Trade Openness and Investment in Nigeria

This study investigated the impact of trade openness on investments in the Nigerian economy, focusing specifically on foreign direct investment (FDI) and foreign portfolio investment (FPI) from 1984 to 2022. Utilizing the Autoregressive Distributed Lag (ARDL) estimation technique, the research explores both the short-run and long-run dynamics between trade openness and investment, incorporating macroeconomic variables such as exchange rate, GDP growth rate, population growth, interest rate, and manufacturing sector capacity utilization. Stationarity tests using the Augmented Dickey-Fuller (ADF) and PhillipsPerron (PP) methods confirmed mixed integration orders, while the bounds testing approach indicated the existence of long-run relationships among the variables. Empirical findings revealed that trade openness does not significantly influence either FDI or FPI in Nigeria, suggesting that the country has not fully leveraged the potential investment benefits of open trade policies. However, exchange rates were found to significantly impact FDI, and GDP growth rates significantly influenced FPI. These results imply that trade openness alone is insufficient to drive investment inflows without supportive macroeconomic and institutional frameworks. Based on these findings, the study recommends that the Nigerian government prioritize infrastructure development, strengthen regulatory protections for investors, promote innovation, and enhance financial market infrastructure to attract more foreign investment and ensure long-term economic growth.