Determinants of foreign direct investment and economic growth in Nigeria; sectoral analysis. (1981-2016)

Abstract

This study examined the determinants of foreign direct investment and the empirical relationship between foreign direct investment and economic growth in Nigeria using sectoral inflows impact (disaggregate foreign direct investment impact). Nigeria is one of the top three leading African countries that consistently received FDI in the past decades as her abundant natural resources and large market size qualifies her for it. The research adopted the use of secondary data from 1981 to 2016 which were sourced from Central Bank of Nigeria’s Statistical Bulletin and the World Bank National Accounts Data. And the Ordinary Least Square technique was adopted for the analyses. Based on the OLS results for model 1 we observed that trade openness, inflation rate, exchange rate and market size have a positive impact on foreign direct investment in Nigeria. Based on the results of the study, the explanatory variable accounted for 85% of the variation in foreign direct investment during the period with the error term capturing 15% of the variation which means that the explanatory variables are highly explanatory. From the results of the second model we can see that FDI inflows in mining &quarrying and FDI inflows in manufacturing &processing, external reserve, exchange rate and interest rate have significant impact on the economic growth of Nigeria. Basically it is determined that FDI has a positive impact on economic growth but should not be considered in aggregate form because FDI inflows vary from sector to sector. The policy recommendation rendered to the study is that open trade should be encouraged; appropriate measures should be taken to check economic and financial crimes. Measures should be implemented that ensures that both inflation and foreign exchange rates are sustained at suitable rates.