Dynamic interaction among external debt, foreign direct investment and economic growth in Nigeria

Abstract

The study examines the dynamic interaction between foreign debt, foreign direct investment (FDI) and economic growth in Nigeria. The aim of the study is to offer empirical proof of the current type of relationship between Nigeria's external debt, foreign direct investment and economic growth. In this study, secondary data from 1980 to 2016 was used. Data on external debt, foreign direct investment and economic growth was obtained from the Statistical Bulletin released by the Central Bank of Nigeria. A vector autoregressive model was performed to determine interaction effects among the three variables. The result showed that only economic growth and FDI has a positive retaliating interaction. Although both the FDI and economic growth responded positively to innovation in external debt, external debt responded negatively to innovation in both economic growth and FDI, respectively. The results further showed that there exists a unidirectional causal relationship between foreign direct investment and economic growth which runs from FDI to economic growth at 5% level of significance, thus demonstrating the positive retaliating interaction of FDI and economic growth. Policies on borrowed fund for productive investment, alternative means of financing its deficit and improving the economic condition of the Nigerian business environment, are recommended.

To cite: Omoniyi, O.S., Alao, A.A. & Oluwakemi, G.D. (2019). Dynamic interaction among external debt, foreign direct investment and economic growth in Nigeria. Journal of Management & Administration (2019/2), 113–140. https://hdl.handle.net/10520/EJC-19c603a974