Effect of Infrastructure Development on the Relationship between FDI, Domestic Investment, and Economic Growth in Nigeria: ARDL Approach

This study examines the effect of infrastructure development on the relationship between FDI, domestic investment, and economic growth in Nigeria from 1993 to 2023. The unit root test results show that none of the variables are integrated at I(2), justifying the use of the autoregressive distributed lag (ARDL) model. The variables include economic growth, foreign direct investment, domestic investment (proxied by capital formation), infrastructure development (proxied by phone subscriptions per 100 people), and human capital development (proxied by primary school enrollment). The ARDL bounds test approach to cointegration confirms a long-run relationship, with an F-statistic value of 5.341737 exceeding the critical values at the 10%, 5%, and 1% significance levels. The estimation results indicate that infrastructure development and domestic investment positively influence economic growth in the short run, while in the long run, domestic investment and infrastructure development continue to have a positive impact. However, human capital development negatively affects economic growth in both the short and long run. The error correction model (ECM) suggests that 12% of deviations from equilibrium are corrected annually, implying that it would take approximately eight years for the relationship to stabilize. The study recommends that the government enhance infrastructure development through strategic and consistent investments, develop human capital by aligning education and workforce policies with market demands, and optimize foreign direct investment (FDI) by diversifying inflows and strengthening regulations to reduce capital flight.