Foreign Direct Investment and Economic Growth- An Empirical Analysis from Nigeria
DOI:
https://doi.org/10.51137/wrp.ijarbm.389Abstract
The study examined the relationship between foreign direct investment (FDI) and economic growth in Nigeria. A yearly Time-series data was adopted for this study from 2011 to 2023 was sourced from Central Bank of Nigeria (CBN), Nigeria stock exchange and Securities Exchange Commission (SEC). Data was subjected to linear regression analysis which was used to estimate the parameters of the model. The findings revealed that the coefficient for foreign direct investment (FDI) indicates a positive relationship between FDI and economic growth. This means that a one-unit increase in FDI is associated with increase in economic growth, holding all other variables constant. The coefficient for the real effective exchange rate (ER) indicates a weak positive association with economic growth, For the trade balance (TB), the coefficient suggesting a positive relationship with economic growth. The coefficient for gross fixed capital formation (GFCF) is also indicating a positive but small effect on economic growth. This result aligns with economic theory, as investment in physical capital like infrastructure and machinery typically drives productivity and growth The study therefore recommended that Targeted policies should be implemented to attract and retain FDI, particularly in sectors with high growth potential such as manufacturing, infrastructure, and ICT. This includes offering investment incentives, streamlining bureaucratic procedures, ensuring policy consistency, and improving investor protection laws which in turn foster sustainable growth.
References
Abdulaziz, Abdulmohsen & Alfalih (2024) The impact of oil prices, foreign direct investment and trade openness on unemployment rates in an oil-exporting country: The case of Saudi Arabia.
Adegbite, F. T., & Olusola, D. J. (2023). Trade openness and its effects on economic growth in Nigeria. African Economic Review, 41(4), 198–215. doi:10.1080/2346891X.2023.2189725
Adeniyi, F. O. (2020). Impact of foreign direct investment and inflation on economic growth of five randomly selected Countries in Africa. Journal of Economics and International Finance, 12(2), 65–73. https://doi.org/10.5897/jeif2020.1031
Ahmed, S., & Anwar, M. (2021). The impact of FDI on economic growth: Evidence from developing economies. Economic Research Journal, 34(2), 123-140. doi:10.1080/1331677X.2021.1915123
Akinlo, A. E. (2004). Foreign Direct Investment and Growth in Nigeria: An Empirical Investigation. Journal of Policy Modeling, 26(5), 627-639.
Akonnor, K. T. (2018). The Impact of Foreign Direct Investment (FDI) on Economic Growth: A Comparative Study of East and Central Africa (Doctoral dissertation, University of Ghana
Amina., I., Amina., B., Zainab., J & Saif., R., (2024) Effect of Foreign Direct Investment and Trade Openness on the Poverty Alleviation in Burundi – Sub African Country: ARDL (Co-integration) Approach. Pakistan Journal of Humanities and Social Sciences. 11(1) 555–565
An, T. T., & Yeh, K.-C. (2021). Growth effect of foreign direct investment and financial development: new insights from a threshold approach. Journal of Economics and Development, 23(2), 144–162. https://doi.org/10.1108/jed-08-2020-0108.
Asif Raihan (2024) Influences of foreign direct investment and carbon emission on economic growth in Vietnam. Journal of Environmental Science and Economics
Ayanwale, A. B., & Bamire, A. S. (2001). The Influence of FDI on Firm Level Productivity of Nigeria's Agro/Agro-Allied Sector. Final Report Presented to the African Economic Research Consortium, Nairobi
Bilas, V. (2020). Examining the relationship between foreign direct investment and economic growth: Evidence from Croatia. Montenegrin Journal of Economics, 16(2), 117–129. https://doi.org/10.14254/1800-5845/2020.16-2.9
Ciobanu, A. M. (2021). The Impact of FDI on Economic Growth in Case of Romania. Int. J. Econ. Finance, 12(12), 1-81.
Dempere, Juan, Muhammad Qamar, Hesham Allam, and Sabir Malik. 2023. The Impact of Innovation on Economic Growth, Foreign Direct Investment, and Self-Employment: A Global Perspective. Economies 11: 182. https://doi.org/10.3390/ economies11070182.
Dos Santos, T. (2020). The structure of dependence. American Economic Review, 60(2), 231–236.
Epor, S.O., Yua, H., & Iorember, P.T. (2024). Foreign direct investment and economic growth in developing countries: The role of international trade and foreign debt. Modern Finance, 2(1), 1-17.
