Foreign Direct Investment and Economic Growth: Empirical Evidence from Nigeria

Abstract

This study investigates the interrelationships between foreign direct investment and economic growth in Nigeria, using annual time-series data spanning from 1981 to 2021, that is, 41 years. The extent to which the continuously declining foreign direct investment inflows, gross fixed capital formation, net exports, etc. have affected economic growth in Nigeria for the past two decades or so aroused our interest in carrying out the study. The longitudinal research design is utilized since the variables of interest are repeatedly examined to detect any variations that may have occurred within a specific timeframe. The auto-regressive distributed lags (ADRL) approach is deployed to data analysis in order to obtain both the short-run and the long-run relationships among variables. The outcomes of the study show, among others, that foreign direct investment exerts a positive but insignificant impact on economic growth both in the short run and the long run. As a result, the study concludes that policymakers in Nigeria need to redirect foreign direct inflows to those preferred and critical sectors of the economy (such as the agricultural and manufacturing sectors) where the scale effects of the foreign direct investment can quickly manifest and aid economic growth, especially in the long run. The study therefore recommends that the managers of the Nigerian economy should take urgent steps to introduce appropriate policies and incentives that are most likely to facilitate the achievement of the much-desired accelerated and sustainable economic growth of the country.