Foreign Direct Investment and Nigerian Economic Growth

This paper examined the relationship between foreign direct investment (FDI) and economic growth (GDP) in Nigeria between 1981 and 2020, using Autoregressive Distributed Lag Bound technique (ARDL). From the findings, there existed a long-run significant relationship among the variables employed. Foreign direct investment (FDI) and real exchange rates (REXCR) showed positive significant short, and long-run impacts on economic growth (GDP) which is aligned with Abu (2013) and John (2016). While interest rates and trade openness have insignificant short and long-run impacts on the economic growth. The Pairwise Granger Causality exhibited bidirectional causality between foreign direct investment (FDI) and economic growth (GDP), demonstrating the influence of these two variables on each other, as supported by Mounir & Atef (2018). It is therefore recommended that government should introduce new approach to foreign direct investment by supporting with zero-interest loan and credit facilities for it to have better significant impacts on economic growth both in the short and long-run. Adequate Exportation of Nigerian products should be encouraged by export-promotion decree in order to boost trade openness to have significant impacts on the economic growth. Real Exchange rates (REXCR) should be properly controlled by monetary authorities for economic stability to maintain its significant impacts in future on Nigerian economy.


Introduction
Investment is a driver for world economic growth and it is as germane as it incorporates transactional corporations and firms (TNCs), meaning it is a mechanism for expanding and growing the economy. It is a combination of capital, technology, marketing as well as management into business ventures, yielding returns for economic expansion (Osemene, Kolawole and Olanipekun, 2019) Emmanuel and Ojima (2015) see investment as a change in capita stock which may either be local or foreign. It is believed that investment is an asset that is created in one way or another with the intention of allowing money put into it to yield, resulting in earning income by way of profit, or accumulation of gains. Based on the view of Emmanuel and Ojima (2015), investment is important in an economy or a country to attain some developmental goals like improving the economy, providing jobs, etc.
Foreign direct investment is indispensable especially in an emerging economy because it is crucial and across the universe, it has meaningful impacts on economic growth through jobs creation, -income countries (Adigun, 2015). In emerging economies, FDI is used to generate capital formation through diverse domestic inflow and outflow and business ventures, attracting and leading to economic growth and expansion (UNCTAD, 2019;Oyegoke and Aras, 2021).
From the economic perspective, foreign direct investment can enhance the financial expansion in both emerging and developed countries. FDI reduces risk to be encountered by investors and contributes to human and physical development, and forms the revenue base through corporate tax and other taxes (Eze, 2020;Odozi, 1998).
FDI is necessary for any economy to achieve as it motivates economic growth, because it is economically attractive. From different scholars, FDI is understood to promote global businesses because it measures the productivity of assets owned by foreign investors. FDI is needed because it gives room for global economic competition among the countries, making infant industries to be strong economically which may lead to positive impacts on the populace (Ajayi, 2006;Osemene et el., 2019).
The essence of FDI in emerging economies is for capital to be accumulated for investment, leading to diverse employment opportunities and transfer of technology within and outside the countries, which eventually contributes to economic growth and expansion (Obida and Abu, 2010;Alphonsus, 2019). expertise, technology transfer, manufacturing and construction with the basic rationale for developing and expanding an economy, leading to increasing foreign reserves of the participating countries. Therefore, FDI in developing countries can be determined by market size, stable macroeconomic policies, and openness to trade, human capital, physical capital and other prospects (Abu, 2013). So, FDI is resolute to enhance and encourage foreign investors to exercise managerial control and rights over the firms in home country which set in inferiority complex among the local and foreign investors (Nwauba, 2016).
Economic growth enhances better standard of living among the populace by investing on infrastructures such as health, housing, education services, tourism, transportation and agricultural productivities (Loto, 2011). The emerging economy must grow her economy through domestic investment, human capital, technological progress, economic policies and debt overhang. These dominant concepts are interchangeably to ensure the growth and development needed in developing and developed nations are attainable respectively (Kanu, Ozurumba and Anyanwu, 2014).
In emerging economies, foreign direct investment is meant to generate capital formation through savings, diverse business ventures and that host countries enjoy foreign aids from developed countries because they are in business partnership. Now, it is understood that Nigeria is investing on oil and as a result, she has witnessed several trade policies, leading to her diversification from mono economy (oil production) to agriculture, manufacturing and construction, leading to increases in our national income and reserves (Oyegoke and Aras, 2021).
The researchers examine the relationship between foreign direct investment and financial growth in an emerging economy especially in Nigeria between 1981 and 2020. They are to find out the impacts of foreign direct investment on their economy and to ascertain the direction of causality for policy making.

