An analysis of foreign direct investment and economic growth nexus: Does domestic investment matters

Abstract

This study investigates the impact of foreign direct investment and domestic investment on economic growth in Nigeria between 1981 and 2018. The properties of time series variables were examined through the application of Augmented Dickey-Fuller and Philip Perron techniques in testing the unit root property of the series and autoregressive distributed lag model approach applied in testing the long-and-short run relationships. The results of unit root results suggested that there is a mixture of I(0) and I(1) variables in the model. The results of ARDL modelling revealed that foreign investment has a positive impact on economic growth in the long and short run, domestic investment has a negative impact on economic growth in the long and short-run while trade openness impacted positively on economic growth. It is the recommendation of this study that, concerted efforts should be made by the government, policymakers and relevant authorities to formulate policies that aim at creating a conducive investment environment so that Nigerians and non-Nigerian investors alike will be encouraged to increase their propensity to invest in the country. Policymakers should also take a step up in ensuring foreign exchange stability and improve trade openness, in order to achieve meaningful economic growth.