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Foreign Direct Investment And Economic Growth In Nigeria: An Analysis Of The Endogenous Effects

Foreign Direct Investment And Economic Growth In Nigeria: An Analysis Of The Endogenous Effects

DATE PUBLISHED
Published March 20, 2015
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Articles

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Abstract

This study examined the nexus between FDI and growth for possible endogenous effects. Relevant time series data spanning the period 1981 – 2013 were collected from the Central Bank of Nigeria Statistical Bulletin, 2013. Monetary policy rate (MPR) was proxy for interest rate (INTR), foreign direct investment (FDI) and real gross domestic product proxy for growth. Both the Philips – Peron (PP) and the Kwiatkowski-Philips-Schmidt- Shin (KPSS) tests for unit root showed all the variables to be integrated of order one, I(1) and the Johansen’s test for cointegration showed no cointegrating vector in level form. Using a Structural Vector Autoregressive (SVAR) Model on the first differenced variables and the long-run structural restrictions that FDI does not respond to nominal shocks in the short-run, and that growth does not respond to nominal and external shocks in the short-run the study concludes that growth is contemporaneously influenced by FDI but growth does not attract FDI. This study therefore showed no evidence supporting the endogenous effect hypothesis in Nigeria. It was therefore recommended that there should be concerted efforts to attract foreign direct investment into the country.

Keywords

Endogeniety, FDI, Growth, Nigeria, VAR

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