FDI, Foreign Debts and Growth in Developing Countries: Evidence from Nigeria

Abstract

As no government is an island of its own and as such it would require foreign aids in form of foreign investment and external debt so as to perform effectively and efficiently. Hence, the study examines the impact of foreign direct investment and external debt on the economic growth of Nigeria. It adopts the debt-cum-growth model of Oke and Sulaimon (2012) with a little modification of the model so as to accommodate the FDI data within the period covered by the study. The econometrics techniques of Augmented-Dickey Fuller unit root test, Johansen co-integration test and ECM were used to empirically analyse the model. The empirical result of the study shows that FDI and external debt have a statistically significant effect on the economic growth of Nigeria. The study recommend among other things that the government should be responsive enough to make the borrowed fund meant for capital project would not be diverted into private pockets so as to achieve optimal use of the fund. In addition, government must endeavour to crate an enabling environment for domestic investors to thrive.

Keywords: FDI, Foreign debt, growth, Nigeria