IMPACT OF FOREIGN DIRECT INVESTMENT INFLOW ON TRADE OPENNESS: NEW EMPIRICAL EVIDENCE FROM NIGERIAN DATA

Abstract

Following the dearth of studies on the FDI inflow-trade openness nexus in Nigeria, this raised three important questions aimed at understanding the political economy of this relationship. First, is there a long-term relationship between FDI inflow and trade openness in Nigeria? Second, how is FDI inflow impacting on trade openness in Nigeria? Third, what is the causal relationship between FDI inflow and trade openness in Nigeria? Using various tests for co integration, the study demonstrated that there is a stable long-term relationship between FDI inflow and trade openness in Nigeria. Using OLS regression, the study found that FDI inflow significantly deters trade openness in Nigeria. The results also indicate that real GDP growth and credit to the private sector are potent drivers of trade openness, while the level of infrastructural development and exchange rate fluctuation are deterring factors. The Granger causality test showed that there is a unidirectional causality running from FDI inflow to trade openness in Nigeria. The policy implications of these findings were also discussed.