Impact of Foreign Direct Investment on the Economy of Nigeria

Abstract

The study investigated the impact of foreign direct investment on economic growth in Nigeria using annual time series data from 1981 to 2013. The study also examined the effects of exchange rate of the naira and openness of the economy on economic growth in Nigeria. The ordinary least square technique and vector error correction model was employed in estimating the long run effects and the parsimonious short run dynamics of the parameter estimates. The results of the study revealed that in both the long run and short run, foreign direct investment has positive and significant impact on gross domestic product in Nigeria. The result also revealed that exchange rate of the naira has negative effect on economic growth in Nigeria while trade openness had no impact on economic growth in Nigeria. This study recommends policies that will encourage foreign direct investment in non-oil sector such as agriculture, mining and industrial sectors to boost economic activities and increase output level in Nigeria. It also recommends the removal of government induced distortions and provision of conducive environment for foreign investors to operate and the creation of friendly business environment in the country by the government to increase the level of openness.

Keywords: Economic Growth, Foreign Direct Investment, Exchange Rate, Trade Openness, Domestic Inflation