A Critical Analysis of the Impact of Foreign Direct Investment on Economic Growth in Nigeria

Emmanuel Olatubosun Sowunmi¹, Oluwatoyin Temitope Aberuagba², Albert Olumide Fayemi³, Olabisi Idowu Ajani⁴

^1,2,3,4 School of Management Sciences, D.S. Adegbenro (ICT) Polytechnic, Itori-Ewekoro, Ogun State, Nigeria.   

Abstract

The integration of Nigeria with the global economy has increased since the 1990s, with a greater inflow of foreign direct investment (FDI). FDI is assumed to benefit a developing economy by supplementing domestic investment and generating employment through technology transfer. Studies on the impact of foreign capital on the Nigerian economy, like those of other developing countries, remain inconclusive. Most of these studies ignored the possibility of bi-directional causality between foreign direct investment and economic growth. This paper therefore examines the impact of FDI on economic growth in Nigeria, using the Ordinary Least Squares (OLS) regression technique within an extended production-function framework, complemented by diagnostic tests to ensure model robustness. The empirical analysis shows that FDI solely does not, in a real sense, cause economic growth. Moreover, results of the regression analysis could not establish that FDI is a statistically important determinant of real GDP in Nigeria. Growth in real GDP is mostly explained by its own shocks. The implication of this is that the policy linkage between real GDP and FDI is weak, and there is a need for policy to ensure provision of adequate infrastructure in order to maximize the potential benefit of FDI in Nigeria.     

Keywords: Global economy, Developing economy, Economic growth, Employment, Technology, Capital, GDP

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