Foreign Direct Investment and Economic Growth: Empirical Evidence from Nigeria

The study investigates the effect of foreign direct investment (FDI) on the economic growth of Nigeria by examining the long run and the short run relationship between the variables over the period of 1978 to 2022 using the Auto-Regressive Distributed Lag approach (ARDL). The study finds that in the long run, FDI, gross fixed capital formation and labour force participation have positive effect on economic growth, while military expenditures have negative effect. However, gross fixed capital formation was indicative of having a significantly negative relationship with the economic growth in the short run, but variables such as FDI, military expenditures and labour force participation were found to have positive impact. Inflation shows negative significant relationship in both the short and long run whereas final consumption expenditure showed insignificant relationship in both the short and long run. The study recommends among other things, that Nigeria should strengthen R&D efforts to reduce dependence on imports and increase self-sufficiency, Nigeria should improve the power sector as it is crucial to alleviating Nigeria’s energy crises and ensuring the smooth operation of industries across the country and that Nigeria should maintain macroeconomic stability in order to encourage savings and private investment, which will lead to high overall investment in the country.