Foreign Trade, Foreign Direct Investment and Economic Growth: Cointegration Evidence for Nigeria

Abstract

This study assesses the twin impact of foreign trade and foreign direct investment (FDI) on economic growth process in Nigeria. Although the process of economic growth is complex and multifaceted, there exists sufficient theoretical and empirical evidence underpinning the role of foreign trade and financial inflow in economic growth. For instance it is argued that through FDI positive externalities inside the economy enhances economic growth and equally important is the fact that trade liberalization stimulates both export and import. Four variables: GDP, FDI, export and import were isolated for analysis and a two-step procedure was used to analyze the data for the period 1962 – 2011. First, we perform a descriptive statistics analysis and second, we look at the relationship amongst the variables using vector error correction model (VECM) analysis. Our findings revealed that FDI and export exert a positive long-run influence on economic growth contrary to import which has a negative long-run relationship with economic growth.

Keywords: Foreign trade; foreign direct investment; economic growth