Effect of Sectoral Foreign Direct Investment on Economic Development in Nigeria: An Econometric Analysis

Abstract

This study uses econometric techniques to analyze the effect of sectoral foreign direct investments on economic development in Nigeria from 1985-2022. Secondary data on real gross domestic product (RGDP), human development index (HDI), foreign direct investments (FDI) in service, transport and communications sectors were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS) Report, and Word Development Indicators (WDI) of Word Bank. The Autoregressive Distributed Lag (ARDL) test processes was utilised as the analytical methods. The ARDL result revealed that in the long run, FDI in the long run, FDI in service sectors had had negative and insignificant effects on human development index. FDI in manufacturing, likewise transport and communications sectors had positive and insubstantial effects on human development index. In the short run, FDI in transport and communications sectors had negative and significant effects on HDI. FDI in manufacturing sector had positive and insignificant effect on HDI. However, FDI in service sector had positive and substantial effect on HDI. Hence, it was concluded that FDI had substantial impact on human capital development. Therefore, the study recommended that government should provide needed enabling environment to increase FDIs in various sectors. To achieve this, government should remove all the road blocks to foreign productive investments in Nigeria. The process ranges from fixing infrastructural deficits through addressing issues of good governance, corruption and insecurity.