Foreign Direct Investment and Economic Growth in Nigeria: A Johansen Co-Integration Approach

International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue X, October 2019 | ISSN 2454–6186

Foreign Direct Investment and Economic Growth in Nigeria: A Johansen Co-Integration Approach

Victor O. Okoye¹, Kenechukwu J. Nwisienyi²

^{1, 2}School of Financial Studies, Department of Banking and Finance, Federal Polytechnic Oko Anambra State, Nigeria

Abstract – The study investigated the impact of Foreign Direct Investment on the Nigerian economy using a quarterly time series data for the periods 2008q1 to 2018q4. The study adopted the Johansen co-integration and Vector Error Correction Model analysis. Estimates show that in the long-run, FDI is statistically significant with a positive causal relationship with economic growth at 0.1327 but statistically insignificant in the short-run. The error correction term is as expected with a negative coefficient of -1.0758 and statistically significant considering its P-value of 0.0000. The granger causality test depicts no directional causality between GDP and other independent variables but there is evidence of unidirectional causality running from FDI to TO, REEX_R to CPS, IR to REEX_R and IR to TO respectively. The study, amongst other recommendations, proffered that there should be more effective planning for FDI in the long-run to further facilitate the potentials of FDI for economic growth.

Keywords – Foreign Direct Investment, Real Effective Exchange Rate, Inflation Rate, Credit to Private Sector, Trade Openness, Economic Growth.

I. INTRODUCTION

Foreign Direct Investment (FDI) and its emergence as an important source of foreign capital for developing economies has once again renewed interest in its linkages with sustainable economic growth [19]. FDI has been and is still a much talked about phenomenon worldwide. Ever since the UN development era of the 1960s, FDI has been a subject of contention as to being able to drive economic growth and development [34]. Some has argued that FDI drives economic growth and development whereas some has argued that small and poor countries playing host are sometimes not adequately compensated having their local capabilities destroyed in the long-run. Be that as it may, countries has realized the potentials which FDI would offer and has come up with general economic policies and specific investment policies that would aid in attracting FDI.

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