Empirical Analysis of the Relationship between Foreign Direct Investment and Economic Growth in Developing Countries- Evidence from Nigeria

The study examined the effect of macro-economic variables on economic growth in Nigeria between 1990-2022. Specifically, the paper examined the effect of Exchange rate on Economic growth in Nigeria and determined the effect of interest rate on Economic growth in Nigeria. The paper employed ex-facto research design, using secondary data and adopted SVAR model. The paper found out that interest rate has a significant effect on Economic growth (RGDP) in Nigeria, and found that exchange rate has a significant effect on Economic growth (RGDP) in Nigeria. The study concluded that macroeconomic variables has a significant effect on Economic growth in Nigeria. Based on the study’s findings and conclusions above, the following recommendations were made: the government should improve on her foreign reserves as an absolute measure that will stabilize exchange rate to boost economic environment for effective investment to thrive and contribute to gross domestic product in Nigeria, and interest rate is found to have increased the potentials of Economic growth in Nigeria. It is therefore important to note that since interest rate have significantly affected the Economic growth in Nigeria, the CBN should improve on discount rate to stabilize interest rate to boost economic environment for effective investment to thrive and contribute to gross domestic product in Nigeria.

The study examined the effect of foreign aid and aid-institutional quality interaction on economic growth in Nigeria for the period (1981 - 2022) using FMOLS method. The result of the study shows that foreign aid (ODA) exerted positive but insignificant impact on economic growth in Nigeria, indicating that ODA is relevant to Nigeria’s economic growth but is not among the major drivers of economic growth in Nigeria. The aid-institutional quality interaction variable, the ODA interaction with corruption index (ODA*CPI), showed negative relationship with economic growth which suggests that weak institution, especially corruption, had constrained the positive effect of ODA on economic growth in Nigeria. The ODA absorptive capacity constraint (ODA2) had a negative and significant impact on economic growth which suggests the existence of inverted U-shape relationship between ODA and economic growth. The negative coefficient of absorptive capacity constraint of ODA shows that there is a critical level which beyond, further increase in ODA will impede economic growth. As for other variables, labour force (L), domestic capital (K), crude oil price (COP), financial deepening (FDP) and trade openness (TOP) had positive and significant relationship with economic growth (RGDP) in Nigeria. The coefficient of foreign direct investment (FDI) had a negative sign, implying that FDI had a negative impact on economic growth in Nigeria. It is recommended that there should be prudent utilization of ODA received, better and effective macroeconomic policies, improvement in the quality of governance and strengthening of relevant institutions to abate the problem of pervasive corruption in the country. Finally, aid fungibility should be avoided.

The main objective of the study was to investigate the impact of Federal Government tax revenue on economic growth in Nigeria spanning from 1986 – 2024 and variables employed were; Petroleum Profit tax Revenue (PPTR), Company Income Tax Revenue (CITR), Value Added tax revenue (VATR), Excise Duties Tax Revenue (CEDTR), and Personal Income Tax Revenue (PITR). Data were sourced from the Federal Inland Revenue Services (FIRS) publications and the Central Bank of Nigeria (CBN) Statistical Bulletins. The study adopted an ex-post factor research design and the model was specified using Vector Error Correction Model (VECM) and Public Finance Economic Theory was used as a theoretical framework. Vector Error Correction Model (VECM) as an econometric technique of data was used in the estimation of the parameter estimates. The findings of the study revealed that Petroleum Profit tax Revenue (PPTR) had a statistically and insignificant positive (1.42662) impact on economic growth (GDP) in Nigeria in the short-run but it had a statistically and significant positive impact on (GDP) in the long run. The findings of the study revealed that Personal Income Tax Revenue (PITR) had a statistically and insignificant positive (1.890096) impact on economic growth (GDP) in the short-run and it had a statistically and significant positive (2.696599) long-run in Nigeria. Based on the findings of the study, the study recommended that the government should intensify efforts in sustaining the positive and significant impact of PPTR and PITR on economic growth in Nigeria for more revenue generation. The main objective of the study was to investigate the impact of Federal Government tax revenue on economic growth in Nigeria spanning from 1986 – 2024 and variables employed were; Petroleum Profit tax Revenue (PPTR), Company Income Tax Revenue (CITR), Value Added tax revenue (VATR), Excise Duties Tax Revenue (CEDTR), and Personal Income Tax Revenue (PITR). Data were sourced from the Federal Inland Revenue Services (FIRS) publications and the Central Bank of Nigeria (CBN) Statistical Bulletins. The study adopted an ex-post factor research design and the model was specified using Vector Error Correction Model (VECM) and Public Finance Economic Theory was used as a theoretical framework. Vector Error Correction Model (VECM) as an econometric technique of data was used in the estimation of the parameter estimates. The findings of the study revealed that Petroleum Profit tax Revenue (PPTR) had a statistically and insignificant positive (1.42662) impact on economic growth (GDP) in Nigeria in the short-run but it had a statistically and significant positive impact on (GDP) in the long run. The findings of the study revealed that Personal Income Tax Revenue (PITR) had a statistically and insignificant positive (1.890096) impact on economic growth (GDP) in the short-run and it had a statistically and significant positive (2.696599) long-run in Nigeria. Based on the findings of the study, the study recommended that the government should intensify efforts in sustaining the positive and significant impact of PPTR and PITR on economic growth in Nigeria for more revenue generation.