Gochero, P., & Boopen, S. (2020). The effect of mining foreign direct investment inflow on the economic growth of Zimbabwe. Journal of Economic Structures, 9(1). https://doi.org/10.1186/s40008-020-00230-4
Ibrahimov, Z., Hajiyeva, S., Seyfullayev, I., Mehdiyev, U., & Aliyeva, Z. (2023). The impact of infrastructure investments on the country’s economic growth. Problems and Perspectives in Management, 21(2), 415- 425. https://doi.org/10.21511/ ppm.21(2).2023.39
International Monetary Fund (IMF). (2020). World Economic Outlook: Global Prospects and Policies. Retrieved from https://www.imf.org
Joseph., O., A. Imhotep., P., A. & Yakubu., A., S. (2023) Impact of foreign direct investment on carbon emission in Sub-Saharan Africa: The mediating and moderating roles of industrialization and trade openness, Cogent Business & Management, 10:3, 2266168, DOI: 10.1080/23311975.2023.2266168
Khan, E. U. (2023) The Post-Brexit Paradigm: Investigating the Effects of Foreign Direct Investment on Economic Growth in the United Kingdom. Archives of the Social Sciences: A Journal of Collaborative Memory 2023; Vol 2, Issue 1, pp. 94-110. https://doi.org/10.5281/zenodo.8151602
Makhoba, B. P., & Zungu, L. T. (2021). Foreign Direct Investment and Economic Growth in South Africa: Is there a Mutually Beneficial Relationship? African Journal of Business and Economic Research, 16(4), 101.
Manasseh, C.O., Nwakoby, I.C., Okanya, O.C., Ifediora, C.U., Nzidee, W.A., (2023). The Impact of Foreign Direct Investment and Oil Revenue on Economic Growth in Nigeria. Studia Universaties economic series.
Mayis., A., Yuriy., B., Farid., J., Elvin., A., & Aybeniz., H., (2023). The impact of foreign direct investment on GDP growth: The case of Turkey. Investment Management and Financial Innovations, 20(4), 50-59. doi:10.21511/imfi.20(4).2023.05
Mohamed, A. N., Abdulle, A. Y. (2023). The Asymmetric Effects of Foreign Direct Investment Inflow on Economic Growth: Fresh Evidence from Somalia
Nkiru Patricia Chude & Daniel Izuchukwu Chude (2023) Effect of International Capital Inflows on Economic Growth in Nigeria IJISET - International Journal of Innovative Science, Engineering & Technology. 10(01)
Oke, M. O., Adegoke, T. D. & Akosile, M. O. (2023) Impact of Foreign Direct Investment on Capital Market Capitalization in Nigeria. Nigerian Journal of Banking and Financial Issues (NJBFI) - Vol. 9 No. 1, March 2023
Oluwaseun, T., & Adewale, J. (2022). Foreign direct investment and economic performance: A case study of emerging economies. African Journal of Economics, 45(3), 215-230. doi:10.1080/2384978X.2022.2049789
Oluwaseun, T., & Adewale, J. (2022). Inflation and economic stability: An empirical analysis. African Journal of Economics, 45(3), 215-230. doi:10.1080/2384978X.2022.2049789
Rito., S., M., Mbulaheni., A., D. & Azwifarwi., R., K. (2024) foreign direct investment (FDI) in the economies of developing nations like South Africa. Journal of smart economic growth 9(1)
Sawalha, N. N., Elian, M. I., & Suliman, A. H. (2016). Foreign capital inflows and economic growth in developed and emerging economies: A comparative analysis. The Journal of Developing Areas, 50(1), 237-256.
Shaheen, Rozina (2024) The impact of foreign direct investment on economic growth: Empirical evidence in G20 countries International Journal of Advanced and Applied Sciences, 11(10) 2024, Pages: 90-98
Smith, L. R., & Brown, K. (2019). Government expenditure and economic growth: A critical analysis. Journal of Public Economics, 78(5), 145-167. doi:10.1016/j.jpubeco.2019.03.015
Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65–94.
Tshepo, M. S., (2018). The relationship between foreign direct investment and economic growth in South Africa: Vector error correction analysis. Acta Commercii, 18(1), 1-8.
Umezurike, C. M., Ananwude, A. C., & Mbanefo, P. A. (2022). Foreign Direct Investment and Economic Growth: Empirical Assessment of the Nigerian Economy (1986–2019). International Journal of Economics and Financial Management, 7(1), 15-29. Retrieved from citeturn0search2
UNCTAD. (2021). World Investment Report 2021: Investing in Sustainable Recovery. Retrieved from https://unctad.org
United Nations Conference on Trade and Development (UNCTAD). (2021). World Investment Report 2021: Investing in Sustainable Recovery. Retrieved from https://unctad.org
World Bank. (2022). World Development Indicators: Trade Openness, Exchange Rate, and Inflation. Retrieved from https://data.worldbank.org
Yongrong., X., Aftab., H., T., Zhenling., C., Aysha., Z., Carlos., S., & Ramos‑Meza (2023) Analyzing the Impact of Foreign Direct Investment, Energy Consumption on Services Exports, and Growth of the Services Sector: Evidence from SAARC Countries. Journal of Knowledge Economy.
Yusuf Abdulkarim (2023) A systematic review of investment indicators and economic growth in Nigeria. HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023) 10:500 | https://doi.org/10.1057/s41599-023-02009-x
Zeren, F.; Gülcan, N.; Gürsoy, S.; Ek¸si, ˙I.H.; Tabash, M.I.; Radulescu, M. (2023) The Relationship between Geothermal Energy Consumption, Foreign Direct Investment, and Economic Growth in Geothermal Consumer Countries: Evidence from Panel Fourier Causality Test. Energies 2023, 16, 1258. https://doi.org/10.3390/en16031258
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Ibrahim Agbeyinka (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
