems, the system and workers; 6. Institute worker training that focuses on the prevention of quality problems and the use of statistical quality control techniques; 7. Instill leadership among supervisors to help workers perform better; 8. Encourage employee involvement by eliminating the fear of reprisal for asking questions or identifying quality problems; 9. Eliminate barriers between departments, and promote cooperation and a team approach for working together; 10. Eliminate slogans and numerical target that urge workers to achieve higher performance level without first showing them how to do it; 11. Eliminate numerical quotas that employees attempt to meet at any cost without regard for quality; 12. Enhance workers pride, artisanry and self-esteem by improving supervision and the production process so that workers can perform to their capabilities; 13. Institute vigorous education and training programs in methods of quality improvement throughout the organization; 14. Develop a commitment from top management to implement the previous thirteen points.

Crosbyâ&#x20AC;&#x2122;s TQM Theory Crosby (1979) is another person credited with starting the TQM movement. In his theory of TQM, he made the point, much like Deming, that if you spend money on quality, it is money that is well spent. Crosby based on four absolutes of quality management and his own list of fourteen steps to quality improvement.

Crosby's four absolutes are: 1. We define quality as adherence to requirements 2. Prevention is the best way to ensure quality 3. Zero Defects (mistakes) is the performance standard for quality 4. Quality is measured by the price of nonconformity

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The fourteen steps to continuous quality improvement as propounded by Crosby are: 1. Attain total commitment from management 2. Form a quality improvement team 3. Create metrics for each quality improvement activity 4. Determine cost of quality and show how improvement will contribute to gains 5. Train supervisors appropriately 6. Encourage empolyees to fix defects and keep issues logs 7. Create a zero-defects committee 8. Ensure that employees and supervisors understand the steps to quality 9. Demonstrate your company's commitment by holding a zero defects day 10. Goals are set on 30, 60, or 90 day schedule 11. Determine root causes of errors, remove them from processes 12. Create incentives programs for employees 13. Create a quality council and hold regular meetings 14. Repeat from step one.

Joseph Juran's TQM Theory Juran (1988) is responsible for what has become known as the "Quality Trilogy." The quality trilogy is made up of quality planning, quality improvement, and quality control. If a quality improvement project is to be successful, then all quality improvement actions must be carefully planned out and controlled. Juran believed there were ten steps to quality improvement. These steps are: 1. An awareness of the opportunities and needs for improvement must be created 2. Improvement goals must be determined 3. Organization is required for reaching the goals 4. Training needs to be provided 5. Initialize projects 6. Monitor progress 7. Recognize performance 8. Report on results 9. Track achievement of improvements 10. Repeat Ishikawa's TQM Theory Ishikawa (1985) Creator of the last theory, Dr. Kaoru Isikawa is often known for his namesake diagram, but he also developed a theory of how companies should handle their quality improvement projects. Ishikawa takes

67 International Journal of Economics and Business Research a look at quality from a human standpoint. He points out that there are seven basic tools for quality improvement. These tools are: 1. Pareto Analysis - Pareto analysis helps to identify the big problems in a process.

2. Cause and Effect Diagrams - Cause and effect diagrams help to get to the root cause of problems.

3. Stratification - Stratification analyzes how the information that has been collected fits together.

4. Check Sheets - Check sheets look at how often a problem occurs.

5. Histograms - Histograms monitor variation.

6. Scatter Charts - Scatter charts demonstrate relationships between a variety of factors.

7. Process Control Charts - A control chart helps to determine what variations to focus upon.

Total Quality Management in Banking Most bankers would like to believe that banks are in the finance industry, and not in the service industry. Thus, they tend to compete in terms of financial prowess rather than service quality. People, resources, time and systems are devoted more to managing assets and cash rather than managing customers and service. Most banks systems are designed to control customers rather than satisfy customers. Products and procedures are set up for the convenience of the bank rather than that of customers.

A big bank may have as many as three vice presidents responsible for guarding its assets, but no one to take care of customer service and complaints. Banks usually give customer service satisfaction very low priority and accordingly assign it to a low level, manager. Few or more of the banks elaborate systems and structures are designed to monitor and maintain customer loyalty (Rene, 2009).