The shortage of domestic savings needed for investments and the import requirements necessary for a certain production level and earnings from foreign exchange has made the inflow of foreign aid necessary to drive growth in a developing nation like Nigeria. The objective of this study therefore is to investigate the implication of foreign aid on economic growth in Nigeria for a 40- year time period spanning from 1981 to 2020. Time series data on gross domestic product, official development assistance and technical cooperation grant were sourced from the Central Bank of Nigeria statistical bulletin and the World Development Indicators database. The Unit root test, Co-integration test and Error Correction technique were employed as the main analytical tools in the study. The variables were stationary at first difference, according to the Augmented Dickey Fuller stationarity test. The results of the Johansen co-integration test indicated that the variables have a long-term association. The ECM result showed that ODA has a positive relationship with economic growth (GDP) in Nigeria. Also, TCG positively impacted economic growth in Nigeria for the period covered by the study. The impact of ODA and TCG were however not statistically significant. Hence, it was concluded that foreign aid did not significantly drive economic growth in Nigeria. Based on the empirical findings of this study, the following recommendations were made; government should ensure that the official development assistance received from international donors is channeled to developmental projects which should be monitored closely to ensure that they are efficiently utilized. Also, the inflow of technical grant should be encouraged to ensure human capital development and sustain growth in Nigeria. Finally, sound policies should be put in place to enable Nigeria transition from being a recipient of foreign aid to being a donor country.

This work investigated the impact of labour force participation on economic growth in Nigeria for the period 1990 to 2021 using annual time series data on real gross domestic product (RGDP), male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR). The objectives are to examine the impact of male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR) on economic growth in Nigeria and to ascertain the causality relationship between male labour force participation rate, female labour force participation rate, and economic growth in Nigeria using ARDL Bounds Testing methodology. The result indicated that male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR) had statistically significant impact on economic growth in Nigeria in the short run. The result also revealed that, in the long run, male labour force participation rate (MLFPR) and female labour force participation rate (FLFPR) had statistically insignificant impact on economic growth in Nigeria. A uni-directional causality relationship is found between male labour force participation rate (MLFPR) and economic growth (RGDP) in Nigeria over the period covered with the causality running from economic growth to male labour force participation rate. The result further indicated that there is no significant causality relationship between female labour force participation rate (FLFPR) and economic growth in Nigeria over the period covered. The study therefore recommended that government should design active policy for male and female participation in labour force and seriously empower women to participate in labour force in Nigeria.

This paper empirically investigated the growth implications of foreign portfolio investment inflows and foreign portfolio investment outflows in Nigeria over the period 1986 to 2018. Secondary data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS) and World Development Indicator (WDI) was used for examining the relationships among the endogenous variable and exogenous variables included in the model. The study employed Augumented Dickey Fuller (ADF) unit root test, Phillips-Perron (PP) unit root test, Johansen co-integration test, Ordinary Least Square (OLS) multiple regression technique to investigate the relationships among real gross domestic product (RGDP), foreign portfolio investment outflows (FPI), foreign portfolio investment inflows (DPI), exchange rate (EXGR) and inflation rate (INFR). Empirical findings revealed that foreign portfolio investment inflows (DPI) exerted statistically significant positive relationship with economic growth (RGDP) whereas foreign portfolio investment outflows (FPI) exhibited statistically significant negative relationship with economic growth (RGDP) in Nigeria over the studied period. Based on the estimated results, government at all levels in Nigeria should create enabling environment for the attraction of foreign portfolio investment inflows in order to spur economic growth; and monetary authorities in Nigeria should ensure stabilization of capital and money market activities with appropriate policies to sustain internalization and attractiveness to investors. Keywords: Foreign portfolio investment outflows, Domestic portfolio investment inflows, Economic growth, Ordinary Least Square Regression, Nigeria DOI: 10.7176/JESD/13-2-02 Publication date: January 31 st 2022

