FOREIGN DIRECT INVESTMENT, EXTERNAL DEBT AND ECONOMIC GROWTH IN NIGERIA: VECM ANALYSIS

Abstract

The inadequacy of financial resources and recurring external debt in Nigeria has brought about the attraction of FDI as a strategy to transform the economy but all the efforts the governments of Nigeria have made through FDI have yet to yield the desired outcome. This study therefore attempted to explore the impact of foreign direct investment, and external debt on economic growth in Nigeria. The econometric tool of the Vector Error Correction Model was applied to estimate the model of the study. The results of the study showed that there is a presence of cointegration among the variables. The findings from the study also revealed GCE, FDI, and EDT have a significant positive impact on economic growth in the long run. This implies that the productive use of GCE, FDI, and EDT can promote economic growth in Nigeria. The study also exhibited a negative relationship between inflation, gross domestic saving, gross capital formation, and economic development. In line with these findings, the study recommends that the government should effectively channel its resources including the external debt into productive sectors and while spending on capital projects, it should be properly monitored. Besides, the government should adopt policy measures such as fiscal and monetary policies that can enhance savings and boost capital formation in Nigeria.