Exports, Foreign Direct Investment and Economic Growth: An Empirical Application for Nigeria

The paper examines the relationship among exports, Foreign Direct Investment (FDI) and economic growth in Nigeria over the period 1960-2009. The time series properties of the variables are examined using the Phillips-Peron technique due to its robustness to a wide variety of serial correlation and heteroscedasticity. The results of Johansen cointegration test indicate existence of at least six cointegrating vectors. The error correction coefficient shows that deviation from long run RGDP path is corrected by about 48% over the following year. As a way of correcting for multicollinearity, we re-estimate the models of the static regression using a Fully Modified Least Squares Method (FMOLS) and error correction coefficient. We find out that the removal of Degree of openness (DOP) variable may be detrimental even though the percentage deviation from equilibrium does not seem to change. The paper therefore concludes by shedding more light on the relevance of the degree of openness and this can facilitate more FDI inflows capable of accelerating the growth process. The paper thus recommends immediate focus on more reforms/policies that will create enabling environment for FDI inflows and export growth thereby reducing the growth and development barriers in Nigeria.