Analysis of foreign direct investment and exchange rate on the Nigerian economic growth
Abstract
The study investigated the effect of foreign direct investment and exchange rate on the Nigerian economic growth. The Secondary data used include the aggregate annual time series at current prices for gross domestic product, GDP, INTR, INFLR, EXR, and total net inflows for Foreign Direct Investment, FDI covering the period 1980-2022. The study made used Autoregressive Distributed Lag Model (ARDL) to determine both the short-run and the long-run relationship between the variables. The coefficient of determination (R2) showed the percentage of variations in the dependent variable that can be explained by the independent variables. The R2 of 0.997101 or 99% showed that Economic development can be explained by changes in the explanatory variables as shown in the model and the remaining 1% is explained by the dummy variable. The F-statistic which measures the overall significance of the model indicated that it is significant at 5%. This is indicated by the F-statistics and its probability (44.85634 and 0.004642) respectively. We therefore conclude that there is a significant relationship between foreign direct investment and exchange rate on economic growth in Nigeria. The study recommends among other things that Government should give tax holiday to the newly established industries, as that will encourage indigenous industry thereby leading to economic growth, government also needs to subsidies industrial farm inputs as such will help producers to produce goods at affordable prices thereby reducing inflation in the economy.
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References
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Agrawal, P. (2011). Economic impact of Foreign Direct Investment in South Asia. Indira Gandhi Institute of Development Research, Bombay, India.
Aliyu, A. R., Olalekan, B. A., & Olusegun, A. (2022). Impact of FDI on Exchange Rate in Nigeria: A Combined Cointegration Approach. Journal of Economics and Allied Research, 7(1), 141–158. ISSN: 2536-7447.
Balasubramanyan, V., Mohammed, N., Salisu, A., & Sapsford, D. (2013). “Foreign Direct Investment and growth in EP and IS countries”. Economic Journal, 106, 92–105.
Balatsky, E. (2010). “Foreign Direct Investment and Domestic Activity.” Journal of World Economy and International Relations, 11(1), 83–89.
Balsvik, R. (2013). FDI and mode of entry with vertical spillovers through backward linkages, Paper Presented at the Norwegian School of Economics and Business Administration. 2003. Norway.
Bashir, O. K. (2019). Foreign debt and economic growth dynamics: further evidence from Nigeria. Journal of Economics and Allied Research, 3(1), 49–60.
Basu, P., Chakraborty, C., & Reagle, D. (2013). "Liberalization, FDI, and Growth in Developing Countries: A Panel Cointegration Approach." Economic Inquiry, 41(3), 510–516.
Blomstrom, M., Globerman, S., & Kokko, A. (2013). “The Determinants of Host Country Spillovers from Foreign Direct Investment.” Centre for Economic Policy Research Discussion Paper No. 2350.
Borensztein, E., De Gregorio, J., & Lee, J. W. (2011). “How does Foreign Direct Investment affect economic growth?” NBER Working Paper No. 5057. National Bureau of Economic Research, Cambridge, Massachusetts.
Bouoiyour, J. (2013). The Determining Factors of Foreign Direct Investment in Morocco. France: University de Pau et des Pays de l'Adour.
Buckley, P. J., & Cason, M. C. (2014). Analyzing foreign market entry strategies: Extending the internalization approach. Journal of International Business Studies, 29(3), 539–561.
Colen, L., Maertens, M., & Swinnen, J. (2010). Foreign Direct Investment as an Engine for Economic Growth and Human Development: A Review of the Arguments and Empirical Evidence. IAP P6/06 Working Paper No. 16.
Ekperiware, M. (2011). Oil and non-oil FDI economic growth in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 24(4), 333–343.
Ekpo, A. H. (2014). “Foreign Direct Investment in Nigeria: Evidence from timeseries data.” CBN Economic and Financial Review, 35(1), 59–78.
Elboiashi, H. A. (2011). The effect of FDI and other foreign capital inflows on growth and investment in developing economies (PhD thesis).
Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and error correction: representation, estimation, and testing. Econometrica, 55(2), 251–276.
Eravwoke, K. E., & Imide, I. O. (2013). Corruption, Foreign Direct Investment and its Impact on Exchange Rate of the Nigerian Economy. Mediterranean Journal of Social Sciences, 4(3), 10–20.
Ezeji, C., Fezi, L., & Chigbu, U. S. (2021). Effect of foreign direct investment on exchange rate of Naira: A multi-sectoral analysis. European Journal of Accounting, Auditing and Finance Research, 9(4), 12–26.
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Globerman, S., & Shapiro, D. M. (2013). The impact of government policies on foreign direct investment: the Canadian experience. Journal of International Business Studies, 30, 513–532.