According to Rene (2009), a bank applying TQM should track as goals and benchmarks those that matter to the customer.

1. Processing times of key products and services, like loans, new accounts, ATM cards; 2. Waiting times during queues; 3. Customer complaints, written or verbal; 4. Friendliness and efficiency of staff; 5. Accuracy and timeliness of statement of accounts and records; 6. Effective interest rates; 7. Promptness in responding to customer inquiries

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Methodology and Population Quantitative Method was adopted. The population of the study comprises customers of the five selected banks, thirty each from the five selected banks within Lagos Metropolis. A total of 150 questionnaires were administered.

Analysis and Results The questionnaire were analyzed by means of simple percentage while the hypothesis earlier formulated, was tested, using regression analysis. The hypothesis, as formulated in this study is: Quality of product/service significantly affects customers buying habit.

Table 4.1: Regression Analysis showing the effect of quality of product/service on customers buying habit Model B Std.Error T Sig.T R R2 F Constant 1.416 1.219 1.162 .247 .778 .605 226.283 Quality of product Dependent variable: Customers buying habit.

The result of regression analysis shows that the correlation co-efficient {r} was .778. It implies that there is positive relationship between quality of product/service and customers buying habit.

The co-efficient of determination { R2 } was .605. It implies that about 60.5% variations in customers buying habit could only be explained by quality of product, the remaining 39.5% were due to other variable outside the regression model which also affects customers buying habit.

Testing the effect of independent variable {quality of product} on the dependent variable {customers buying habit}, the result shows that quality of product/service has significant effect on customers buying habit at n-1 degree of freedom {t = 15.043, P < 0.05}. Hence, qualities of product/service significantly affect customers buying habit.

Discussion of findings This study examines Total Quality Management as a tool for ensuring customers Loyalty among five selected banks. The following findings were therefore obtained from the study.

There is no significant relationship between Quality of Product/service and customers loyalty This hypothesis was tested through correlation and the findings shows that there is a positive significant relationship between Quality of Product/Service and customerâ&#x20AC;&#x2122;s loyalty. This therefore implies that bank can increase loyalty of their customers by applying total quality management to product/service quality. This finding is consistent with the works of Ugboro

69 International Journal of Economics and Business Research (2002); Rene (2009) who argued that application of TQM among banks in Nigeria has contributed to repeated patronage and loyalty among banks in Nigeria. The findings is also in line with the works of Ishikawa, (1985); Terziovski, (1999); Kaynak, (2003); They conducted empirical studies in Japan where application of TQM in the production of product and services correlates with repeated patronage which has long run effect on customer loyalty to a particular product or service.

Conclusion Form the data collected from the customers of the banks under consideration, it can be deduced that quality product/service has both shortterm and long –term effect on customer’s repeated patronage and loyalty.

Quality product/service will have a positive effect in customer’s buying habit when they perceive high product/service quality or quality service improvement.

Organization can ensure their customers’ loyalty and even gain new customers by paying adequate attention to total quality management.

References Adebisi, Y. 2005. Business Statistics for Managers, Akure, Adeyemo Publishing House.

Adebisi, Y. 2007. Analysis for Business Decisions, Ado-Ekiti, Hope and Faith Press Ltd. Barry, I. 1991. A Conversation with Philip Crosby, Banking Marketing, vol.23, New York pp.24 Crosby, P. 1979. Quality is Free. New York. McGraw-Hill.

Edward, F. 1993. Banking Critical Crossroads. The Bankers Magazine Vol.176 p.2G23 Evans, J. et al., 1996. The Management and Control of Quality 3rd ed. St. Paul, Minn.. West Evans, R. et al., 1999. The Management and Control of Quality 4th ed. Cincinnati. southwestern.

Fakokunde, T. 2006. Basic Research Methods. Osogbo, Joham Computers.

Fakokunde, T. 2002. ‘Production and Operations Management’ V.I.P Computers, Osogbo Nigeria.