Research Problem
Some emerging countries cannot easily access foreign direct investment talk less of making use of it or implementing it. In some places, foreign direct investment cannot be initiated and developed. Economic development can be connected to growth which is enforced by the totality of the economic sectors of the economy, which entails the improvement of the life of the entire populace. It can be ascertained that there can be economic improvement in a country where there exists the establishment of useful number of jobs for employable people, increasing great income to enhance better health and to attain other basic needs.
Despite the flow of FDI in Nigeria, there is still high rate of unemployment, leading to greater level of insecurity, banditry, kidnapping etc. Until adequate economic investments are actualized, it will be difficult to achieve and measure both human and material resources (Sebel and Marx, 1987). Through the insecurity generally across Nigeria, FDI is suffering a great setback, leading to economic instability and hardship. Economic stability can never be certain possibly in a situation full of universal degradation in investment and exchange rates.

Theoretical and Empirical Literature
In most developing countries, investment emanates from savings and one of the business ventures involved is foreign direct investment which brings interface with the Western World. Harrod-Domar theory of growth believes that savings and investment cannot be undermine in growing the economy and as a result, this paper is anchored on it. From this theory, low capital-output ratio must be obtainable to regulate profitable evolution of the countries in the universe. The major obstacle to growth as indicated by Harrod-Domar is low capital formation and when a country is experiencing low capital formation, it amounts to low savings-investment. Now, the theory of investment is based on three (3) integrated concepts such as, theory of international capital market, theory of firm and theory of international trade. Thus, it is necessary to specify that foreign direct investment has two economic perspectives which cannot be underestimated in growing the economy; the macroeconomic and the microeconomic views. (Popovici andCalin, 2014. &Makoni, 2015).
Abu (2013) studied the relationship between FDI and Nigerian economy between 2000 and 2010, a time-lag of 11 years, using secondary data. The study showed that FDI had positive contribution on Nigerian economy between the timeexhibited that exchange rate, exports and external reserves had positive effects on economic growth, but balance of payment and foreign trade had negative effects on the GDP. Anyway, these findings are not fit to match the present questions on the study. Hyungsun and Miguel (2017) studied the relationship between inflows of FDI and foreign stock on income distribution for seven (7) Southeast Asia countries, using Panel FMOLS for data between 1990 and 2013. Their findings discovered that higher FDI inflows have worsened distribution of income in Southeast Asia. Then, FDI stock was found to be significant and the outcome of trade and GDP per capital were insignificant to their economies.
Sunde (2017) investigated the relationships among FDI, exports and economic growth in South Africa between 1990 and 2014, using ECM and VECM. It was exhibited that FDI and exports led to positive impact on economy of South Africa, which confirmed that FDI enhanced economic upward as well as export leading to economic expansion. Also, unidirectional causality was established between gross domestic products which indicated causal effect from FDI to economic growth in Nigeria. Therefore, the findings gave more insights to policy makers for economic planning.
Olagbaju and Akinlo (2018) examined the FDI and economic growth relationship in Sub-Saharan Africa (SSA), using panel data econometric techniques between 1989 and 2013. They examined the effect of FDI on economic growth, and the relationship between FDI and financial development on economic growth in SSA. They found that FDI did not impact economic growth in SSA within the time series used, and secondly the findings showed the existence of causal relationship between banking in the low Sub-Saharan Africa (SSA).
Mounir and Atef (2018) investigated the causality among domestic capital investment, foreign direct investment and economic growth in Saudi Arabia between 1970 and 2015. They employed ARDL bound test, Full Modified Ordinary Least Squares (FMOLS), dynamic ordinary least square (DOLS) and the Canonical Cointegrating Regression to discover negative bi-directional causality between non-oil GDP growth and FDI, and between non-oil GDP growth and domestic capital investors. Therefore, foreign direct investment had adverse effects on domestic capital investment, while domestic capital investment also had inverse effects on foreign direct investment.
Sayef, Mohamed, and Abdelhafidh (2018) examined the linkages between foreign direct investment, and Nigerian economy between 1981 and 2015, using the VECM. From the findings, no relationship was established among the variables used. From the study, imports granger caused Nigerian economy and investment, while export granger caused labour, and labour eventually granger caused FDI within the time-lag used for the study.
Eze (2020) examined foreign direct investment and national growth in Nigeria, using primary and secondary data to achieve the objective set for the time series from 1983 2003 based on Taro -square and ANOVA approach. The findings discovered a decline in oil prices and increased government expenditure, leading to economic instability in Nigeria within the time series of the study. And, it was realized that reduction in foreign direct investment and related matters constituted to financial predicaments in Nigeria.
Giwa, Goerge, Okodua and Adeniran (2020) examined the effects of FDI on Nigerian real gross domestic products (RGDP) between 1981 and 2017, using the robust GMM technique. The study established that quality of labour exhibited significant impacts on RGDP while the use of capital demonstrated negative effects on RGDP in Nigeria within the time series used. Therefore, the external inflows could help to achieve the goals for enhancing emerging economy.
Darazo and Adaramola (2021) examined international trade and Nigerian economy between 1981 and 2018, using ARDL estimation technique. From the findings, exports showed insignificant impacts on economic growth among other variables like import, Foreign Direct Investment and exchange rate. Also, it was disclosed that import had insignificant impact on economic growth. Then, the study concluded that foreign exchange exhibited insignificant impact on Nigerian economy.
This paper contributes to knowledge by providing essential information on FDI and economic growth between 1981 and 2020 which can be relevant to the generality of the society for economic decision, policy making and planning.