The study investigated the effect of macroeconomic variables on economic growth in Nigeria covering 1990-2024. Expost-facto research design was adopted for the study. To achieve this, the researcher employed secondary data on included variables to carry out the analysis. The data were collected from the Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS). Auto regression Distribution lag (ARDL) model adopted with modification for the study. The data were subjected to diagnostic test which include Unit root test and Cointegration test before estimating the model. The findings of the study showed that the coefficient of Foreign Exchange Rate (FER) was statistically significant at 5% level, while Interest Rate (IR), Inflation Rate (INF) and Foreign Direct Investment (FDI) were no statistically significant at 5% level. It was concluded from the result analysis that Foreign Exchange Rate (FER) has positive and strong influence on economic growth, Interest Rate (IR) and Inflation Rate (INF) has a positive and weak influence on economic growth, while Foreign Direct Investment (FDI) has a negative and weak influence on economic growth in Nigeria during the period under review. The study recommended that Nigeria government and other policy maker/ key players should ensure to have sound macroeconomic policies that would formulates good policies towards growth. And that the environment should be conducive for domestic investors and companies towards indigenous productivity which will facilitate export economy and discourages import economy. This, by implication, would contribute immensely to economic growth in Nigeria.

The contribution of different agricultural subsectors to economic growth in Nigeria is investigated and further suggests policy implications for investing in each of these subsectors. To this end, Johansen cointegration test and Gregory–Hansen test for cointegration with regime shift, vector error correction model (VECM), dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), Granger causality, and frequency domain causality test are employed for data from 1981 to 2016. This paper further highlights the long and causal dynamics between the selected agricultural subsector, namely forestry, crop production, fishery and livestock, and economic growth. Findings from time and frequency domain causality tests indicate a one‐way causality running from various subsectors of agriculture to economic growth in Nigeria, meaning how various subsectors of agriculture are important for predicting economic growth. In addition, there is 54% speed of adjustment from the error correction model, suggesting a need for diversification of the economy into the agricultural sector as a means for sustainable economic growth in the face of the continuous plunge in the global oil price. In the long‐run, the effect of forestry, crop production, and fishery on economic growth is statistically significant and positive. These outcomes have inherent policy implication(s), which are elucidated in the concluding section.

Foreign Direct Investment (FDI) has attracted the attention of many developing countries. Hence, the study examined the effects of Foreign Direct Investment on economic growth and captured the impacts of other macro-economic variables on economic growth in Nigeria between the period of 1986-2017. The secondary data used in this study were obtained from Central bank of Nigeria (CBN) Statistical Bulletin and World Development Indicator (WDI). To avoid spurious regression, Augmented Dickey Fuller unit root test was conducted on all variables. Multiple regression and Granger Causality Test were also conducted to target the study objectives. The multiple regression reveals that Foreign Direct Investment is statistically significant at 5% level of significance. Thus, Foreign Direct Investment has a significant effect on economic growth in Nigeria. The Granger Causality Test also confirms that Foreign Direct Investment Granger causes economic growth in Nigeria. The conclusion is that Foreign Direct Investment has a positive and significant effect on economic growth. It also Granger causes economic growth in Nigeria. There is high prospect for Foreign Direct Investment to further boost economic growth if enabling environment such as regular infrastructure and microeconomic stability prevail in Nigeria. Keywords: Foreign Direct Investment, Economic growth, Granger causality. DOI: 10.7176/RHSS/10-6-06 Publication date: March 31 st 2020

