THE IMPACT OF FOREIGN DIRECT INVESTMENTS ON THE GROWTH OF THE NIGERIAN ECONOMY (1981-2009)
This study investigated the impact of Foreign Direct Investment (FDI) on the Growth of the Nigerian Economy, and also examined the contributions of Domestic Investment to the growth of Nigeria’s economy. Secondary data were sourced from the Central Bank of Nigeria and National bureau of Statistics. The period covered by this analysis was 1981- 2009. A growth model estimated via the Ordinary Least Square method was used to ascertain the relationship between FDI, Gross Fixed Capital Formation (GFCF), and economic growth in Nigeria. Gross Fixed Capital Formation was used as a proxy for domestic investment. The study also added Interest Rate and Exchange Rate in the model as control variables. The Granger Causality test was also employed to determine the direction of causality between FDI and economic growth in Nigeria. Employing the OLS technique, our result showed that FDI has positive impact on economic growth in Nigeria during the period under study. Although the relationship between FDI and economic growth was found to be statistically insignificant, there still exist positive relationships among them. The result also showed a positive and significant relationship between economic growth and domestic investment measured by GFCF in Nigeria. The findings of the study also revealed that interest rate positively but insignificantly affect the growth of the Nigerian economy. Exchange rate was found to have positive and significant impact on the growth of the Nigerian economy. The result of the granger causality test showed that it is GDP that granger causes FDI and not the other way round as against the findings of many writers. Based on these findings, it is recommended that the government and the monetary authorities should formulate policies and programmes aimed at attracting world-class transnational corporations (TNCs), design and implement a strategy to attract non-oil FDI, improving the regulatory framework, increase investment in physical and human capital; foster linkages and local industries capacity, strengthening institutions dealing with investment and related issues, increase in image laundry of the country to increase investors’ confidence etc. This work has provided practical evidence to the roll of FDI in the growth of the Nigerian economy.