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Dolado - Lütkepohl Causality Tests between Foreign Direct Investment and Economic Growth in Nigeria

Author

Listed:
  • Alimi, R. Santos
  • Ibironke, Adesola

Abstract

Foreign direct investment (FDI) is often seen as an important catalyst for economic growth in the developing countries. It affects the economic growth by stimulating domestic investment, increasing human capital formation and by facilitating the technology transfer in the host countries. The main purpose of the study is to re-investigate the causation between foreign direct investment and economic growth in Nigeria for the period 1970-2010. This study made use of two different methodologies to test the Granger non-causality: the Dolado - Lütkepohl test (Toda-Yamamoto causality tests.) using the VARs in levels, and the standard Granger causality test. The study found that there is a unidirectional causality between the series, running strictly from foreign direct investment to real GDP, which was corroborated at lag length of 4 when we used the standard causality test. We also found that there is a feedback effect on the economic growth arising from FDI inflows after eight years. We conclude that FDI inflows should be encouraged, as it will engender the economy to continue to witness growth in domestic product and subsequently more inflows of FDI.

Suggested Citation

  • Alimi, R. Santos & Ibironke, Adesola, 2012. "Dolado - Lütkepohl Causality Tests between Foreign Direct Investment and Economic Growth in Nigeria," MPRA Paper 49277, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49277
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    File URL: https://mpra.ub.uni-muenchen.de/49277/1/MPRA_paper_49277.pdf
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    References listed on IDEAS

    as
    1. Laura Alfaro & Areendam Chanda & Sebnem Kalemli-Ozcan & Selin Sayek, 2006. "How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages," NBER Working Papers 12522, National Bureau of Economic Research, Inc.
    2. Tokunbo S. OSINUBI & Lloyd A. AMAGHIONYEODIWE, 2010. "Foreign Private Investment And Economic Growth In Nigeria," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 5, pages 105-127, June.
    3. Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
    4. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    5. Yamada, Hiroshi, 1998. "A note on the causality between export and productivity:: an empirical re-examination," Economics Letters, Elsevier, vol. 61(1), pages 111-114, October.
    6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    FDI; Economic Growth; Nigeria;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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