The study examined the impact of human capital investment on the economic growth in Nigeria over a period of 1985 to 2021. Specifically, the study sought to: i) determine the impact of government expenditure on education on the economic growth in Nigeria; ii) ascertain the impact of government expenditure on health on the economic growth in Nigeria; iii) evaluate the impact of tertiary school enrolment rate on the economic growth in Nigeria. The variables of the study consist of real Gross domestic Product (RGDP), inflation rate (INFLA), exchange rate (EXCHR), education government expenditure (EGE), health government expenditure (HGE), primary School enrolment rate (PSER), secondary school enrolment rate (SSER) and tertiary school enrolment rate (TSER), child mortality rate (CMR) and life expectancy at birth (LIFE). The data analytical techniques were descriptive Statistics, Augmented Dickey-Fuller Unit Root test and Autoregressive distributive Lag Model. The following are the major findings of the study: i) education expenditure (EGE) had 43% positive and insignificant impact on the economic growth in Nigeria [P-value (0.8508) was greater than its significant value (0.05]; ii) health expenditure (HGE) had 8% positive and insignificant impact on economic growth in Nigeria [P-value (0.1925) was greater than its significant value (0.05]; iii) tertiary school enrolment rate (TSER) had 48% positive and insignificant impact on the economic growth in Nigeria [P-value (0.2660) was greater than its significant value (0.05]. This study concludes that the human capital investment has positive and insignificant impact on the economic growth in Nigeria. The study recommends that government should start and sustain allocating 20 percent increase of funds to capital expenditure on education to provide facilities such as libraries, laboratory equipment, computers and modern learning equipment. Government should attract international donor agencies like World Bank, United Nations and UNESCO to help and put funds into the educational sector.

The purpose of this study is to examine the effect of direct income tax on gross domestic product with the key focus on the Nigerian fiscal policy framework and adopting time series data dating from 2007 to 2016 and collected from Budget Office of the Federation, Federal Inland Service publications, Central Bank of Nigeria statistical bulletin and the National Bureau of Statistics. The data set was analysed using, Pearson Coefficient Correlation, Granger Causality test, Ordinary Least Square method of regression, Johansen Cointegration test and Error Correction Model. In order to establish the stationarity of the variables, the Augmented Dickey-Fuller unit root test was employed. Findings from this study reveal that direct income tax has significant positive effect on gross domestic product at 5% level. We therefore carefully recommend that government should provide a strong fiscal responsible and transparent system where tax reforms should be such that would encourage increase in investment tended towards fighting corruption on account of the significant and profound effect of fiscal policies on economic growth in Nigeria.

The inflows of foreign direct investment, foreign aid and foreign trade have been on the increase in Nigeria in the past three decades. However, the relationship between these variables and economic growth has not been thoroughly explored in Nigeria. But theoretical literature posits that foreign direct investment, foreign aid and foreign trade have the capacities to accelerate economic growth. Hence, this paper examines the impact of foreign direct investment, foreign aid and foreign trade on economic growth in Nigeria. It also determines the short-run and long-run causal relationships between these variables and economic growth. It employs the Autoregressive Distributed Lag (ARDL) model-bounds test to examine the cointegration relationship as well as the short-run and long-run impacts. It also utilizes the Error Correction Model (ECM) procedure to investigate both the short-run and long-run causal relationships between the variables. It uses annual time series data covering the 1980–2015 period. Evidence from the study indicates that the variables are cointegrated. It also reveals that foreign direct investment, foreign aid and foreign trade have positive long-run impacts on economic growth in Nigeria. In the short-run, only foreign aid has positive impact on economic growth. The Granger causality results provide evidence of both short-run and long-run causality running from foreign aid and foreign trade to economic growth. We also show that short-run causality runs from foreign direct investment to economic growth. The possible channels through which these variables enhance economic growth include improvement in the stock of physical, human and institutional capital, technological and knowledge transfers, improved competitiveness and creation of jobs in the recipient country which are capable of boosting the productive capacity of the economy. The economic implication of this study is that foreign direct investment, foreign aid and foreign trade are important determinants of economic growth in Nigeria. Hence, an increase in these variables will boost the Nigerian economy. Therefore, to accelerate economic growth, the government should strengthen policies that are capable of accelerating foreign direct investment, foreign aid and foreign trade. Further opening-up of the economy and the promotion of greater cooperation with development partners will enhance economic growth in Nigeria.