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Herzer, D., Klasen, S., & Nowak-Lehmann, D. F. (2010). "In search of FDI-led growth in developing countries: The way forward." Economic Modelling, 25(5), 793–810.
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Nwosa, P. I., & Amassoma, D. (2014). Capital inflows and exchange rate in Nigeria. Mediterranean Journal of Social Sciences, 5(7), 263–272.
Ogu, C. (2019). Foreign Direct Investment and Exchange Rate in Nigeria. Global Journal of Applied, Management and Social Sciences (GOJAMSS), 16, 132–145. ISSN: 2276–9013.
Olokoyo, F. O. (2012). Foreign direct investment and economic growth: a case of Nigeria. Bvimsr’s Journal of Management Research, 4(1), 10–20.
Onu, A. J. C. (2012). Impact of Foreign Direct Investment or economic growth in Nigeria.
Oyegoke, O. E., & Aras, O. N. (2022). Impact of Foreign Direct Investment on Economic Growth. Journal of Management, Economics, and Industrial Organization, 5(1), 31–38.
Otepola, A. (2002). “FDI as a Factor of Economic Growth in Nigeria.” African Institute for Economic Development and Planning (IDEP), Dakar, Senegal. Available online at: idep@unidep.org, http://www.unidep.org.
Oyatoye, E. O., Arogundade, K. K., Adebisi, S. O., & Oluwayode, E. F. (2011). Foreign direct investment, export and economic growth in Nigeria. European Journal of Humanities and Social Sciences, 2(1), 66–86.
Proenca, I., Fontoura, M., & Crespo, N. (2012). Productivity Spillovers from Multinational Corporations in the Portuguese Case: Evidence from a Short Time Period Panel Data. Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon, Working Papers No. 6.
Ramirez, M. (2010). "Foreign Direct Investment in Mexico: A Cointegration Analysis." Journal of Development Studies, 37(1), 138–162.
Saibu, O., & Keke, N. A. (2014). Real Output Effects of Foreign Direct Investment in Nigeria. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and Transport, 2(1), 1–7. DOI: 10.12691/jbe-2-1-1.
Smarzynska, B. J. (2014). "Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages." The American Economic Review, 94(3), 605–627.
Smarzynska, B. K. (2012). “Does Foreign Direct Investment increase the productivity of domestic firms? In search of spillovers through backward linkages.” Policy Research Working Paper No. 29. The World Bank, Washington, D.C.
Stancik, J. (2012). Horizontal and Vertical FDI Spillovers: Recent Evidence from the Czech Republic. Charles University, Centre for Economic Research and Graduate Education: Economics Institute, Working Paper No. 340. ISSN: 1211-3298.
Ugochukwu, U., Amah, O., & Onoh, J. O. (2013). The Impact of Foreign Direct Investment on the Nigerian Economy. European Journal of Business and Management, 5(2). ISSN: 2222–1905. Available at SSRN: https://ssrn.com/abstract=2865155
Ugwu, J. I., & Udeh, S. N. (2018). Influence of foreign direct investment on exchange rate and domestic investment in Pre-and Post-IFRS adoption periods of selected Sub-Saharan African countries (1999–2015). International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(3), 1–16.
Ugwuegbe, S., Okore, A. O., & John, O. O. (2013). The Impact of Foreign Direct Investment on the Nigerian Economy. European Journal of Business and Management, 5(2).
Umah, K. E. (2011). “The Impact of Foreign Private Investment on Economic Development of Nigeria.” University of Nigeria, Enugu Campus.
UNCTAD. (2013). World Investment Report. Retrieved from www.unctad.org
UNCTAD. (2019). World Investment Report 2019. New York: United Nations Publications.
UNCTAD. (2020). UNCTAD Handbook of Statistics 2020 – Maritime transport indicators. Retrieved from https://unctad.org/system/files/official-document/tdstat45_en.pdf
Yusuf, H. A., Shittu, W. O., Akanbi, S. B., Umar, H. M., & Abdulrahman, I. A. (2020). The role of foreign direct investment, financial development, democracy and political (in)stability on economic growth in West Africa. Development, 4(1), 27–46.
World Bank. (2020). Doing Business 2020. License Creative Common Attribution CC: World Bank. Washington, D.C.: World Bank Group.
Agosin, M. & Machado, R. (2010). "Openness and the International allocation of foreign direct investment." Journal of Development Studies, 43(7), 1234-1247.
Agosin, M. & Machado, R. (2011). "Openness and the International allocation of foreign direct investment." Journal of Development Studies, 43(7), 1234-1247.
