Analysis of the Impact of Foreign Direct Investment and Domestic Investment on Economic Growth in Nigeria

Economists have recognized inflows of investment as one of the ways to accelerate the pace of growth in emerging economies like Nigeria. This is largely due to the benefits a country stands to gain from inflows of investment. To this end, the study examined the impact of foreign direct investment and domestic investment on economic growth in Nigeria between 1985 and 2015. A model was developed to capture the effect of foreign direct investment, domestic investment, exchange rate and inflation rate on economic growth within the sampled period. Secondary data on these variables were sourced from the CBN Statistical Bulletin and Economic Watch Publications. The model was estimated using the Ordinary Least Square technique via the multivariate regression analysis. Results revealed that foreign direct investment has not contributed significantly to economic growth in Nigeria. Furthermore, it was equally discovered that domestic investment adversely affected growth within the period. The study therefore suggested that particularly vital for investment is macroeconomic stability and consistent policies. A good macroeconomic record includes high growth, a single-digit inflation rate, low rate of interest and relative stability in the real exchange rate. It is also important to have consistent and stable policies in order to engender confidence in economic agents and assure investors that government policies are credible and predictable.