Foreign Direct Investments and Economic Growth of an Emerging Economy: Implications for Nigeria (2009 – 2023)

The study used an ex-post facto research design to examine the relationship between economic growth (EGR) and foreign direct investment (FDI) in Nigeria from 2009 Q1 to 2023 Q4. Secondary data from the World Bank and the Central Bank of Nigeria were employed, with a regression model to explain the link between EGR and FDI. The model included variables such as net foreign direct investment (NFDI), exchange rate (EXCH), trade openness (TROPN), external reserves (EXRSV), and government debt (DEBT). The study utilized the Johansen Cointegration test, specifically the trace test, to determine the long-run relationships between the variables. Further, an error correction model (ECM) was used to assess short-run dynamics, including the speed of adjustment toward long-run equilibrium. Lastly, the study applied Fully Modified Ordinary Least Squares (FMOLS) to estimate the long-run relationships once cointegration was confirmed. The study found that net foreign direct investment (NFDI) has a statistically significant negative effect on economic growth (EGR) in Nigeria. The analysis revealed that a unit increase in NFDI results in a decrease of approximately 365.96 units in EGR. The p-value of 0.0033, which is below the 5% significance level, confirmed this negative relationship. The study therefore recommends that the Nigerian government strengthen institutional frameworks, promote sectoral diversification by attracting FDI into underdeveloped sectors, and invest in infrastructure and human capital development to foster a conducive business environment, enhance local linkages, and improve productivity for sustainable economic growth.