Garvin, D 1984. What Does Quality Really Mean? Sloan Management Review 26, No.1; pp.25.

Graham, R. 2000. Companies don’t succeed – people do! London Asford Color press.

Harod, K. et al., 1983. Management, International Students Edition. McGraw-Hill Inc. Ishikawa, K. 1986. Guide to Quality Control 2nd ed. New York. White Plains; Kraus Int’l Publication.

James, A. et al., 1995. Management, 6th edition. India, Dorling Kindersley.

Jay, H. et al., 1999. Operations and Management 5th ed. Upper Saddle River, New Jersey, Prentice-Hall, Inc. Juran, J. et. al., 1988. Planning for Quality, New York; Free Press. Macmillan.

Kathryn, L. 1991. Quality Training. New York, What Top Combs Have.

Keystone Financial Inc. 1992. Quality Initiative action Plan. pp.10 Leonard, L. 1991. Mistakes That Service Companies Make in Quality Improvement. Bank Marketing Vol.23 pp.69.

Mary, C. 1992. The Quality Service Manager. A New Strategic Direction for the 90’s Bank Marketing, Vol.24 pp.28.

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Oloyede, B. 2002. Research Methods in Finance. Lagos, Forthright Educational Publishers.

Porter, M. 1980. Competitive Strategy, New York, Free Press.

Rene, T. 2009. Quality Means Survival. Business Management Article.

Roberta, S. et al., 1998. Operations and Management Focusing on Quality and Competitiveness, Upper Saddle River New Jersey; Prentice Hall Inc. Thomas, H. 1991. Managing the Total Quality Transformation, New York. McGraw-Hill Inc.

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International Journal of Economics and Business Research Vol. 02, No. 3, 2015 Hamisu Sadi Ali & Idris Isyaku Abdullahi

Foreign Direct Investment and Growth of the Nigerian Economy: ARDL Bound Testing Approach HAMISU SADI ALI* and IDRIS ISYAKU ABDULLAHI** ABSTRACT Thepresent article investigated whether financial inflows received from foreign investors into the Nigerian economy is an addition or subtraction to the growth and development of the African giant economy. The outcome shows that variables were cointegrated as the null hypothesis was rejected at 1% level of significance. The main finding shows that foreign direct investment does not have any significant impact on economic growth of Nigeria for the period under review, trade openness also exhibited same trend and the sign for the two variables is negative albeit insignificant. Real GDP per-capita significantly and positively affects economic growth in Nigeria. The implication is that policy makers in Nigeria need to come up with good policy frameworks that will attract profitable foreign investment as well as deal with the present insecurity which if not squarely resolved will be extremely difficult for the economy to feel the real impacts of FDI.

THE INFLOW OF FOREIGN DIRECT INVESTMENT (FDI) to developing countries is on the increase in the last few decades. A report by the World Bank in 2001, indicated that an upward growth of FDI from $24 billion amounting to 24% of the entire total foreign investment in 1990 to about $178 billion equivalent to 61% of the total foreign investment in 2000. In 2001, the total FDI inflow to developing countries stood at $215 billion (International Monetary Fund, 2003). This development is impressive particularly to most of the developing countries that lacks accessibility to international capital market. There exists substantial number of literature which assessed the effect of FDI on economic growth via various ways through which FDI might affects the growth of the economies positively or negatively. Though, the small level of foreign countries in which extraction industries takes the greater proportion of the FDI for instance Nigeria, has made study in this area very scanty. This motivates the research in this area with a view to empirically assess whether Nigeria as a nation largely depends on extraction industriesmainly oil sector stands to benefits from FDI in terms of its economic growth as many empirical studies confirmed in the case of *Hamisu Sadi Ali is from the Department of Economics, Faculty of Economics and Management University Putra Malaysia, 43400 Serdang Selangor-Malaysia **Idris Isyaku Abdullahi is from the Department of Accounting and Finance Technology, Faculty of Management Technology, Abubakar Tafawa Balewa University, Bauchi-Nigeria ISSN 1357-1583 http://fssh-journal.org

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manufacturing FDI (Akinlo, 2004). The economic growth of the developing countries depends on how these countries adopt and subsequently implement new technologies available in developed countries. The major channel via which new technology will be adopted and implemented by the less developed countries is FDI (Findlay, 1978). The use of new technologies will be important in contributing to higher productivity of labour and capital in the receiving countries. The spillover takes place via demonstration or imitation (Kinoshita, 1998; Sjoholm, 1999).

