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Linkage between Foreign Direct Investment, Domestic Investment and Economic Growth: Evidence from Nigeria

Author

Listed:
  • Hasan Gungor

    (Department of Economics, Eastern Mediterranean University, North Cyprus,)

  • Salim Hamza Ringim

    (Department of Economics, Eastern Mediterranean University, North Cyprus)

Abstract

Foreign direct investment (FDI) in the words of Rutherford (1992) spurs economic growth in less developed countries; which is in alignment with the modernization theory. However, the dependency theorist contends that dependence on foreign investment is expected to affect growth and income distribution negatively. It on this premise, that this study is conducted base on this argument to empirically analyze the linkage between FDI, domestic investment (DI) and economic growth for the case of Nigeria. To this end, annual time series data for the period of 1980-2015 was employed. The study employs Johansen multivariate cointegration test and vector error correction model (VECM) as estimation techniques. The Johansen cointegration result of the study reveals that, FDI DI and economic growth have a long-run equilibrium relationship. According to the VECM result and the speed of adjustment of the variables towards their long-run equilibrium path was 52.55%. Furthermore, Granger causality test reveals a uni-directional causality running from FDI to economic growth that is, FDI is an important predictor of economic growth. This goes to validate the FDI lead growth hypothesis for Nigeria.

Suggested Citation

  • Hasan Gungor & Salim Hamza Ringim, 2017. "Linkage between Foreign Direct Investment, Domestic Investment and Economic Growth: Evidence from Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 97-104.
    • Handle: RePEc:eco:journ1:2017-03-14
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Ben Yedder, Nadia & El Weriemmi, Malek & Bakari, Sayef, 2023. "The nexus between domestic investment and economic growth in MENA countries; Do Patents matter?," MPRA Paper 118174, University Library of Munich, Germany.
    2. Bakari, Sayef & Fakraoui, Nissar & Mabrouki, Mohamed, 2020. "The Contribution of Domestic Investment, Exports and Imports on Economic Growth: A Case Study of Peru," MPRA Paper 99041, University Library of Munich, Germany.
    3. Ayamba Emmanuel Caesar & Chen HaiBo & Thomas Bilaliib Udimal & Andrew Osei-Agyemang, 2018. "Foreign Direct Investment, Growth of Output Indicators and Economic Growth in China: Empirical Evidence on Causal Links," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 315-322.
    4. Udi Joshua & Mathew Ekundayo Rotimi & Samuel Asumadu Sarkodie, 2020. "Global FDI Inflow and Its Implication across Economic Income Groups," JRFM, MDPI, vol. 13(11), pages 1-15, November.
    5. Nadia Ben Yedder & Malek El Weriemmi & Sayef Bakari, 2023. "The Impact of Domestic Investment and Trade on Economic Growth in North Africa Countries: New Evidence from Panel CS-ARDL Model," EuroEconomica, Danubius University of Galati, issue 2(42), pages 22-41, November.
    6. Najeh Bouchoucha & Sayef Bakari, 2021. "The Impacts Of Domestic And Foreign Direct Investments On Economic Growth: Fresh Evidence From Tunisia," Journal of Smart Economic Growth, , vol. 6(1), pages 83-102, Mars.
    7. Lukman Ayinde Olorogun, 2022. "Revisiting the Nexus of FDI-Led Growth Hypothesis and Economic Development in Rwanda: a Johansen-ARDL Approach to Cointegration," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(4), pages 2695-2717, December.
    8. Hammed Oluwaseyi Musibau & Tobiloba Adedoyin Adenekan & Waliu Olawale Shittu, 2024. "Have FDI, Globalisation and Energy Security Addressed the Malaise in the Nigerian Economy? A Quantile Analysis," Arthaniti: Journal of Economic Theory and Practice, , vol. 23(1), pages 33-55, June.
    9. Udi Joshua, 2019. "An ARDL Approach to the Government Expenditure and Economic Growth Nexus in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(3), pages 152-160, September.
    10. Udi Joshua & David Babatunde & Samuel Asumadu Sarkodie, 2021. "Sustaining Economic Growth in Sub-Saharan Africa: Do FDI Inflows and External Debt Count?," JRFM, MDPI, vol. 14(4), pages 1-13, March.

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    More about this item

    Keywords

    Foreign Direct Investment; Domestic Investment; Economic Growth; Nigeria; Time Series; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F3 - International Economics - - International Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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