ROLE OF FOREIGN DIRECT INVESTMENT IN THE DEVELOPMENT OF NIGERIA'S INDUSTRIAL SECTOR (2003 - 2023)

Abstract

ROThis research work examined the role of foreign direct investment (FDI) in the development of Nigeria's industrial sector from 2003 to 2023. It focused on the impacts that foreign direct investment (FDI), interest rate (INT), and real exchange rate (REX) had on the Nigerian industrial sector, proxied by industrial output (IND). The study made use of annual time series data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin, 2023. The unit root (ADF) and the ARDL Bounds tests were respectively used to ascertain the level of integration and the long-run relationship of the variables under consideration. The ADF result revealed a mixed order of integration, and a long-run equilibrium relationship among the variables was revealed by the Bounds test. Hence, the study proceeded to use the Autoregressive Distributed Lag (ARDL) model to ascertain the short-run relationship between the dependent variable (IND) and the independent variables (FDI, INT, and REX). The ARDL results revealed that in the long run, FDI and REX had a positive relationship with IND, while INT had a negative relationship. Also, the test of significance showed that FDI and INT were not significant in influencing IND, while REX was significant. In addition, the ECM (short-run) analysis showed the speed at which industrial sector output adjusted to its steady state in the long run. The speed of adjustment was 52%, which was adequate. The study concluded that foreign direct investment had a positive but insignificant effect on the industrial sector of Nigeria. For policy-making purposes, it was recommended that Nigeria should have developed its capital and financial markets to ensure the availability of venture capital and long-term finance or loans, since a developed financial sector (both money and capital markets) enhanced the capacity of host countries to take advantage of spillover effects.