The Impact of Foreign Direct Investment on the Nigerian Economy

Abstract

This study investigates the empirical relationship between Foreign Direct Investment and economic growth in Nigeria. The work covered a period of 1981-2009 using an annual data from Central Bank of Nigeria statistical bulletin. A growth model via the Ordinary Least Square method was used to ascertain the relationship between FDI and economic growth in Nigeria. The study also added Gross Fixed Capital Formation with a view to capture the effect of domestic investment on the growth of the economy for the period under review. Interest Rate and exchange rate were also added as control variables in the model. Granger causality test was also employed to determine the direction of causality between FDI and economic growth in Nigeria. The result of the OLS techniques indicates that FDI has a positive and insignificant impact on the growth of Nigerian economy for the period under study. GFCF which was used as a proxy for domestic investment has a positive and significant impact on economic growth. Interest rate was found to be positive and insignificant while exchange rate positively and significantly affects the growth of Nigeria economy. Therefore, government should provide an enabling environment that will encourage foreign investors to invest in Nigeria economy by addressing the security challenges in the country, providing investment friendly environment by improved regulatory framework as well as encourage domestic investment.

Keywords: Foreign Direct Investment and Nigerian Economy