A granger-causal examination of the relationship between foreign direct investment and economic growth in Nigeria (1981 – 2007)

The paper conducts an empirical examination of the relationship between foreign direct investment (FDI) and economic growth taking real domestic product (RGDP) as a proxy for growth in the Nigerian economy, using Granger causality test and Simple Linear Regression. The data used were mainly sourced from Central Bank of Nigeria Statistical Bulletin of the year 2009.The results have revealed evidence of causality between the two variables running unidirectionally (one-way) from FDI to growth. However the Granger causality test employed in examining the relationship is not without the limitation of providing only the explanation of growth by the two periods lagged values of FDI, that is what necessitates the use of Simple Linear Regression to investigate the nature of the relationship between FDI and Economic Growth in Nigeria. However, to avoid having into spurious regression results, augmented Dickey Fuller unit root test was conducted and the variables were found stationary at level which suggests that the regression results are not spurious. Based on the findings of the paper, it is recommended that government stabilization measures be geared towards attracting FDI by providing an investment friendly environment bereft of political and macroeconomic instability as that would help propel growth.