Reexamining the Impact of Foreign Direct Investment on Economic Growth in Nigeria: An ARDL Approach
DOI:
https://doi.org/10.60787/mjrdp.vol15no1.178Keywords:
Foreign direct Investment, Economic growth, Autoregressive Distributive Lag, Granger causality, Error correction model, NigeriaAbstract
It is commonly assumed that foreign direct investment (FDI) is growth-enhancing. Yet existing empirical evidence has left researchers and policymakers puzzled, as these studies do not appear to find a strong relationship between the two variables. This study reexamined both the long-run and short-run impacts of FDI on Nigeria’s economic growth and the direction of causality between these variables, using extended time-series data from 1981 to 2023. Pesaran, Shin, and Smith’s (2001) Autoregressive Distributive Lag (ARDL) bounds cointegration and Granger causality techniques were used. The study established a long-run cointegrating relationship among the variables and provided supporting evidence of an insignificant positive impact of FDI on economic growth in the long run, with a significantly positive impact in the short run. In addition, one-period-lagged FDI, trade openness, and credit to the private sector significantly and positively affected economic growth in the short run. Although the study found no causality between FDI and economic growth, it provided evidence of unidirectional causality running from the economic growth rate to the real exchange rate at the 1 percent level, and weak one-way causalities running from economic growth to FDI, from FDI to trade openness, and from private-sector credit to trade openness, at the 10 percent level of significance. The findings of the study highlight the need for stronger institutions and better governance not only to attract and retain investors but also to help Nigeria position itself more strategically in the global investment landscape. Among other suggestions, it is recommended that the government adopt reforms to attract more FDI and achieve meaningful outcomes for the country.Downloads
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