Literature Review Empirical researches were carried out across the globe on the impact of the inflow of FDI to the growth of the developing countries, Nigeria inclusive.

From micro perspective of individual firm, various studies indicated that there exists evidence of spillover effect technologically as well as an improvement in the overall productivity. Similarly, from macro perspective, it is evidenced based on empirical studies that FDI inflows in developing countries tend to â&#x20AC;&#x153;crowd inâ&#x20AC;? other investment. It was found that FDI inflow eventually results to improvement in GDP per-capita, economic growth as well as leads to overall growth in productivity. Furthermore, FDI is found to foster higher export in host country as well as facilitates backward and forward linkages (Markusen & Venables, 1999). Though, effectiveness of foreign direct investment largely depends on some conditions in the receiving (host) country, which include absorptivecapacity in the host country as well as some degree of complementarity between investment in the host country(domestic) and FDI. Essentially, the above empirical studies indicated that the way FDI affect growth entirely depends on economic as well as technological conditions in the host country.FDI is empirically established to assist in increasing growth through introduction of new technologies which include new production process as well as new techniques,managerial skills, ideas and variety of capital goods. The new growth literature emphasized on the relevance of technological changes for the growth of the economies (Grossman & Helpman, 1999; Barro & Sala-iMartin, 1995).

In recent times empirical studies indicated a strong support in favour of the existence of causality between foreign direct investment and economic prosperity in developing countries. It was postulated that inflow of FDI is capable of affecting economic growth positively via an outward shift in the countryâ&#x20AC;&#x2122;s production possibility curve, resulting from technology transfer as well as spillover efficiency (Blomsrom, et al.1994; Kokko andBlomsrom, 1995; Mansfield and Romeo 1980 and Kokko, 1994). Developing countries however, have experienced a decrease in the rate of investment over the years particularly from early 1980(Oshikoya, 1994). The decline experienced by most of the developing countries in relations to investment over the years

123 International Journal of Economics and Business Research culminated to the stunted economic growth and consequently results to a negative growth of GDP per-capita in these countries(Ndikumana, 2000).It is important to note that the quest for proper way through which FDI will impact positively becomes imperative (Lemi and Asefa, 2003). It is believed that FDI influence will arise from absorptive capacity of the FDI-receiving countries instead of from an automatic adjustment of economic growth to changes in the levels of FDI. The absorptive capacity attracts divergent views in the literature. Some studies considered absorptive capacity from the perspective of commercial policies that relates to human capital (See Balasubramanyam, et al. 1996 & Borensztein, et al. 1998).Adeniyi et al.

(2012) examined the relation between FDI and economic growth of cote’dvoire, Gambia, Ghana, Nigeria and Sierra-Leone over a period 19702005. The result indicated the existence of causality between FDI and growth in Ghana, Gambia and Sierra-Leone while there exist no evidence of either shot run or long term causality between FDI and Growth in Nigeria.Most of the existing studies focused mainly on economies with manufacturing FDI. Though, an attempt has been made by Akinlo, (2004) to assess the impact of FDI on economic growth of Nigeria.His study is confined to 1970-2001 data. However, this study will extends the study period to 2014 with a view to see whether the same finding could be establish for extractive FDI countries such as Nigeria.

