Foreign Direct Investment, Non-Oil Exports and Economic Growth in Nigeria: A Structural Vector Autoregressive Analysis

Abstract

This paper investigates the shocks dynamic relationship between the real gross domestic product, foreign direct investment, and non-oil exports in Nigeria from 1986 to 2016. Specifically, the paper investigates the impact of real gross domestic product and foreign direct investment on non-oil export using a structural vector autoregressive model. We analyzed the dynamic linkages/contemporaneous inter-relationship among the variables by applying time-series techniques such as the Granger causality tests, Variance Decomposition, and Impulse Response Functions analysis. We found no causal relation between FDI and NOX in Nigeria over the sample period. The empirical results are consistent with the findings by Yauri (2009) that FDI inflows to Nigeria are not export-driven but are attracted by certain economic fundamentals within the economy like the market size and availability of natural resources. In order to achieve the current diversification drive, the Nigerian government should encourage FDI. Furthermore, effort should be made to channel it into non-oil sectors, the benefit is to satisfy domestic market and export surplus over time so as to accelerate the diversification process.