Effects of Foreign Direct Investment (FDI) on Economic Growth in Nigeria

Abstract

Foreign Direct Investment (FDI) has been held to provide developing nations including Nigeria with much needed capital for economic growth. Part of the Foreign Direct Investment is the inflow of up to date technology and management skill. This paper investigates the effect of FDI on selected macro economic variables of GDP, inflation and Exchange Rate. It used Ordinary Least Squares (OLS) to examine the relationship between the Dependent variable (FDI) and the independent variables –Inflation and Exchange Rate. The study indicates that GDP, inflation and Exchange Rate are affected to the extent of 46.5% by FDI. FDI does not make the GDP to grow, increases inflation and has negative effect on exchange rate.

Although the study contradicts a priori expectations and popular economic theory of capital, the inflow of FDI into the country is essential. The government should encourage it and pay attention as to its application.

Keywords: Foreign Direct Investment, GDP, Exchange Rate, Inflation, capital flight, low income and developing countries