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How important is Foreign Direct Investment to Economic Growth? New Evidence from Nigeria

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  • Owolabi-Merus, Olasunkanmi

Abstract

This study investigates the impact that Foreign Direct Investment (FDI) has on economic growth in Nigeria through the use of annual secondary data from 1981 to 2013 collected from the World Bank’s Africa Development Indicators. The econometric methodologies used in this research are Ordinary Least Squares (OLS), ADF unit root and the Granger Causality tests. The OLS results shows that FDI positively contributes to economic growth in Nigeria, but not statistically significant at the 5% level of significance. However, Gross Fixed Capital Formation (GFCF) is found to have a positive and statistically significant contribution to Nigeria’s economic growth. The unit root test shows that the variables are stationary and the Granger Causality test connotes a unidirectionary causation running from FDI to GDP but not vice-versa. But no mutual correlation is found between GFCF and GDP. This study recommends that policymakers in Nigeria should focus on instigating strategies geared towards increasing capital formation (GFCF) in order to present an attractive platform that will stimulate and encourage FDI inflow which will in whole, facilitate the increase and sustenance of economic growth in the country.

Suggested Citation

  • Owolabi-Merus, Olasunkanmi, 2015. "How important is Foreign Direct Investment to Economic Growth? New Evidence from Nigeria," MPRA Paper 65796, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65796
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    References listed on IDEAS

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    1. Adegoke Ibrahim Adeleke, 2014. "Fdi-Growth Nexus In Africa: Does Governance Matter?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 39(1), pages 111-135, March.
    2. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    3. 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.
    4. World Bank, 2014. "World Development Indicators 2014," World Bank Publications - Books, The World Bank Group, number 18237.
    5. Samuel Antwi & Ebenezer Fiifi Emire Atta Mills & Gifty Atta Mills & Xicang Zhao, 2013. "Impact of Foreign Direct Investment on Economic Growth: Empirical Evidence from Ghana," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(1), pages 18-25, January.
    6. Robert Lensink & Oliver Morrissey, 2006. "Foreign Direct Investment: Flows, Volatility, and the Impact on Growth," Review of International Economics, Wiley Blackwell, vol. 14(3), pages 478-493, August.
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    1. Bilas, Vlatka, 2019. "Foreign Direct Investment And Economic Growth Relationship In Croatia," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 10(2), pages 175-187.
    2. Olabode Philip Olofin & Oluwole Oladipo Aiyegbusi & Abayomi Ayinla Adebayo, 2019. "Analysis of Foreign Direct Investment and Economic Growth in Nigeria: Application of Spatial Econometrics and Fully Modified Ordinary Least Square (FMOLS)," Foreign Trade Review, , vol. 54(3), pages 159-176, August.

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    More about this item

    Keywords

    Economic Growth; FDI inflows; GDP; Gross Fixed Capital Formation; Nigeria.;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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