Trade openness, Foreign Direct Investment, and Economic Growth in Nigeria

Abstract

The relationship between trade openness and foreign direct investment in the economic growth in Nigeria has been a subject of debate in most economic literature. The study, therefore, looked at the effect of trade openness and foreign direct investment on economic growth in Nigeria within a temporal scope between 1986 and 2021. The study made use of the Solow growth model and thus included the unemployment rate as a moderating variable along with the segregation of exports component of trade openness into oil and non-oil exports. The Autoregressive Distributed Lag (ARDL) was employed as the method of analysis and it was discovered that non-oil export had a positive and significant effect on economic growth while oil export had a positive but insignificant relationship with economic growth. The unemployment rate was found to have an insignificant and negative effect on economic growth in Nigeria. However, foreign direct investment was found to be positive and insignificant. The study also discovered that there is no long-run co-integrating equilibrium relationship between trade openness, FDI, unemployment rate, and economic growth. Thus it was suggested that there was a need for more funds to be allocated to the non-oil productive sector of the economy so as to boost productivity from the sector and as well as to reduce the unemployment rate