FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH: A TEST OF GRANGER CAUSALITY IN NIGERIA - Usman, Ojonugwa and Tom O. Zakari

FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH: A TEST OF GRANGER
CAUSALITY IN NIGERIA
Usman, Ojonugwa and Tom O. Zakari

Department of Accounting Education Federal College of Education (Technical)  Potiskum, Yobe State – Nigeria, House of Representatives, National Assembly Abuja FCT – Nigeria.
EMAIL: dekoomson4u@yahoo.co.uk, hon.tomzakari@yahoo.com

ABSTRACT

This study empirically examined the causal relationship between foreign direct investment and economic growth in Nigeria. Time-Series dataobtained from the Central Bank of Nigeria was used for the period 1961–2010. The results of the ADF unit root test indicated that all the variables included were
non-stationary at their levels but integrated of order one, I(1). The outcome of the cointegration tests revealed a stable long-run equilibrium between FDI and economic growth. Pairwise Granger Causality tests indicated that there was only a one-way causality, running from economic growth (measured by GDP at current basic price) to FDI in Nigeria. Therefore, the study recommended that a radical change in thinking has to take place among the policy makers in Nigeria to first stimulate economic growth as the surest way to properly attract FDI inflows.

Keywords: Foreign Direct Investment, GDP, Granger Causality, cointegration, Augmented Dickey-Fuller

INTRODUCTION
Foreign direct investment as a component of international capital flows is widely regarded as a single source of external finance for developing countries in the recent times. The developing countries generally lack sufficient capital to boost economic growth and development, hence foreign direct investment is needed to augment domestic investment to enable the country carryout effective economic development programmes so as to transform the nation into an industrialized economy as well as raising standard of living of the people. To this extent, most countries strive to attract foreign direct investment as echoed in the Millennium DevelopmentGoals (MDGs), New Partnership for Africa’s Development (NEPAD) and the Nigeria’s own long-term development plan – Vision 20:2020 (Ayanwale, 2007; Soludo, 2007).
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