Nexus Between Foreign Direct Investment and Economic Growth in Nigeria: The Role of Exchange Rate (original) (raw)
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Effect of Foreign Direct Investment on Economic Growth in Nigeria: Does Exchange Rate Matter?
International journal of accounting and finance studies, 2022
This study investigates the effect of foreign direct investment on economic growth in Nigeria for the period from 1986 to 2020; a particular attention is also given on the role of exchange rate in the relationship between foreign direct investment and economic growth using annual time series data sourced from the database of World Development Indicator (WDI) of the World Bank and Central Bank of Nigeria (CBN) 2021 Statistical Bulletin. Autoregressive Distributed Lag (ARDL) model was employed for the analysis. The study found that FDI has positive and significant effect on economic growth. Exchange rate also has a positive and significant effect on the economic growth. Findings also show that the regression is significant at 5% level of significance as F-statistic is less than 0.05. This entails that the growth effect of FDI is enhanced in the presence of a stable exchange rate. Based on the findings, the study suggests an improvement in the institutional quality so as to attract the further inflow of foreign direct investment in Nigeria. The study also suggests that government should make exchange rate stable so that more foreign investment can be attracted for desired economic growth and development in the country.
Foreign Direct Investment and the growth of the Nigerian Economy
Journal of Economics and Development Studies, 2015
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.
IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM NIGERIA, 1985-2016
This study analyses the impact of foreign direct investment on economic growth in Nigeria using data for 32 years, from 1985-2016. The OLS estimation and the Johansen cointegration test were the key techniques of analysis employed. The results indicate that foreign direct investment has no positive impact on the Nigerian economic growth. Trade openness and exchange rate, however, have positive but insignificant influence on economic growth. The cointegration test result revealed that there is evidence of a long-run relationship between foreign direct investment and economic growth. The paper thus recommends that there is need for in-depth investigation of economic and institutional forces that determine the composition of FDI inflows to developing countries and to work towards improving such forces. Moreover, government should also take measures in order to stabilize the exchange rate system that may attract foreign investors in the country, and also liberalize the trade policy to attract foreign investors to the country. JEL: E22, F21, G11
Foreign Direct Investment and Economic Growth in Nigeria
Journal of Economics and Business , 2018
This study analyzes the relationship between foreign direct investment and economic growth in Nigeria. Secondary data on foreign direct investment, gross domestic product, and monetary policy rate were sourced from Central Bank of Nigeria. The model was analyzed using the Fully modified Least Squares, ADF Unit Root and the Johansen Cointegration test methods. The ADF test result revealed that the variables are not stationary at levels but stationary in first difference. There exists long-run relationship among the variables as shown from the Johansen Cointegration test result thereby forming the basis for employing the FMOLs. The Outcome of the Cointegrating test result shows that all the coefficients of the explanatory variable (FDI and MPR) are positive. However, only FDI was found to be significant. Based on the result of the research, the following recommendations were made among others: a combination of monetary, fiscal as well as other trade policies geared towards attracting foreign investors should be strategically deployed by the government, the government should create an enabling environment to encourage the inflow of foreign capital by the development of infrastructural facilities. There is also the need for a stable political environment to ensure the security of life and property.
IOSR Journal of Business and Management, 2013
The study investigated the impact of foreign direct investment in Nigeria. The study employs the cointegration ad error correction mechanism to verify the nature of long run and short run relationship between growth of Nigeria and foreign direct investment. The result indicates that foreign direct investment has both long run and short run significant impacts on the growth of Nigeria. However, among all the variables used exchange rate also proved to have a short run significant impact on the growth of Nigeria and the relationship indicates that currency appreciation might not promote the growth of Nigeria at least in the short run. The policy implication is that efforts to stimulate growth of Nigeria through FDI should be supported with exchange rate policy that will make naira to be over-valued as this may squeeze out the tradable sector of the economy. I.
2015
This study examines the effect of Foreign Direct Investment (FDI) on economic growth of Nigeria. The main objective of the study is to explore and quantify the contribution of Foreign Direct inflows to economic growth in Nigeria and other macro-economic variable(s). The model built for the study proxy real gross domestic product as the endogenous variable measuring economic growth as a function of Foreign Direct Investment, Domestic capital, Government Expenditure, real exchange rate and Inflation rate as the exogenous variables in the first model while unemployment was expressed as a function of Foreign Direct Investment, Government expenditure and real GDP. Annual time series data was gathered from Central Bank of Nigeria Statistical bulletin, National Bureau of Statistics (NBS) and the World Economic Outlook spanning 1970 to 2013. The study used econometric techniques of Augmented Dickey-Fuller (ADF) unit root test, pairwise granger causality test, Johansen co-integration test an...
FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA:AN EMPIRICAL EVIDENCE
This study examines the impact of Foreign Direct Investment inflows on the growth of Nigerian economy. from 1977 – 2011. The ADF result shows that all the variable in the study are stationary. Again the cointegration test shows that there is a long run relationship between the variables in the study. The data for the study was tested for unit root using Augmented Dickey –Fuller (ADF) test. Econometric evidence further shows that FDI has positive relationship with economic growth in Nigeria. It is recommended that Nigeria evolve investor friendly policies that can attract foreign direct investments and enhanced the country's productivity and growth.
FOREIGN DIRECT INVESTMENT AND ITS IMPACT ON ECONOMIC GROWTH OF NIGERIA (1985-2016
The research is aimed at exploring Foreign Direct Investment and its impact on economic growth of Nigeria. The study covers 31-year period between 1985-2016. Simple ordinary least-square regression model is used to measure the effects and relationships between the independent variable and the dependent variable using E-views 9.0. Foreign Direct Investment (FDI) serve as the independent variable while economic growth as the dependent variable. GDP, exchange rate, inflation rate, unemployment rate, total savings and interest rate were used as proxies for economic growth. Data on FDI, GDP, exchange rate, unemployment rate, savings and interest rate were retrieved from the CBN Annual Statistical Bulletin, World bank Report and National Bureau of Statistics. The stationarity property of a time series data can be examined by conducting unit root test in order to ascertain the stationarity or otherwise of the series variables (Akinola,2016). Augmented Dickey-Fuller (ADF) test due to Dickey and Fuller (1979, 1981), and the Phillip-Perron (PP) due to Phillips (1987) and Phillips and Perron (1988) were used to ensure the stationarity of the time series data i.e dependent and independent variable. The finding showed that there is a strong and positive relationship between FDI and economic growth in Nigeria. The government of Nigeria must put all hands-on desk, formulating policies and necessary reforms to ensure that foreign direct investments are attracted to benefit the populace at large. It also recommended that Institutionalized corruption both in private and public sectors must be fought, if the nation must attract FDI, we must change our ways of doing things.
2016
This study examined the causality between foreign direct investment (FDI) and export performance in Nigeria from 1970-2013. The study employed secondary annual time series data which was obtained from various publications of the Central Bank of Nigeria (CBN) for the period 1970 – 2012. The presence of unit root was tested using the Phillips-Perron (PP 1998) and Kwiatkowski, Phillips, Schmidt, and Shin (KPSS, 1992) tests. Johansen-Juselius and vector error correction (VEC) procedure was performed to trace cointegration relationship between the variables. The study found the presence of a cointegration relationship among the variables. Also the VEC model traced a long-run equilibrium relationship in the variables under study without having any significant short-term causal flows among the series, except for the FDI. However, the study did not trace any significant relationship between GDP, EXR, TOP and exports. The study recommends the authority concern to come up with policies that w...
Economic Growth and Foreign Direct Investment in Nigeria: An Empirical Investigation
IISTE Journal of Economics and Sustainable Development , 2012
Developing countries, Nigeria inclusive, face a shortage of investible funds and hence strive to attract foreign direct investment (FDI) because of its acknowledged potentials as a tool of economic development. This study investigated the empirical relationship between FDI and economic growth in Nigeria. Secondary data sourced mainly from CBN publications were used in the OLS and granger causality regression equations conducted for the period 1986 to 2010. Although FDI coefficient in the regression result showed that about 13% of variations in GDP are accounted for by a percent increase in FDI, their relationship is statistically insignificant. The regression result also showed that other variables in the model – gross fixed capital formation (GFCF), net exports (NXP), consumer price index (CPI), and exchange rate (EXR) – impacted on the GDP. The result of the granger causality test showed a bi-directional causality between FDI and GDP, that is, each granger cause the other. On the basis of these, it was recommended that more sectors of the economy be deregulated so as to encourage more investor participation in the productive sector of the economy. Keywords: foreign direct investment, economic growth