Opportunities and challenges of foreign direct investment utilisation and its impact on construction sector in developing countries

Abstract

Purpose Foreign direct investment (FDI) inflows to both developed and developing countries have increased over the past three decades. However, investigation of opportunities and challenges associated with FDI on the host economy and its impact, especially on the construction sector through empirical assessment, have received scant attention. The purpose of this study is to address this gap in knowledge within the Nigerian context and examine the trend of FDI inflows to the construction sector for the period 2000-2013 inclusive. Relationships between contributions of the construction sector to Nigeria’s gross domestic product (GDP) are also studied. Design/methodology/approach The study adopted a literature review, a questionnaire survey and archival data culminated in data analysis. The survey targeted financial experts in Nigerian financial institutions/local banks. Archival data included the annualised data extracted from the Central Bank of Nigeria statistical bulletins. The period examined witnessed stable economic conditions. Data collected were analysed using mean score, factor analysis and correlation. Findings Eight identified opportunities of using FDI were grouped into three principal factors: knowledge spillovers, capital for new investment and resilience during financial crises. The ten identified FDI challenges were grouped into three major factors: loss of ownership advantage and additional costs, crowding-out of-national firms and administrative bottleneck and overdependence. Based on the hypotheses tested, the study found a significant relationship between the contributions of FDI inflows in the construction sector and the total GDP of the host country. Practical implications This study provides greater insight on the effects of FDI on a host economy in developing countries, which would help policymakers to examine existing policies and look for new ways of increasing foreign investment flow, especially in the area of Construction Facility Investment. Originality/value This study is important because it would enable policymakers in developing countries at large to promote FDI with special considerations for the construction sector of the economy.