Agrawal, P. (2011). Economic impact of Foreign Direct Investment in South Asia. Indira Gandhi Institute of Development Research, Bombay, India.
Aliyu, A. R., Olalekan, B. A., & Olusegun, A. (2022). Impact of FDI on Exchange Rate in Nigeria: A Combined Cointegration Approach. Journal of Economics and Allied Research, 7(1), 141–158. ISSN: 2536-7447.
Balasubramanyan, V., Mohammed, N., Salisu, A., & Sapsford, D. (2013). “Foreign Direct Investment and growth in EP and IS countries”. Economic Journal, 106, 92–105.
Balatsky, E. (2010). “Foreign Direct Investment and Domestic Activity.” Journal of World Economy and International Relations, 11(1), 83–89.
Balsvik, R. (2013). FDI and mode of entry with vertical spillovers through backward linkages, Paper Presented at the Norwegian School of Economics and Business Administration. 2003. Norway.
Bashir, O. K. (2019). Foreign debt and economic growth dynamics: further evidence from Nigeria. Journal of Economics and Allied Research, 3(1), 49–60.
Basu, P., Chakraborty, C., & Reagle, D. (2013). "Liberalization, FDI, and Growth in Developing Countries: A Panel Cointegration Approach." Economic Inquiry, 41(3), 510–516.
Blomstrom, M., Globerman, S., & Kokko, A. (2013). “The Determinants of Host Country Spillovers from Foreign Direct Investment.” Centre for Economic Policy Research Discussion Paper No. 2350.
Borensztein, E., De Gregorio, J., & Lee, J. W. (2011). “How does Foreign Direct Investment affect economic growth?” NBER Working Paper No. 5057. National Bureau of Economic Research, Cambridge, Massachusetts.
Bouoiyour, J. (2013). The Determining Factors of Foreign Direct Investment in Morocco. France: University de Pau et des Pays de l'Adour.
Buckley, P. J., & Cason, M. C. (2014). Analyzing foreign market entry strategies: Extending the internalization approach. Journal of International Business Studies, 29(3), 539–561.
Colen, L., Maertens, M., & Swinnen, J. (2010). Foreign Direct Investment as an Engine for Economic Growth and Human Development: A Review of the Arguments and Empirical Evidence. IAP P6/06 Working Paper No. 16.
Ekperiware, M. (2011). Oil and non-oil FDI economic growth in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 24(4), 333–343.
Ekpo, A. H. (2014). “Foreign Direct Investment in Nigeria: Evidence from timeseries data.” CBN Economic and Financial Review, 35(1), 59–78.
Elboiashi, H. A. (2011). The effect of FDI and other foreign capital inflows on growth and investment in developing economies (PhD thesis).
Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and error correction: representation, estimation, and testing. Econometrica, 55(2), 251–276.
Eravwoke, K. E., & Imide, I. O. (2013). Corruption, Foreign Direct Investment and its Impact on Exchange Rate of the Nigerian Economy. Mediterranean Journal of Social Sciences, 4(3), 10–20.
Ezeji, C., Fezi, L., & Chigbu, U. S. (2021). Effect of foreign direct investment on exchange rate of Naira: A multi-sectoral analysis. European Journal of Accounting, Auditing and Finance Research, 9(4), 12–26.
Gilbert, M. M. (2017). Impact of Foreign Direct Investments on the Growth of Nigerian Economy. Unpublished Dissertation. Delta State University.
Globerman, S., & Shapiro, D. M. (2013). The impact of government policies on foreign direct investment: the Canadian experience. Journal of International Business Studies, 30, 513–532.
Hansen, H., & Rand, J. (2013). "On the Causal Links between FDI and Growth in Developing Countries." The World Economy, 29(1), 21–41.
Herzer, D., Klasen, S., & Nowak-Lehmann, D. F. (2010). "In search of FDI-led growth in developing countries: The way forward." Economic Modelling, 25(5), 793–810.
Hirschman, A. (2011). The strategy of economic development. New York: Norton.
Nnanna, O. J., Okafor, C. M., & Odoko, F. O. (2013). Foreign Private Investment in Nigeria. Central Bank of Nigeria: Proceedings of the 12th Annual Conference of the Regional Research Units.
Nwachukwu, N. E., Ali, A. I., Abdullahi, I. S., Shettima, M. A., Zirra, S. S., Falade, B. S., & Alenyi, M. J. (2016). Exchange rate and external reserves in Nigeria: A threshold cointegration analysis. CBN Journal of Applied Statistics, 7(1b), 233–254.
Nwosa, P. I., & Amassoma, D. (2014). Capital inflows and exchange rate in Nigeria. Mediterranean Journal of Social Sciences, 5(7), 263–272.
