FOREIGN INVESTMENT, DOMESTIC INVESTMENT AND SUSTAINABILITY OF THE MANUFACTURING SECTOR OF THE NIGERIA ECONOMY

Abstract

This paper examines the impact of foreign and domestic investment on the output of the manufacturing sector from 1980 – 2020. To achieve the objectives of the study, an econometric model of Vector Error correction Model (VECM) was specified and estimated. This was to determine the short and long run causality among the variables captured in the model. Stationarity check was conducted using the correlogram approach and all the variables were stationary at first difference. Appropriate lags for the model were selected based on the result of the Akaike and Hannan Quine information criteria. The Johansen cointegration was carried out to determine the long run relationship among the variables. In addition, the normalized Johansen equation was to establish the long run impact of the independent variables (foreign investment, domestic investment and exchange rate) on the dependent variable (manufacturing sector output). Findings revealed that, external investment inflow and domestic investment have long run positive impact on the manufacturing sector. Conversely, the real exchange rate shows a negative long run impact on the manufacturing sector but statistically significant. Also VECM test for causality revealed the existence of both short and long run causality among the variables. Based on the strength of findings, the study recommends that deliberate investment promoting policies capable of stimulating foreign and domestic investment should be sustained. For it will enhance growth in the manufacturing sector and by extension the economy.