Foreign Direct Investment and Economic Growth in Nigeria

Opara; Peterdamian Ifeanyi; Ike; Chigozie .C; Echekwu; Cynthia Ugochi

doi:10.56201/ijebm.vol.11.no12.2025.pg227.242

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Foreign Direct Investment and Economic Growth in Nigeria

Opara, Peterdamian Ifeanyi, Ike, Chigozie .C, Echekwu, Cynthia Ugochi

Abstract

This study investigates the impact of foreign direct investment and key macroeconomic variables on economic growth in Nigeria from 1986 to 2024, a period defined by trade liberalization reforms, exchange rate regime shifts, macroeconomic instability, and fluctuating investment inflows. Against the backdrop of Nigeria’s persistent struggle to translate external capital and openness into sustained economic performance, the research examines the distinct effects of FDI, trade openness , exchange rate , and inflation rate on real GDP growth. Using an ex-post facto research design and annual secondary time-series data, the study employed the Autoregressive Distributed Lag bounds testing approach to cointegration and error correction modelling to capture both long-run and short-run dynamics. The empirical findings indicate that FDI, trade openness, and exchange rate exhibit positive but statistically insignificant long-run effects on economic growth, suggesting that the potential benefits of external capital, global integration, and currency adjustments have not translated into meaningful growth outcomes due to structural bottlenecks and weak absorptive capacity. Inflation, however, demonstrates a significant negative long-run relationship with growth, underscoring the destabilizing influence of persistent price instability on investment and output performance. The study concludes that Nigeria’s growth trajectory is constrained by macroeconomic volatility, ineffective utilization of foreign capital, and limited competitiveness, which collectively dampen the growth-enhancing channels of FDI and trade. It therefore recommends policies aimed at stabilizing the macroeconomic environment, strengthening institutional capacity for productive investment absorption, deepening trade reforms, and implementing credible anti-inflationary frameworks to unlock the growth potential of FDI and external sector dynamics.

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Foreign Direct Investment and Economic Growth in Nigeria

Abstract

References

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