FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA: AN ECM APPROACH
Abstract
The study examined the impact of foreign direct investments (FDI) on economic growth, using annual data collected from CBN statistical bulletins over a period of 33 years (1988-2020). It specifically aimed to determine how FDI and related variables such as trade openness (OPEN), government size (GOVSIZE), and inflation rate (INF) influence Nigeria's economic growth. The data were analyzed using the ordinary least squares regression method after performing descriptive statistics, trend analysis, ADF unit root tests, and Johansen cointegration tests. The cointegration analysis results indicate that FDI, OPEN, GOVSIZE, and INF have long-term policy implications for Nigeria’s economic growth. Supporting this, the study applied the error correction model to assess short-term effects. The findings show that FDI and trade openness positively impact economic growth, although trade openness was statistically insignificant. Conversely, government size and inflation rate negatively affect economic growth, with government size also being insignificant. Overall, the study concludes that FDI positively influences economic growth both in the short and long term. It is recommended that the government focus on attracting FDI through investor-friendly policies and implement programs aimed at promoting economic growth.