Conceptual Framework Let’s star by specifying a production function which incorporated foreign direct investment as a factor of production: Yt = Af {(λL), Kp, µ} = At (λL)αKPβ , µ1 − α − β (1)

Where

λ= Yt represents the real GDP(output), Kp represent the stock of private capital, L represents labour input, λ represents human capital level, H represents the measure of the level of education, z represents the return to education in relation to labour input, A represents production efficiency, E represents the externality generated by additions to the stock of FDI, α and β represents the private capital as well as the share of labour respectively. It is further assumed that α and β is less than one, so that there exist diminishing returns to labour and capital inputs. µ as an externality can be represented by a Cobb–Douglas production function as:

µ = {(λL), Kp, Kf σ }γ (2) Where σ and λ respectively, represented the marginal as well as the inter temporal elasticities of substitution between private and foreign capital. Let

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σ > 0, such that a larger stock of FDI yields a positive externality to the economy. If γ > 0, inter temporal complementarity between private and foreign capital prevails, on the other hand if γ <0, additions to the FDI stock crowd out private capital over time and diminish the growth potential of the host country.

Combining equations (1) and (2), yields:

Yt = At (λL) α K ρβ [{(λL), Kp, K αf }γ ]1−α − β

(3)

Factorizing equation (3) will yields:

Yt = At (λL) α +γ (1−α − β ) K ρβ +γ (1−α − β ) K αf +γ (1−α − β ) (4) as well as takes logarithms and time When we substitute λ = derivatives of equation (4), we arrived at the dynamic production function as follows:

ψ y = ψ A + Z [α + γ (1 − α − β )] ψ H + [α + λ (1 − α − β )]ψ L + [ β + γ (1 − α − β )]ψK p + α + γ (1 − α − β )ψK f

(5)

Where represent the growth rate of i= Y, A, L,H, and . Equation (5) specified that given and > 0 and z being positive as well, any addition to stock of FDI will augment the elasticities of output with respect to raw labour, capital as well as human capital by factor . ∆y = d 0 + d1 ∆L + d 2 ∆K p + d 3 ∆K f + d 4 ∆H + d 5 ∆χ + d 6 ∆C 9 + ε (6)

The lower case letters represents natural logarithms, and is the difference operator;y represent the natural log of real GDP; L is the labour, and are stock of privateand foreign capital respectively; cg is real government consumption, x is realexport, h is human capital. It is anticipated that d1, d2, d4, and d5 will be positive while d3 and d6 are indeterminate. This depends on whether or not expenditure by the government crowd out private consumption. In a situation where government expenditure crowds out private consumption expenditures, d6 will be negative. However, where government consumption compliments privateconsumption d6 will be positive.

Data for the study The data used for the study is obtained from World Development Indicators (WDI, 2015), World Bank data base for all the four (4) variables.

Economic growth is proxied by real GDP, net inflow of foreign direct investment as a ratio of GDP represent FDI, real GDP per capita and trade

125 International Journal of Economics and Business Research openness represented by total export and import as share of GDP in Nigeria for the period of 1981-2014.

Model specification We derived our empirical model by augmenting equation (6) above and we followed Fosu and Magnus (2006) in order to specify the ARDL form of vector error correction model as shown in equation (7) below; ∆lRGDPt = α 0 + α 1lRGDPt −1 + α 2 lFDI 2t −1 +

α 3lGDPCt −1 + α 4 lTOt −1 + ∑i Yi ∆lRGDPt −1 + p

∑δ j

∆lFDI 2t − j + ∑i ϕ i ∆lGDPCt −1 + ∑mi η x ∆lTOt − n + ε t q

p

q

j

(7)

Where; LRGDP refers to the log of real GDP, LFDI is the log of foreign direct investment as a share of GDP, LGDPC is the log of real per-capita GDPand LTO is the log of trade openness, subscript t show time period. We will initially estimate equation (1) based on OLS and subsequently test the Wald F-test with the aim of testing joint significance of the lagged variables coefficients so as to assess if the variables are cointegrated. The subsequent stage is to test the null hypothesis which stated that variables are not cointegrated (there is no long-run relationship among the variables) against alternate hypothesis which stated that variables are cointegrated (there is long-run relationship among the variables). Based on Pesaran, et al. (2001) when the value of the calculated F-test is higher than the upper bound critical value, the null hypothesis of no cointegration will be rejected, this means variables were cointegrated. Whereas, if the values is less than the lower critical value, null hypothesis cannot be rejected which indicated no element of cointegration among the variables, if however the value is within upper and lower critical bounds the result is inconclusive (Pesaran & Pesaran, 1997). Equation (8) below will be used to test ARDL long-run coefficients: lRGDPt = α 0 + ∑i =1 ε i lRGDPt −1 ∑i =0 δ i lFDI 2t −1 + ∑i =0 ϕ l lGDPCt −1 + r

s1

s2

∑x=0 ∪ n lTOt − x + ε t s4

(8)

