Effect of foreign direct investment on economic growth in Nigeria

Abstract EN

Purpose: This paper examines the effect of foreign direct investment on economic growth in Nigeria.

In addition to complementing local investment, FDI is intended to help a developing country like Nigeria, create employment, transfer technology, enhance domestic competition and provide other beneficial externalities.

Design/Methodology/Approach: The study employed Augmented Dickey Fuller methodology to carry out unit root test, based on which it was discovered that three of the variables are stationary at first difference while the rest are stationary at levels.

Consequently, the Autoregressive Distributive Lag (ARDL) technique is used to analyse the impact of foreign direct investment on the economic growth of Nigeria.

Findings: The results indicate that aggregate foreign direct investment, foreign direct investment to the manufacturing sector, trade openness, inflation and government consumption have significant effects on economic growth in Nigeria.

Practical Implications: Based on these findings, the study recommends that Nigeria should accelerate relevant policies that could attract an enormous inflow of FDI and also strive for price stability in the economy.

Originality/Value: The study also looked at the effects of FDI inflows into the mining, manufacturing, and agriculture sectors on economic growth.

Besides FDI, the effects on growth of five control variables, viz: labour force growth, gross capital formation, trade openness, inflation and government consumption expenditure were also examined.