This work investigates the monetary policy transmission mechanisms and their efficacy in predicting economic growth in Nigeria using the ARDL methodology. Variables included in the model were growth rate of real domestic gross product (RGDP), M2 broad money supply definition, cash reserve ratio (CRR), nominal exchange rate (EXCR); inflation rate (INFL), interest rate and deposit money banks credit to the private sector (BCR). The unit root test using the ADF test revealed that all our variables were integrated at levels I (0). The study proceeded to estimate the ARDL bounds tests; the ARDL long run estimations; the diagnostic tests, normality and stability tests respectively. The critical findings from our result and analysis revealed that broad money supply (M2), exchange rate (EXCR), cash reserve ratio (CRR) and the rate of inflation (INFL) were the major monetary policy transmission mechanism predicting the level of economic growth in Nigeria. Likewise, the study identified interest rate (INTR) and deposit money banks credit to the private sector (BCR) as weak transmission variables driving economic growth and prices in Nigeria. The study concludes that the monetary policy transmission mechanisms have had a mixed bag in predicting economic growth in Nigeria. This conclusion was arrived based on the fact that the findings suggest that the negative impacts outweigh the positives, especially, as the critical variables like interest rate, credit to the private sectors and exchange rate depreciation plays a key role in driving economic growth. The monetary authority should be religious in seeing through monetary policies, especially, in maintaining consistency. Devaluation or depreciation of the naira also is not pro-growth in Nigeria and should be jettisoned, pending the diversification of our economy and improvements in our domestic productive capacities. Evidently, access to private sector credit at a lower interest should be pursued vigorously. Keywords: monetary policy, transmission mechanism, economic growth and devaluation DOI : 10.7176/RJFA/10-18-06 Publication date :September 30 th 2019

This study investigates the impact of insurgency on economic growth in Nigeria within the context of the country’s persistent insecurity challenges. Using time series data from 1999 to 2024 sourced from the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS), Global Terrorism Database, and Index Mundi, the study employed descriptive statistics, Augmented Dickey-Fuller (ADF) unit root test, Johansen co-integration, and Vector Error Correction Model (VECM) to examine the short-run and long-run dynamics between insurgency, discomfort index, terrorism risk index, and real gross domestic product (RGDP). The findings reveal that insurgency exerts a positive but temporary effect on economic growth in the short-run, possibly due to increased emergency-related expenditures, but significantly undermines growth in the long-run. Similarly, the discomfort index exhibited a short-run positive effect but a long-run negative and significant influence on RGDP, reflecting the adverse role of socioeconomic stressors on growth. The terrorism risk index also demonstrated a statistically significant negative effect on economic growth both in the short-run and long-run, with a 1% change in TRI reducing RGDP by approximately 0.66%. These results confirm that insurgency and terrorism pose substantial constraints on Nigeria’s long-term economic development by discouraging investments, displacing populations, and weakening productive capacity. The study concludes that effective counter-insurgency measures, socioeconomic reforms to reduce unemployment and poverty, and community-based peace-building initiatives are critical to mitigating the adverse effects of insecurity on Nigeria’s economic growth.

The long run trade orientation of an economy is measured in this article by an index which measures the extent to which the real exchange rate is distorted away from its free trade level by the trade regime. The technique for estimating a cross country index of real exchange rate distortion uses the international comparison of prices prepared by Robert Summers and Alan Heston. Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to the domestic or international market. The index is constructed based on data for GDP/capita average price level in US dollars 1976-85 and GDP growth rate/capita 1976-85. Other sections are devoted the comparison of the procedure for 117 countries between 1976-85 and an examination of the empirical relationship between outward orientation and economic growth and sensitivity analysis. The results indicate that Latin America generally was overvalued by 33% relative to Asia and Africa was overvalued by 86%. The real exchange rate distortion index supports the view that Asian countries are more outward oriented. Asian economies have lower price levels which reflect relatively modest protection and incentives oriented to external markets. Latin American countries with moderately high price level and African countries with very high price levels reflect strong protection and incentives directed to production for the domestic market. An alternative specification which eliminates the dummy variables for Africa yields similar results with slightly lower magnitude; i.e. overvaluation is 60% instead of 86% for Africa and Latin America is overvalued by 39% instead of 33% over Asia. A table is provided which indicates by country the distortion and variability of the real exchange rate the GDP growth the 1976 GDP/capita and the investment rate. Another finding was that there is a significant negative relationship between distortion of the real exchange rate and growth of GDP/capita after controlling for the effects of real exchange rate variability and investment level with both the original specification and the alternative. The growth rate/capita of Latin American and African countries would increase 1.5-2.1% with a shift to move outward oriented trade policies. This gain as well as devaluation of the real exchange reate trade liberalization and maintenance of a stable real exchange rate would contribute to positive growth rates. In the analysis of the poorest 24 countries the result was that only rate distortion and not variability and investment rate explained the growth rate. The gain for Ghana for example of adopting the trade policies and exchange rate of Bangladesh would be 5% to its growth.