Analysis of Foreign and Domestic Investment on Economic Growth in Nigeria (1980-2013)

Abstract

Several factors have hampered economic growth in Nigeria, though there has been improvement in the recent times. Nevertheless, it remains fragile and is not strong enough to significantly reduce the prevailing level of poverty in the country. Against this backdrop, the study investigates the relationship between foreign and domestic investment on Economic growth in Nigeria, during the period 1980-2013, using Vector Error Correction Model (VECM). The study finds out that foreign and domestic investment have a strong influence both in short and long run, on the economic growth of Nigeria. The result shows unidirectional long-run causality between domestic investments to real GDP in Nigeria. Also, there is unidirectional long-run causality between exchange rate and real GDP in Nigeria. The result implies that change in current GDP is better explained by domestic investment and exchange rate rather than national income, foreign direct investment and credit to private sector. Hence, the government may encourage foreign investors to invest in the high risk areas, where the domestic investment lacks the technology and experiences needed.