Foreign Direct Investment and Economic Growth in Nigeria: An Empirical Analysis of Long-Run Dynamics and Policy Implications

Abstract

This study examines the dynamic relationship between foreign direct investment (FDI) and economic growth in Nigeria over the period 1990–2022, with particular emphasis on long-run effects, endogeneity, and institutional influences. Using annual time-series data sourced from the World Development Indicators and the Central Bank of Nigeria, the study employs the Autoregressive Distributed Lag (ARDL) approach to estimate short-run and long-run relationships, complemented by Vector Autoregression (VAR)-based robustness analysis to account for dynamic interactions and potential reverse causality.
The results reveal the existence of a stable long-run equilibrium relationship between FDI and economic growth. While FDI exhibits a positive but statistically insignificant effect in the short run, its long-run impact is positive and significant, indicating that the benefits of foreign investment materialize gradually through channels such as technology transfer, capital accumulation, and productivity enhancement. Granger causality results show no direct causal relationship between FDI and growth, suggesting that the linkage is indirect and mediated by structural factors. Robustness analysis further indicates that the effectiveness of FDI is conditioned by domestic investment, macroeconomic stability, and institutional quality.
The study concludes that FDI contributes to economic growth in Nigeria, but its impact is delayed and contingent on complementary domestic conditions. Policy efforts should therefore focus on strengthening institutions, promoting domestic investment, and improving the overall investment climate to maximize the developmental benefits of FDI.