SOURCE:

Faculty: Management Sciences
Department: Banking And Finance

CONTRIBUTORS:

Ukoh, J. E.
Ibenta, S. N. O.
Adigwe, P. K.

ABSTRACT:

This study examined the effect of foreign direct investment (FDI) on macroeconomic performance in Nigeria from 1981 to 2016. This study was motivated by conflicting results regarding the effect of foreign direct investment on macroeconomic variables; and to answer the question of conditions prevailing in Nigeria encouraging FDI or otherwise. This study specifically ascertained the effect of foreign direct investment on real gross domestic product, exchange rate, inflation rate and interest rate. The study adopted an ex-post facto research design using annual time series data from Central Bank of Nigeria (CBN) statistical bulletin. The models in the study were estimated using the Autoregressive Distributive Lag (ARDL) technique. The result of the analysis revealed that foreign direct investment has significant effect on real gross domestic product but has no significant effect on exchange rate, inflation rate and interest rate. The findings also showed that foreign direct investment has a significant positive relationship with real gross domestic product and exchange rate but a negative insignificant relationship with inflation rate and interest rate. In view of the findings, macroeconomic fundamentals of the nation have not stimulated and encouraged FDI and need to be reinvigorated. Foreign direct investment could be growth enhancing if the necessary fundamentals like robust market potential and low interest rate on financial security is promoted while high inflation that raises cost of doing business should be discouraged. The work recommended among others that the Central Bank of Nigeria should continue to promote and fund commercial farming and agro-allied business aimed at improving export potentials of the nation; the government should seek private sector partnership in providing basic infrastructure such as fully standardized free trade zones and industrial layouts, power generation and railway networks across the entire regions of nation; and allow market price for power consumption that will guarantee stable supply and reduce cost of doing business.