THE EFFECT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH OF NIGERIA

Abstract

Foreign Direct Investment (FDI) has become the most important source of external resource flows to developing and underdeveloped countries over the years and has shown a significant part of capital formation and accumulation in these countries, though their share in the global distribution of FDI continued to remain small or even declining. The role of Foreign Direct Investment (FDI) has been widely acknowledged as a growth-deriving factor in the developing countries. This study was prompted to investigate empirically the effect of Foreign Direct Investment on economic growth of Nigeria between the periods of 1985-2016. Ordinary Least Square (OLS) method of data analysis was adopted, because of Best Linear Unbiased Estimator (BLUE) properties. The data used were sourced from Central Bank of Nigeria Statistical Bulletin, Vol. 26 2016. The variables were on: Agricultural FDI, Petroleum FDI and Real Gross Domestic Product. The study employed Unit Root Test, to determine the stationarity of the variables, co-integration approach to determine the long-run equilibrium relationship of the model, Granger Causality test to determine the direction of the variables, Stability Test was also performed and Error Correction Model to correct the error of the model. Granger Causality Test was conducted to determine the direction of the variables whether uni or bidirectional relationship. From the model, it was discovered that Agricultural FDI is positive and statistically significant, while Petroleum FDI is positive and statistically significant in Nigeria. The study recommends that high technological tools are requiring in agricultural sector in order to compete favourably with foreign counterpart. Government should also monitor the activities of foreign investors and as well crest enabling environment via security to attract foreign investors in Nigeria.