Abstract
This paper aimed at examining the impact of Foreign Direct Investment (FDI) and Industrial Sector Performance on economic growth in Nigeria. This study utilized annual time series data for the period 1981-2015 using elaborate econometric analysis which tests the sensitivity of GDP to shocks in FDI and Industrial Sector Output, using the Impulse Response Functions (IRFs) and Variance Decomposition (VDC) techniques within a Vector Autoregressive (VAR) framework. The Johansen Cointegration test result reveals the absence of a long-run relationship between FDI, Industrial Sector Output and GDP. The result also shows the existence of a bidirectional relationship between FDI and Industrial Sector Output, GDP and Industrial Sector Output, with a unidirectional causality running from FDI to GDP. The VAR estimate shows that FDI had a slight significant positive impact on GDP, while Industrial Sector Output had a small significant positive impact on GDP at present, with a negative relationship observed at previous periods. The impulse response functions clearly reveal that GDP exhibited negative response to shocks in FDI up to the 3rd period, while the effect was positive from the 4th period henceforth, while GDP also exhibited a negative response to shocks in Industrial Sector Output throughout the period observed. The variance decomposition analysis further revealed that GDP was mainly driven by shocks in FDI, with industrial sector output contributing very little. The study concludes that Nigeria is yet to fully reap the benefit of FDI since its contribution to GDP is still very low at the moment, whilst the contribution of the industrial sectorin the country has not be vibrant enough to spur economic growth. The study therefore recommends among other things that social and economic infrastructure be improved as this will help lessen the burden of industrialist and eventually lower the cost of doing business and in turn attract FDI inflow into Nigeria.
Highlights
Industrialization is seen as a sin qua non for sustainable economic growth, but this has not been so in Nigeria, as policies created towards achieving this dream appeared to have little or no significant effect on economic growth.The mainstay of the Nigerian economy for decades have been earnings from crude oil, with the country’s budget been prepared based on forecasted price per barrel of crude oil
The results reveal that foreign direct investment (FDI) has both immediate and time lag effect on Nigeria economy in the short run but has a non-significant negative effect on the Nigeria economy in the long run. [14]
This study focused on the nexus between FDI, Industrial Sector Development and Economic Growth in Nigeria, using data from 1981-2015
Summary
Industrialization is seen as a sin qua non for sustainable economic growth, but this has not been so in Nigeria, as policies created towards achieving this dream appeared to have little or no significant effect on economic growth.The mainstay of the Nigerian economy for decades have been earnings from crude oil, with the country’s budget been prepared based on forecasted price per barrel of crude oil. The industrial sector accounted for only 6% to GDP in 2011 [1]. [2] in a reaction to the poor performance of the industrial sector stated that industrial policies, objectives and strategies were often subject to modifications, neglect or even total abandonment. He further adjudged that industrial policies were pursed on ad-hoc basis and in a most uncoordinated manner in Nigeria. As a result, such policies can never promote a holistic growth in the country’s GDP
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