Model specification
This paper is anchored on Harrod-Domar growth model and is aligned with the works of Popovici and Calin (2014) and Makoni (2015).

GDP = f (FDI, INTR, REXCR, TOP)
Where; The estimation technique for this study is Autoregressive which will be used to establish the long-run relationship in the study. To ascertain the stationarity of the variables employed, the researchers will employ Philip-Peron Unit Root tests.
The following equations would display ARDL model for the study; This Table examined the nature of the data distribution. From the results, the value of the highest mean is 196.1848 for gross domestic product (GDP) and the lowest mean value is 0.447500 for interest rates (INTR). The standard deviation is all of positive values which ranged from 2.565059 (FDI) to 169.4005 (FDI). It is indicated that GDP and real exchange rates (REXCR) have normal skewness of zero, while INTR has a negative skewness value below the normal skewness value.

Analysis of Results and Interpretation
The estimated values of kurtosis for showed that FDI has normal kurtosis of 3 whereas INTR and TOP are having values greater than 3 indicating they are leptokurtic, while GDP and REXCR have lesser than 3 showing they are platokurtic.
The Jarque-Bera measures the normality of the variables and it is revealed from the p-value of the Jarque-Bera that GDP and EXCR are normally distributed among the variables employed because they have p-value which exceeds 5% level of significance. Computation Table 2 displayed the lag order selection to identify the best lag suitable for the distribution. Anyway, Akaike Information Criterion (40.19213) is at lag 2 while Schwarz Information Criterion (41.76904) and Hannan-Quinu Information Criterion (40.91002) are at lag 1 which are best for the analysis of the variables used. Thus, Akaike information criterion (AIC) of lag 2 was made use in this work.  Tables 3 and 4 showed both Augmented Dickey-fuller and Philip-Peron tests. From these results, interest rates (INTR) and trade openness (TOP) attained their stationarity at levels I(0), while all other variables like gross domestic growth (GDP), foreign direct investment (FDI), and real exchange rates (REXCR) attained their stationarity at first difference in both techniques. Based on the results, ARDL technique would be suitable to examine long-run relationship.  Table 5 exhibited that f-statistics is 7.754431 while the critical bound values at upper bound are 3.52, 4.01, 4.49, and 5.06 at 10%, 5%, 2.5% and 1% levels of significance. It is obvious that the f-statistic value (7.754431) is exceeds all the values in upper bound. As a result, the alternative hypothesis (H1) would be accepted, i.e., there is long-run relationship in the analysis.  Table 6 showed ARDL short-run estimation. With regards to the short-run, the results indicated that FDI and real exchange rates (REXCR) exhibited positive significant short-run relationship and impact on the economic growth (GDP), while interest rates (INTR) and trade openness (TOP) had insignificant relationship with Nigerian economy.
