FOREIGN DIRECT INVESTMENT AND INDUSTRIAL SECTOR GROWTH IN NIGERIA: AUTOREGRESSIVE DISTRIBUTION LAG (ARDL) APPROACH

Abstract

This paper assessed the relationship between foreign direct investment and industrial sector growth in Nigeria between 1981 and 2020. The study employed time series secondary data On industrial sector output, foreign direct investment, trade openness (measured by trade percentage of gross domestic product), capital formation, and nominal exchange rate were obtained from the statistical bulletin of the Central Bank of Nigeria (CBN),2021 version. The data were analyzed using Ordinary Least Square, Auto Regressive Distributed Lag (ARDL) model and ADF unit root test. The ADF test revealed that industrial sector output and trade openness are stationary at level I(0). However, foreign direct investment, exchange rate and capital formation are not stationary but have no unit root at first difference I (1) at 1%, 5% and 10% significant value. The ARDL results confirmed the existence of long run and short run relationship between foreign direct investment and industrial sector growth in Nigeria. The study concludes that FDI has a noticeable connection with industrial sector in the short run and long run. The study recommends that government should take proper steps to create enabling business forum for FDI and these steps should be institutionalized and free of adverse political influence. The government should also remove red-tapes in business registrations, terminating unfair quota systems, providing visas speedily on merit, among others. Similarly, effective policies should be implemented to stabilize the Naira exchange rate in relation to other major currencies to boost investors’ confidence to invest in the country.