Foreign Direct Investment and Economic Growth in Nigeria: A Revisit

Abstract

This study examined the impact of foreign direct investment (FDI) on economic growth in Nigeria from 1981 to 2022. Real gross domestic product growth rate (RGDPGR) was the proxy for economic growth while foreign direct investment (FDI), gross fixed capital formation (GFCF), per capita income (PCI) and exchange rate (EXR) were the explanatory variables. The study employed the autoregressive distributed lag (ARDL) technique to estimate the model, while the eclectic paradigm and endogenous growth theory served as the theoretical framework for the study. The results revealed that in the long run, foreign direct investment, per capita income and exchange rate were positive but statistically insignificant to economic growth in Nigeria, while gross fixed capital formation was insignificant. However, in the short, GFCF had significant negative impact on economic growth in the second lagged year showing that a unit increase in GFCF decreased RGDPGR by approximately 10.21% while per capita income impacted positively on the growth of the Nigerian economy. Consequently, the study recommended that as a signal of market size for the inflow of FDI and particularly as a signal of human capital development, the government should increase her investment in human capital development focusing on technical skills relevant in manufacturing and service sectors to engender growth in per capita income to attract FDI and economic growth in Nigeria.