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Foreign Direct Investment, Non-Oil Exports, and Economic Growth in Nigeria: A Causality Analysis

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Author Info

  • Kolawole Olayiwola

    ()
    (Department of Economics and Development Studies Covenant University, P.M.B. 1023, Ota, Ogun State, Nigeria)

  • Henry Okodua

    ()
    (Department of Economics and Development Studies Covenant University, P.M.B. 1023, Ota, Ogun State, Nigeria)

Abstract

The study examines the contribution of Foreign Direct Investment (FDI) to the performance of non-oil exports in Nigeria within the framework of the export-led growth (ELG) hypothesis. Available evidence in Nigeria supports that the bulk of FDI inflow into the country goes to the oil sector of the economy. From the perspective of efficiency-seeking FDI, foreign capital always aims at taking advantage of cost-efficient production condition. Given this fact, a causality analysis was undertaken in order to verify the relevance of the ELG hypothesis. Also, the dynamic interaction among FDI, non-oil exports, and economic growth is investigated using the concept of variance decomposition and impulse response analysis. The results obtained from the causality analysis revealed that a unidirectional causality runs from FDI to non-oil exports. Each of the three variables exhibited on the average and at the early stages of the out-of-sample forecast period, a dormant response to one standard deviation shock or innovation. However, they all demonstrated significant responses after some 7 years into the out-of-sample forecast period. The results also show that an encouragement of non-oil exports is a necessity for an effective FDI in Nigeria. Therefore, in designing policies towards this direction, policy response lag need to be taken into consideration.

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Bibliographic Info

Article provided by Asian Economic and Social Society in its journal Asian Economic and Financial Review.

Volume (Year): 3 (2013)
Issue (Month): 11 (November)
Pages: 1479-1496

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Handle: RePEc:asi:aeafrj:2013:p:1479-1496

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Related research

Keywords: FDI; Non-oil Exports; Growth; Causality; Variance Decomposition; Impulse Response Analysis.;

References

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Judith A. Giles & Cara L. Williams, 2000. "Export-Led Growth: A Survey of the Empirical Literature and Some Noncausality Results, Part 1," Econometrics Working Papers 0001, Department of Economics, University of Victoria.
  3. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
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  7. Dinda, Soumyananda, 2009. "Factors determining FDI in Nigeria: an empirical investigation," MPRA Paper 40172, University Library of Munich, Germany, revised 16 Jul 2012.
  8. Henry Okodua, 2009. "Foreign Direct Investment and Economic Growth: Co-Integration and Casualty Analysis of Nigeria," The African Finance Journal, Africagrowth Institute, vol. 11(1), pages 54-73.
  9. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
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  11. Lionel Fontagné, 1999. "Foreign Direct Investment and International Trade: Complements or Substitutes?," OECD Science, Technology and Industry Working Papers 1999/3, OECD Publishing.
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  13. Hendry, David F, 1986. "Econometric Modelling with Cointegrated Variables: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 201-12, August.
  14. Akinlo, A. Enisan, 2004. "Foreign direct investment and growth in Nigeria: An empirical investigation," Journal of Policy Modeling, Elsevier, vol. 26(5), pages 627-639, July.
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Cited by:
  1. Fakhri, Hasanov, 2010. "The Impact of Real Effective Exchange Rate on the Non-oil Export: The Case of Azerbaijan," MPRA Paper 29556, University Library of Munich, Germany.
  2. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 70-81.

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