IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT

Numerous studies have been carried out on the impact of foreign direct investment on economic growth at different times in different countries albeit with mixed findings. Therefore, this study has empirically investigated the impact of foreign direct investment on economic growth in Nigeria for the period 1981-2022. The variables considered are Real Gross domestic product (GDP), a proxy for economic growth, as the dependent variable while foreign direct investment (FDI), real exchange rate (EXR), trade openness [proxied by export (EXP)] and Gross capital formation (GCF) as the independent variables for the study. The study was built on the AK endogenous growth model. Augmented Dickey-fuller (ADF) test was used for the unit root test and the variables were found to be stationary at first difference. Then, the Johansen (1988) technique was used to establish if the stationary variables are cointegrated. The Autoregressive Distributed lag (ARDL) was used to estimate the model. Further, ECM was used to correct any form of disequilibrium in the short run. The result of the stationarity and normality test reveals that the model is fairly well specified and could be used for policy analysis. The analysis was based on data extracted from the Central Bank of Nigeria (CBN) statistical bulletin and World Development Indicators (WDI). The result of the analysis shows that all the variables were statistically significant at 5%. The results reveal that both foreign direct investment (FDI) and gross capital formation (GCF) positively impact economic growth in Nigeria though only foreign direct investment was found to be significant. However, results show that real exchange rate (EXR) and trade openness (EXP) are not significant drives of economic growth in Nigeria. The study therefore suggested that efforts should be made to attract foreign direct investment at least in the short run. It was also suggested that the Government should create an environment that promotes increased capital investment to support sustained long term economic growth.