IMPACT OF SECTORAL FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN NIGERIA: 2010Q1-2023Q4

Foreign direct investment (FDI) is a crucial source of investment in developing countries. As sector-wise decomposed FDI has a bearing on the economic growth process. However, sectoral FDI cannot exert equal impact on growth. This is due to the fact that, each of these sectors are having different investment absorption capacity, technological base and even regulatory framework etc. Thus, this paper investigated the impact of sectoral foreign direct investment on growth in Nigeria from 2010Q1 to 2023Q4 using the Autoregressive Distributed Lag Regression technique. Results revealed agriculture FDI; services FDI; and telecommunication FDI are the main significant short-run drivers of economic growth in Nigeria during this study period. While only telecommunication FDI appears to drive output growth significantly in the long-run in Nigeria. On a basis of variable-by-variable analysis, this paper found that one period lagged agriculture FDI is positively and significantly related to growth in the short-run. On the other hand, over the long term, the projected impact of agriculture FDI on growth is statistically insignificant and negative. While, the findings indicated that manufacturing FDI appears to affect growth negatively both in the short-run and long run. Furthermore, the estimated impact of services FDI at level on growth is positive and significant in the short run. Similarly, services FDI is insignificant and positively related to growth in the long run. Also, the coefficient of telecommunication FDI is negative and significant both in the short run and long run. Therefore, this research recommended that the Federal Ministry of Industry, Trade and Investment and the Federal Ministry of Agriculture and Rural Development should encourage value addition by promoting agro-processing industries to reduce dependence on raw exports, given the positive short-run and negative long-run impact of agriculture FDI. Since manufacturing FDI negatively impacts growth in both short and long run, Federal Ministry of Industry, Trade and Investment and in active collaboration with Manufacturers Association of Nigeria should make concrete efforts to address structural bottlenecks such as high production costs, inadequate power supply, and poor logistics in the manufacturing sub sector. Further, the Nigerian Communications Commission should put in place stronger regulatory oversight to ensure fair pricing, quality service, and increased competition given the negative impact of telecommunications FDI on growth. Also, since services FDI has a positive short-run and weak long-run impact on growth, the Nigerian Investment Promotion Commission should strive to ensure a business-friendly regulatory environment that attracts long-term investments in high-value services