In order to select the laglength of the model we choose SBC and use error correction model so as to obtain the short run dynamism of the variables. ∆lRGDPt = α 0 + ∑i γ i ∆lRGDPt −1 + ∑ j ρ j ∆lFDI 2t − j + ∑i ϕ l ∆lGDPCt −1 + r

∑m ∪ n ∆lTOt −m + ϑecmt −1 + ε t q

s

s

(9)

Hamisu Sadi Ali & Idris Isyaku Abdullahi 126

To test the stability of the long-run coefficient and short-run dynamics, we followed Pesaran (1997) and applied cumulative sum of recursive residuals(CUSUM) and the cumulative sum of squares of recursive residuals(CUSUMSQ).

Empirical Results Table 1: ADF and PP unit root tests results ADF

PP Level

Variables

Constant Without Trend

Constant With Trend

Constant Without Trend

Constant With Trend

RGDPt

1.252

-0.270

1.019

-0.464

FDI t

-2.441

-2.388

-2.441

-2.388

GDPCt

-0.076

-0.293

-0.528

0.487

TOt

-2.721*

-2.210

-2.654*

-2.053

First difference

RGDPt

-5.647***

-6.139***

-5.738***

-6.140***

FDI t

-11.064***

-10.965***

-10.913***

-10.810***

GDPCt

-5.643***

-6.137***

-5.733***

-6.139***

TOt

-8.184***

-8.531***

-8.144***

-8.531***

NB: The ADF and PP test equations include both constant and trend terms. The Schwarz information criterion (SIC) is used to select the optimal lag order in the ADF test equation.

The values in brackets are corresponding p-values *denote significance level at 10%, **5%, and ***1% respectively

Based on the above ADF and PP unit root tests it shows that RDGP, FDI and GDPC are non-stationary at level, but stationary at first difference which means are all I(1) variables, while TO is stationary at level means is I(0) variable. The combination of I(0) and I(1) gave us a chance to apply ARDL approach as suggested by Pesaran et al. (2001).

127 International Journal of Economics and Business Research Table 2: Test of cointegration Model for estimation

Lag length

Fstatistics

Significance level

Critical bound ______________________ F-statistics __________________ I(0) I(1)

FRGDP (FDI|GDPC|TO)

4

11.99

1%

3.65 4.66

5%

2.79 3.67

10%

2.373.20

Note: *, ** and *** denote significant at 1%, 5% and 10% levels, respectively. Critical values are obtained from Narayan (2005) (Table Case III: Unrestricted intercept and no trend; pg. 1988)

The ARDL test result reveals that the calculated F-statistics (11.99) is greater than upper critical bound as indicated in the Narayan (2005) table which means variables have long-run relationship because null hypothesis is rejected at all significance levels but we consider 1% considering its robustness in hypothesis rejection statistically. The next line of action is to estimate equation (2) to obtain long-run coefficients as reported in the table 3 below; Table 3: Long-run coefficients estimation based on Schwarz Bayesian Criterion (SBC) Dependent variable ( â&#x2C6;&#x2020;lRGPDt ) Regressors

Coefficients

T-ratio (p-values)

lFDIt

-0.484

-0.995(0.334)

lGDPCt

1.022

69.891(0.000)

lTOt

-0.001

-0.937(0.362)

Constant

0.026

83.504(0.000)

Note: We used *** for 1%, **5%, and *10% as the significance values for hypothesis rejection

The result of the long-run coefficients of both FDI and trade openness is negative and does not have any substantial impact on economic growth in the Nigerian economy, this substantiated the finding of Adeniyi et al. (2012) on non-causality of FDI and growth in the case of Nigeria while same was found for other countries studied. However, real GDP per-capita positively and significantly influenced economic growth in the long-run which means

Hamisu Sadi Ali & Idris Isyaku Abdullahi 128

that 1% increase in real GDP could stimulate real GDP per-capita to increase by 1.022 percent annually.