Ogu, C. (2019). Foreign Direct Investment and Exchange Rate in Nigeria. Global Journal of Applied, Management and Social Sciences (GOJAMSS), 16, 132–145. ISSN: 2276–9013.
Olokoyo, F. O. (2012). Foreign direct investment and economic growth: a case of Nigeria. Bvimsr’s Journal of Management Research, 4(1), 10–20.
Onu, A. J. C. (2012). Impact of Foreign Direct Investment or economic growth in Nigeria.
Oyegoke, O. E., & Aras, O. N. (2022). Impact of Foreign Direct Investment on Economic Growth. Journal of Management, Economics, and Industrial Organization, 5(1), 31–38.
Otepola, A. (2002). “FDI as a Factor of Economic Growth in Nigeria.” African Institute for Economic Development and Planning (IDEP), Dakar, Senegal. Available online at: idep@unidep.org, http://www.unidep.org.
Oyatoye, E. O., Arogundade, K. K., Adebisi, S. O., & Oluwayode, E. F. (2011). Foreign direct investment, export and economic growth in Nigeria. European Journal of Humanities and Social Sciences, 2(1), 66–86.
Proenca, I., Fontoura, M., & Crespo, N. (2012). Productivity Spillovers from Multinational Corporations in the Portuguese Case: Evidence from a Short Time Period Panel Data. Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon, Working Papers No. 6.
Ramirez, M. (2010). "Foreign Direct Investment in Mexico: A Cointegration Analysis." Journal of Development Studies, 37(1), 138–162.
Saibu, O., & Keke, N. A. (2014). Real Output Effects of Foreign Direct Investment in Nigeria. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and Transport, 2(1), 1–7. DOI: 10.12691/jbe-2-1-1.
Smarzynska, B. J. (2014). "Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages." The American Economic Review, 94(3), 605–627.
Smarzynska, B. K. (2012). “Does Foreign Direct Investment increase the productivity of domestic firms? In search of spillovers through backward linkages.” Policy Research Working Paper No. 29. The World Bank, Washington, D.C.
Stancik, J. (2012). Horizontal and Vertical FDI Spillovers: Recent Evidence from the Czech Republic. Charles University, Centre for Economic Research and Graduate Education: Economics Institute, Working Paper No. 340. ISSN: 1211-3298.
Ugochukwu, U., Amah, O., & Onoh, J. O. (2013). The Impact of Foreign Direct Investment on the Nigerian Economy. European Journal of Business and Management, 5(2). ISSN: 2222–1905. Available at SSRN: https://ssrn.com/abstract=2865155
Ugwu, J. I., & Udeh, S. N. (2018). Influence of foreign direct investment on exchange rate and domestic investment in Pre-and Post-IFRS adoption periods of selected Sub-Saharan African countries (1999–2015). International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(3), 1–16.
Ugwuegbe, S., Okore, A. O., & John, O. O. (2013). The Impact of Foreign Direct Investment on the Nigerian Economy. European Journal of Business and Management, 5(2).
Umah, K. E. (2011). “The Impact of Foreign Private Investment on Economic Development of Nigeria.” University of Nigeria, Enugu Campus.
UNCTAD. (2013). World Investment Report. Retrieved from www.unctad.org
UNCTAD. (2019). World Investment Report 2019. New York: United Nations Publications.
UNCTAD. (2020). UNCTAD Handbook of Statistics 2020 – Maritime transport indicators. Retrieved from https://unctad.org/system/files/official-document/tdstat45_en.pdf
Yusuf, H. A., Shittu, W. O., Akanbi, S. B., Umar, H. M., & Abdulrahman, I. A. (2020). The role of foreign direct investment, financial development, democracy and political (in)stability on economic growth in West Africa. Development, 4(1), 27–46.
World Bank. (2020). Doing Business 2020. License Creative Common Attribution CC: World Bank. Washington, D.C.: World Bank Group.
Published
2025-07-23
How to Cite
Vincent, A., Adekunle, S., Omoche, E., & KUMSAT, P. (2025). Analysis of foreign direct investment and exchange rate on the Nigerian economic growth. GPH-International Journal of Social Science and Humanities Research, 8(6), 80-98. https://doi.org/10.5281/zenodo.16360118
Section
Articles
Copyright (c) 2025 ATAYI Abraham Vincent, Sherif Olorunrin Adekunle, Edache Godwin Omoche, Paul Andrew KUMSAT
The authors and co-authors warrant that the article is their original work, does not infringe any copyright, and has not been published elsewhere. By submitting the article to GPH-International Journal of Social Science and Humanities Research, the authors agree that the journal has the right to retract or remove the article in case of proven ethical misconduct.
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