REVISITING FOREIGN DIRECT INVESTMENT - ECONOMIC GROWTH NEXUS IN NIGERIA: AN ARDL APPROACH

Abstract

This article aims to examine the relationship between foreign direct investment (FDI) and economic growth in Nigeria. The study investigates the relationship between economic growth (GDP), foreign direct investment (FDI), gross fixed capital formation (K), total labour force (L) and, exchange rate (RER). This paper employs annual time series data covering 1990 up to 2020. Utilizing the auto-regressive distributed lag (ARDL) model, the existence of long-run relationship between the independent and dependent variables was found. Additionally, we conducted the granger causality test to determine the direction of causality. The ARDL bounds testing result shows that labor has a long-term negative impact on economic growth, with foreign direct investment, exchange rates, and capital having a positive influence. The empirical findings from a pair-wise Granger-causality model showed the existence of a bidirectional relationship between FDI and economic growth. Based on our findings, we further suggest that the government should pursue a strategy to attract FDI by enhancing Nigeria's business climate, environment, and infrastructure. To increase investor trust, the government should continue to execute sensible policies through the central bank with a goal of achieving stable exchange rates. Additionally, through enhanced educational policy, the government should aim to improve human capital and skilled workforce in the nation.