Trade openness, Foreign Direct Investment, and Economic Growth in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume IX, Issue V, May 2022 | ISSN 2321–2705

Trade openness, Foreign Direct Investment, and Economic Growth in Nigeria

OTAPO, Toyin Waliu, USHIE, Paul Obogo
Adekunle Ajasin University, Akungba Akoko, Ondo State, Nigeria

Abstract: The relationship between trade openness and foreign direct investment in the economic growth in Nigeria has been a subject of debate in most economic literature. The study, therefore, looked at the effect of trade openness and foreign direct investment on economic growth in Nigeria within a temporal scope between 1986 and 2021. The study made use of the Solow growth model and thus included the unemployment rate as a moderating variable along with the segregation of exports component of trade openness into oil and non-oil exports. The Autoregressive Distributed Lag (ARDL) was employed as the method of analysis and it was discovered that non-oil export had a positive and significant effect on economic growth while oil export had a positive but insignificant relationship with economic growth. The unemployment rate was found to have an insignificant and negative effect on economic growth in Nigeria. However, foreign direct investment was found to be positive and insignificant. The study also discovered that there is no long-run co-integrating equilibrium relationship between trade openness, FDI, unemployment rate, and economic growth. Thus it was suggested that there was a need for more funds to be allocated to the non-oil productive sector of the economy so as to boost productivity from the sector and as well as to reduce the unemployment rate.

Keywords: Trade openness, Foreign Direct Investment, Economic growth, Solow growth model, Autoregressive Distributed Lag

I. INTRODUCTION

International trade serves as an exchange of capital, goods, and services across international borders. International trade is known to encourage the economy of a nation and also serves as a key component of globalization (Barisua & Omiete, 2016). According to the Economic Watch (2010), when international trade is practiced in the appropriate manner, it has the tendency to open up available opportunities in the global markets to the entrepreneur of the developing nation. Trade plays an essential role in achieving economic growth in any country, especially developing countries. It also helps to tackle problems of high unemployment and increasing poverty levels, it triggers commerce, industry, and multicultural tastes and lifestyles, it also promotes world peace and integration and also promotes financial development (Barisua & Omiete, 2016). Pradhan, et al. (2017) noted that one of the most important characteristics of economic growth and development in both developing and developed nations is the proper development of the financial system. They further outlined four vital ways through which financial development can spur economic growth which are through efficiency in the roles of financial intermediaries,

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