From the long-run, FDI and real exchange rates (REXCR) are statistically significant, having positive impacts on GDP, while interest rates (INTR) and trade openness (TOP) showed insignificant impacts on GDP. The error correction term showed a long-run causality between the GDP and FDI, INTR, REXRC, TOP. Then, the cointegration equation (-0.183611) indicated that as the independent variables are reducing, the dependent variable tends to decrease and that the previous year error will be corrected at the current year with an adjustment speed of 18.36%.  Table 7 showed the f-statistic value of 2.052028, the p-value is 0.1122 and the value of probability Chi-square is 0.0787 which exceeds 5% level of significance. As a result, serial correlation is accepted for the data. Thus, the model used is reliable for making inferences and valid for policy recommendations.  Table 8 showed the f-statistic value of 0.818797, probability value of 0.5220 and aftermath the probability Chi-square is 0.4899, which exceeds 5% level of significance. As a result, homoskedasticity is accepted, meaning the model is homoscedastic.  Table 9 indicated the granger causality between variables, whereby it is obvious that there bidirectional causality is established between FDI and economic growth within the specified period . The results exhibited that unicausality is established between trade openness (TOP) and real exchange rates (REXCR) whereby it is real exchange rates that granger caused trade openness. Thus, no causality was established between interest rates and GDP; real exchange rates and GDP; trade openness and GDP; interest rates and FDI; real exchange rates and FDI; trade openness and FDI; REXCR and INTR; trade openness and interest rates.

Conclusion and Recommendations
Having studied the relationship between FDI and economic growth in Nigeria between 1981 and 2020, the researchers exhibited long-run significant relationship among the variables employed. From the analysis, foreign direct investment (FDI) and real exchange rates (REXCR) have significant relationship and impact on GDP as aligned with results of Abu (2013). But, interest rate (INTR) and trade openness have insignificant impacts on economic growth in Nigeria. FDI and real exchange rates (REXCR) have positive relationship and impacts on Nigerian economy, while INTR have insignificant impact in Nigeria. The error correction term, having coefficient (-0183611) with p-value (0.000), indicated a long-run causality between dependent variable and independent variables. There existed bidirectional causality between foreign direct investment (FDI) and GDP, which is supported by Sunde (2017) and Arror (1962). Therefore, it is recommended that government should encourage more foreign direct investment by giving zero interest credit facilities to the investors. Exports of Nigerian products should necessitate exportpromotion to have significant impacts on the economic growth. Real Exchange rates (REXCR) should be properly controlled by monetary authorities for economic stability to maintain its significant impacts in future on Nigerian economy. Importantly, government should encourage Nigerians to engage in domestic investment, leading to impress foreign direct investment, granting her investors opportunity for soft loan, zero interest loan and grants for diverse business ventures which can promote and enhance foreign investment to grow the economic.