Economic Growth and Foreign Direct Investment in Nigeria: An Empirical Investigation

Abstract

Developing countries, Nigeria inclusive, face a shortage of investible funds and hence strive to attract foreign direct investment (FDI) because of its acknowledged potentials as a tool of economic development. This study investigated the empirical relationship between FDI and economic growth in Nigeria. Secondary data sourced mainly from CBN publications were used in the OLS and granger causality regression equations conducted for the period 1986 to 2010. Although FDI coefficient in the regression result showed that about 13% of variations in GDP are accounted for by a percent increase in FDI, their relationship is statistically insignificant. The regression result also showed that other variables in the model – gross fixed capital formation (GFCF), net exports (NXP), consumer price index (CPI), and exchange rate (EXR) – impacted on the GDP. The result of the granger causality test showed a bi-directional causality between FDI and GDP, that is, each granger cause the other. On the basis of these, it was recommended that more sectors of the economy be deregulated so as to encourage more investor participation in the productive sector of the economy.

Keywords: economic growth, foreign direct investment