Interaction between domestic investment foreign direct investment and economic growth in Nigeria

Abstract

The most inclusive definitions of economic growth always include the best utilisation of native resources in addition to increasing GDP and integration into the global market. As a result, the impact of domestic investment in an economy is one of the most examined subjects in capital movement and economic development. Flowing this, the aim of this study was to evaluate the effects of domestic investment on the economic growth of Nigeria. The objectives were to assess the growth of the economy of Nigeria from 1981 to 2018, determine the relationship of domestic investment on the Nigerian economy, evaluate the relationship of foreign direct investment on the economy of Nigeria, and determine the association between capital inflow and the Nigerian economy. Using secondary time series data obtained for domestic investment, foreign direct investment, exchange rate, and interest rate – from Nigerian Central Bank Statistical Bulletin and World Development Indicators, Autoregressive Distributed Lags (ARDL) technique was employed in estimating the short term and long run dynamics. The results revealed that foreign direct investment (t = 2.2385, p = 0.033) and interest rate (t = -2.5141, p = 0.0177) are the only significant determinants of real GDP in the short term, while the significant long run exponents are domestic investment (t = 139.5577, p = 0.0000), foreign direct investment (t = -3.2445, p = 0.0026) and exchange rate (t = -2.8316, p = 0.0071). Furthermore, the Granger Causality test revealed that both domestic investment and foreign direct investment cause economic growth. Therefore, the study recommended, among others, that policy makers optimise local investment options and normalize exchange rate and trade operations.