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The Effects of External Debt and Foreign Direct Investment on Economic Growth in Nigeria

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  • Gbenga Wilfred Akinola

    (School of Economics, College of Business and Economics, University of Johannesburg, Johannesburg 2006, South Africa)

  • Abieyuwa Ohonba

    (School of Economics, College of Business and Economics, University of Johannesburg, Johannesburg 2006, South Africa)

Abstract

Economic theory argues that foreign direct investment (FDI) and external debt are expected to enhance economic growth in any given economy. Consequently, this study (i) investigated the relationship between foreign direct investment, external debt servicing, and economic growth in Nigeria; (ii) investigated how foreign direct investment and external debt impact Nigeria’s economic growth; and (iii) analyzed the direction of causality among the three macroeconomic variables. Descriptive statistics, time series autoregressive distributive lag, and robust Granger causality tests were adopted as the estimating techniques. The results showed that from 2011 to 2022, Nigeria’s FDI continued to decline, Nigeria’s external debt servicing continued to grow on an upward trajectory, and the growth of the GDP has been meandering. ARDL analysis results confirmed that the lag of FDI and current exchange rate exert positive effects on current economic growth in Nigeria, with a 1% increase in FDI, current external debt, and current exchange rate increasing growth by 1.49%, 1.58%, and 0.02%, respectively. Results from the Granger causality showed that FDI and external debt do Granger cause GDP in Nigeria. Policymakers should focus on prudent debt management practices and strive to reduce domestic debt levels.

Suggested Citation

  • Gbenga Wilfred Akinola & Abieyuwa Ohonba, 2024. "The Effects of External Debt and Foreign Direct Investment on Economic Growth in Nigeria," Economies, MDPI, vol. 12(6), pages 1-23, June.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:6:p:142-:d:1410102
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    References listed on IDEAS

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