Analysis of Foreign Direct Investment (FDI) on The Nigerian Economy 1985 – 2017: A Vector error correction Model Approach

Abstract

This research work examined the impact of foreign direct investment on economic growth in Nigeria: A VAR model analysis (1985 – 2017). Secondary time series data obtained from World Bank were made to undergo series of tests to investigate the impact of foreign direct investment on economic growth in Nigeria covering a period of 33 years. The variables used are foreign direct investment, economic growth, exchange rate, interest rate and oil price. The stationarity test (unit root) showed that the included variables; economic growth (ECGT), exchange rate (EXCHR), interest rate (INTR) and oil price (OILP) were stationary at their level except for foreign direct investment (FDI) and exchange rate (EXCH) which was stationary after the first difference. They were thus integrated of order one 1(1). The Cointegration test using Johansen Cointegration testrevealed that the variables were cointegrated and had a stable relationship in the long-run. To check for short-run relationship, the Granger causality test was adopted, and it showed causality relationship among the variables. As the result suggests, it becomes beneficial for Nigeria to attract FDI in order to stimulate the economic growth rate. The study recommended that there is need to improve the FDIs climate to take advantage of the new global interest in the affairs of the country by implementing sound macroeconomic policies, spurring innovation, improving the investment climate, establishing a transparent legal
framework that does not discriminate between local and foreign investors and improving the provision of infrastructure and the government should implement policies that will make the foreign investment on oilsector more efficient and re-position it for economic growth in Nigeria.