Impact of Foreign Direct Investment on the Real Sector of the Nigerian Economy

Abstract

The main objective of this study was to examine the impact of foreign direct investment on the real sector of the Nigerian economy. The specific objectives are to evaluate the impact of foreign direct investment on the manufacturing sector of the Nigerian economy, determine the impact of foreign direct investment on the agricultural sector of the Nigerian economy, and examine the causal relationship between foreign direct investment and economic growth in Nigeria.The study adopted the ex-post facto design and annualized data for 46 year period 1970-2016 were collated from the Central Bank of Nigeria Statistical Bulletin for the period. Three hypotheses were proposed. The hypotheses were tested using least square regression model where foreign direct investment was used as the independent variable and manufacturing sector gross domestic product, agricultural sector gross domestic product and gross domestic product respectively as dependent variables. The ratio of money supply to gross domestic product, exchange rate and inflation rate were introduced as control variables. Descriptive statistics and graphs were also used to complement the regression results at 0.05 probability level of significance. The result emanating from this study revealed that foreign direct investment has positive and significant impact on manufacturing sector of the Nigerian economy, foreign direct investment has positive and significant impact on the agricultural sector of the Nigerian economy and foreign direct investment granger cause gross domestic product in Nigeria. This study therefore concludes thatfor the Nigerian economy to grow, emphasis should be placed on developing and implementing policies that will address increase in FDI to priority sectors like agriculture and manufacturing sector such as market seeking manufacturing sector with growth oriented framework that can help attain the 2020 goal. The study therefore recommends amongst others that Policy frameworks should be established that favours more foreign direct investment with level interest rate to complement aggregate savings. To this end, it is therefore, necessary to monitor the composition of the foreign direct investment, including the distribution between short and long term foreign direct investment into the real sector of the Nigerian economy.