Foreign Direct Investments and Economic Growth in Nigeria: A Disaggregated Sector Analysis

Abstract

This paper attempts to investigate the impact of Foreign Direct Investment (FDI) on economic growth in Nigeria. The research developed a structural macroeconometric model consisting of four blocks made up of supply,  private demand, government and external sectors. The model deploys 18 simultaneous equations  and 100 variables to capture the required proxies. The research adopted a three-stage least squares (3SLS) technique and macroeconometric model of simultaneous equations to capture the disaggregated impact of FDI on the different sectors of the economy and the inter-linkages amongst the sectors in order to give better insight into the variations inherent therein. The finding shows that FDI has a significant impact on output of the economy but that the growth effects of FDI differ across sectors. The paper recommends sector-specific policies, enhanced trade openness, import substitution development strategy incentives to existing investors, and potential overseas investors so as to enhance the development of the country.

Keywords: Foreign Direct Investment, Economic Growth, Simultaneous Equation, Macroeconometric Model