Institutions, Foreign Direct Investment and Economic Growth in Nigeria

Abstract

This study investigates the causal relationships between foreign direct investment (FDI), remittances, institutional quality (political rights and civil liberties), and economic growth in Nigeria. Utilizing Pairwise Granger Causality Tests and an Autoregressive Distributed Lag (ARDL) model, the research offers a comprehensive analysis of both short-term and long-term impacts of these variables on economic growth. Key findings reveal bidirectional causality between political rights and economic growth, and between civil liberties and economic growth, indicating that improvements in these institutional qualities can drive economic growth and vice versa. The study also finds a unidirectional relationship where economic growth Granger causes remittances and FDI, suggesting that better economic conditions attract more remittances and FDI. Additionally, the interaction between political rights and remittances indicates that worsening political rights combined with remittances reduce economic growth, while improving civil liberties with remittances boosts growth. Similarly, better political rights enhance the positive impact of FDI on economic growth, though the effects of civil liberties on FDI are mixed. These findings highlight the importance of strengthening political rights and civil liberties to create a stable environment conducive to economic growth. Economic policies should focus on leveraging domestic conditions to attract remittances and FDI, emphasizing the role of a strong domestic economy. The complex interactions between these variables underscore the need for in-depth research to tailor policies for sustainable economic development. This study provides valuable insights for policymakers aiming to harness the potential of institutional quality, remittances, and FDI for fostering economic growth in Nigeria.

Key Words: Economic Growth, FDI; Institutional Quality

JEL Classification: O40, Q43

DOI: 10.7176/JESD/16-1-06

Publication date: January 30th 2025