The Impact of Foreign Direct Investment on the Utilisation of Natural Resources in Nigeria

Abstract

The purpose of this article is to examine the impact of FDI on the utilization of natural resources in Nigeria. This article uses annual data from 1970 to 2015 and employs the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration, a testing procedure for level relationships developed by Pesaran and Shin (1999) and Pesaran et al. (2001). The ARDL cointegration approach examines the long-run relationship between FDI and natural resources on one hand and GDP on the other hand. The empirical results indicate that aggregate FDI has a positive and statistically significant impact on both natural resources and GDP in Nigeria. The ‘OIL’ variable presents a positive coefficient while GDP presents a negative estimated coefficient. From a policy point of view, countries such as Nigeria, endowed with natural resources, should pursue policies targeted at full deregulation (privatisation) of their natural resource sector to better utilise the abundance of their natural resources and attract additional FDI. Regarding GDP, there should be concerted efforts to boost the performance of the non-oil sector in Nigeria through more investments in the agricultural and industrial sectors which will make the growth of the economy spread across other sectors and, in turn, encourage national economic growth and development, reducing the possibility of the ‘resource curse’. This is the first paper that employs ARDL in determining the impact of FDI on the utilization of natural resources in Nigeria.