Macroeconomic Fundamentals of Foreign Investment and Economic Growth in Sub-Saharan Africa: the Nigeria Case

Abstract

A series of recent studies have pointed to the significance of microeconomic fundamentals in explaining long-run of relationship between foreign investment and economic growth in sub-Saharan Africa. This paper critically looked at the macroeconomic fundamentals of foreign investment determinant and its impact on economic growth in Nigeria. Data for the study were collected from the CBN statistical bulletin 2011 over period of 32 years within the space of 1980-2010. Econometrics techniques such as unit root test, co integration and ARDL were adopted to estimate models and investigate stationarity and long run relationship. The trace statistic and likelihood function values are greater than critical value at 5%. This reveals that there is co integration at most 1 with an implication of at least 2 co integrating equations. ADF test statistic indicated stationary at 5% level. The result showed that DLNEXR, DLNINTR, DLNINF and DLNMSP growth rates are statistically significant to the foreign investments (DLNFI) in the previous and current year. Long run relationship existed among exchange, interest growth rates and foreign investment growth rate in Nigeria. It was found that the most macroeconomic fundamentals are exchange rate, interest rate and money supply. Therefore, the empirical study further recommended that it is important for appropriate policy formulation and implementation to encourage and boost these variables for effective management of macroeconomic fundamentals that brings about foreign investment in Nigeria and its contribution to economic growth. 

Keywords: Fundamentals, ARDLs, Unit roots, foreign investments, Long run relationship.