THE NEXUS BETWEEN FOREIGN INVESTMENT INFLOWS AND ECONOMIC GROWTH IN NIGERIA: AN ARDL BOUND TESTING APPROACH

Abstract

This study investigated the relationship between foreign direct investment (FDI) and economic growth in Nigeria between 1990 and 2022. Specifically, it explored the existence of a long-run relationship, examined short-run dynamics, and tested for causality between the variables. The study adopted an ex-post facto quantitative design and used annual secondary data obtained from the World Bank’s World Development Indicators. Real GDP, FDI inflows, gross fixed capital formation, trade openness, inflation, and exchange rate were included in the model. Data analysis was carried out using the Autoregressive Distributed Lag (ARDL) bounds-testing approach, the ARDL error-correction model, and Granger causality tests. The bounds test produced an F-statistic of 4.41, which exceeded the 5% upper critical value of 3.79, confirming a stable long-run relationship among the variables. The findings showed that FDI had a negative and statistically significant effect on economic growth in both the short and long run. The error-correction coefficient (-0.088) indicated that about 8.8% of short-run disequilibrium is corrected annually. Granger causality results revealed no direct causal relationship between FDI and economic growth, although FDI was found to influence domestic investment.