Moderating Effect of Institution in FDI-Growth Relationship in Developing Countries: A Case of Nigeria

Abstract

This paper employed the good governance index as a proxy for institutional quality to examine its moderating effect on the FDI-growth relationship in Nigeria from 2006 to 2020. The ARDL bounds testing approach was employed as the technique of analysis to ascertain the direct impact of FDI on economic growth and the indirect impact through the moderating effect of institutional quality (good governance). The paper provides evidence of a long term relationship between FDI and economic growth as well as a significant unconditional positive impact of FDI on economic growth. Regarding the interactive effect of institutional quality (good governance) on the FDI-growth effect, we find convincing evidence that institutional quality (good governance) alters the effect of FDI on economic growth favourably. Therefore, it is recommended that Nigeria strengthen its governance quality to benefit more from FDI and achieve better economic growth results.

Keywords: FDI, economic growth, Institutional quality, ARDL, Nigeria

DOI: 10.7176/JESD/12-22-07

Publication date: November 30^th 2021