Foreign Direct Investment and the growth of the Nigerian Economy

Abstract

Foreign Direct Investment and the growth of the Nigerian Economy Aminu Umaru, El-Maude Jibreel Gambo, Hamza A. Pate Abstract This paper investigates the relationship between economic growth (GDP), foreign direct investment (FDI), foreign exchange rate (EXR) and openness (OPN) in Nigeria from 1981 to 2013. The paper employed Augmented Dickey-Fuller and Phillip-Perron technique in testing the unit root property of the series, Granger causality test of causation between the variables, Engel-Granger ECM technique in testing the long run adjustment speed of the model, Breusch-Pagan-Godfrey test of heteroskedasticity, Breusch-Godfrey serial correlation test, Ramsey RESET test of mis-specification, Chow Breakpoint test, after which Jarge-Bera test of normality. The results of the OLS revealed that foreign direct investment (FDI), foreign exchange rate (EXR) and openness (OPN) impacted positively on economic growth (GDP) in the Nigeria. The results of unit root suggest that all the variables in the model are stationary at first difference d(1). The results of Causality suggested that one-way causation existed between economic growth (INGDP) and foreign direct investment (INFDI) but the causation runs from economic growth (INGDP) to foreign direct investment (INFDI) implying that GDP can cause FDI but not the other way round. One-way causation also existed between economic growth (INGDP) and openness (OPN) but the causation runs from openness (OPN) to economic growth (INGDP) implying also that OPN can cause GDP but not the other way round. The result further indicated that no causation existed between exchange rates (EXR) and economic growth (INGDP), openness (OPN) as well as foreign direct investment (INFDI), no causation existed between openness (OPN) and foreign direct investment (INFDI). The ECM result revealed the existence of long run relationship between economic growth (INGDP), foreign direct investment (FDI), foreign exchange rate (EXR) and openness (OPN). The speed of adjustment was found to be at least three years for the long run equilibrium. This paper found that, there is no serial correlation among the error values, no misspecification of the model, and also that the variables of the are not stable throughout the period of the study and the break was found to be 1999 when the current democratic dispensation started. The result further revealed that the residuals of the model are normally distributed which make it possible for the results of this paper be used for policy purposes. In conclusion, this paper found a positive and significant relationship between economic growth and foreign direct investment in Nigeria. Therefore, this paper recommends that concerted effort be made by policy makers and relevant authorities to formulate policies aim at creating a conducive investment environment so that Nigeria can be better destination for foreign investment Policy makers should also take step to ensuring foreign exchange stability and increase openness of the economy so as to achieve meaningful economic growth. Full Text: PDF DOI: 10.15640/jeds.v3n1a10