Dynamics of Foreign Direct Investment, Macroeconomic Stability, and Sustainable Manufacturing Development in Nigeria

This paper examines the effects of foreign direct investment (FDI) on the performance of Nigeria's manufacturing sector using annual time series data from 1981 to 2023. Using the Autoregressive Distributed Lag (ARDL) framework and its error correction specification, this paper examines the short- and long-run dynamics between manufacturing value added (MANV), manufacturing capacity utilization (MCAP), and FDI inflows (FDIR) as well as key macroeconomic variables: exchange rate, external reserves, balance of payments, inflation, and interest rate. Unit root and bounds tests confirm the combination of stationary and cointegrated variables, and thus the appropriateness of the ARDL approach. The empirical findings show that exchange rate volatility, external reserves, and inflation are key drivers of manufacturing performance, while economic growth and export competitiveness are key determinants of FDI inflows. The error correction terms across the models show strong adjustment toward long-run equilibrium, which underscores the importance of macroeconomic stability, export diversification, and productivity-enhancing FDI in driving sustainable industrial growth. The findings offer new evidence on the role of FDI in promoting manufacturing performance and contribute to the literature on development finance and industrialization, as well as providing insights for policymakers on strengthening the resilience and competitiveness of the manufacturing sector.