Table 4: Estimated short-run coefficients from error correction model based on SchwarzBayesian Criterion (SBC) Dependent variable ( ∆lRGPDt ) Regressors

Coefficients

T-ratio (p-values)

∆lRGPDt −1

1.597

7.443(0.000)

∆lFDI t

-0.158

-1.002(0.330)

∆lGDPCt

-1.598

-7.451(0.000)

∆lTOt

-0.370

-0.905(0.378)

ECM(-1)

-0.033

-2.571(0.019)

Note: We used *** for 1%, **5%, and *10% as the significance values for hypothesis rejection

The above table 4 reported the short-run relationship of the independent variables against dependent variable and the result seems similar with the long-run outcome with a slight variation. The outcome shows that in the short-run also both FDI and trade openness exhibited negative signs and does not have any impact on economic growth, while real GDP per-capita is significant but negative on economic growth in the short-run. The ECM value is negative, less than one and statistically significant as expected in the theory, this reconfirmed the existence of long-run relationship among the variables as ECM signifies convergence from short-run to long-run equilibrium (Banerjee, et al. 1998).

Table 5: Diagnostic tests of ARDL Test statistics

LM version

F-version

1: Serial correlation

CHSQ(1) = 1.427 [0.232]

F(1, 16) = 0.828 [0.376]

2: Functional form

CHSQ(1) = 0.004[0.948]

F(1, 16) = 0.002 [0.962]

3: Normality

CHSQ(2) = 5.146 [0.076]

4: Heteroscedasticity

CHSQ(1) = 0.241 [0.624]

N/A F(1, 27) = 0.226 [0.638]

Note: We used *** for 1%, **5%, and *10% as the significance values for hypothesis rejection

129 International Journal of Economics and Business Research To confirm the efficiency and consistency of the model various diagnostic tests was conducted as reported in table 5 above. The result shows that our model is free from autocorrelation, functional form, normality and heteroscedasticity problems because in all the four (4) tests null hypothesis cannot be rejected which means our model is efficient and consistent. For the stability of the model also figure 1 and 2 below based on cumulative sum of recursive residuals (CUSUM) and cumulative sum of squares of recursive residuals (CUSUM of squares) signifies that the model is highly stable over the sample period because the blue lines for both CUSUM and CUSUMSQ lies within critical bounds and is significant at 5% level.

Conclusion and Policy Recommendations The present study empirically examined the impact of foreign direct investment (FDI) on economic growth in Nigeria; the cointegration result shows that variables have long-run relationship as null hypothesis was rejected at 1% level of significance. The result shows that foreign direct investment and trade openness does not contribute to the growth of the Nigerian economy over the sample period. However, real GDP per-capita positively enhances economic performance in the same period. The implication is that authorities in Nigeria should work on the policy frameworks that will provide suitable environment for investment which will pave way for profitable foreign businesses that aid the economy and reduces some economic hardship faced presently e.g. unemployment. It is paramount for the present administration to work tirelessly on reviving the security condition in the country without which foreign investors will not have courage to commit their financial resources in the Nigerian economy. The issue of corruption in both public and private sectors need to be overcome which is also among the impediments blocking foreign investment in Nigeria, when these strategies were properly implemented the role of FDI will be highly recognised and the economy will feel its impacts.

Hamisu Sadi Ali & Idris Isyaku Abdullahi 130

Figure 1: Plot of cumulative sum of recursive residuals

15 10 5 0 -5 -10 -15 1986

1991

1996

2001

2006

2011

2014

The straight lines represent critical bounds at 5% significance level

Figure 2 : Plot of cumulative sum of squares of recursive residuals

1.5 1.0 0.5 0.0 -0.5 1986

1991

1996

2001

2006

2011

The straight lines represent critical bounds at 5% significance level

2014

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