Foreign Direct Investment and Economic Development in Nigeria

Abstract

This study investigated the effect of foreign direct investment (FDI) on economic development in Nigeria from 1979 to 2024. The study is motivated by high rate of poverty and unemployment despite abundance of natural and human resources in the country and the effort of successive government in attracting FDI. Economic development is proxied by (GDP) per capita, foreign direct investment is the main explanatory variable, while inflation, exchange rate, and remittance inflows are control variables. The study is anchored on endogenous growth theory and adopted an ex-post facto research design and relies mainly on secondary data extracted from the World Development Indicators and Central Bank of Nigeria databases. The data were analysed using Autoregressive Distributed Lag (ARDL) model and ARDL bounds test to establish the existence of a long-run relationship among the variables. The unit root test was conducted and established that inflation is stationary at level, I(0), while other variables (GDP per capita, FDI, remittance inflows and exchange rate) are stationary at first difference, I(1), justifying the application of the ARDL. The results reveal that FDI has a strong positive and statistically significant influence on GDP per capita, with a coefficient of 0.653 (t = 8.262; p < 0.001). Exchange rate has a negative and statistically significant effect, while inflation has a positive and statistically significant effect. Remittance inflows exert a positive but statistically insignificant effect on GDP per capita. The ARDL bounds test confirms the existence of a long-run relationship among the variables, as the F-statistic exceeds the upper bound critical value. The study concludes that FDI is one of the main drivers of economic development in Nigeria. Therefore, the following recommendations were suggested; government to come up with strategies to improve the investment climate, protecting investors’ interests, eliminating regulatory bottlenecks, maintaining relatively stable exchange rate.