EFFECT OF DOMESTIC AND FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN NIGERIA
EKINE, Data Irene and MAEBA, Sampson Lucky
This study examined the effect of domestic and foreign direct investment on economic growth in Nigeria from the period of 1980 to 2015. The objectives of the study were to; ascertain the causal effect of domestic investment on economic growth in Nigeria;determine the causal effect of foreign direct investment on economic growth in Nigeria and determine the causal effect of interest rate on economic growth in Nigeria To achieve the stated objectives, secondary data from CBN statistical bulletin was collected on GDP, FDI, domestic investment and interest rate. Also, the econometric methods of generalized methods of moment and granger causality test were applied as the techniques of analysis. The Augmented Dickey Fuller test of stationary result to determine the stability of the variables showed that all the variables were stationary at order one. The Generalized Methods of Moment results showed that a percentage increase in FDI will increase economic growth by 0.166692%. The regression coefficient of domestic investment showed that a percentage increase in domestic investment will increase economic growth by 0.073151%. The regression coefficient of interest rate showed that a percentage increase in interest rate will decrease economic growth by 0.003021%. The R2 of 73% showed that the systematic variation of the dependent variable was caused by the three independent variables (FDI, domestic investment and interest rate). The Pairwise Granger Causality Test results showed that there is a unidirectional causality between FDI and GDP, domestic investment and GDP as well as interest rate and GDP. Meaning that FDI, domestic investment and interest rate impact on economic growth. Based on these findings, the study recommends amongst other that government should provide a conducive environment in the form of adequate security and granting of tax holidays that may attract investors in Nigeria in order to spur growth. Also, government should increase her capital spending on infrastructural facilities such as electricity to encourage local investors to increase their productivity. Government’s monetary policy on interest rate should be well tailored towards favorable interest rate in order to encourage investors to borrow and increase productivity.