Modeling the Effects of Foreign Direct Investment, Exchange Rate and Inflation on Economic Growth in Nigeria: Auto Regressive Distributed Lag Approach

Abstract

This study examined the economic impact of foreign direct investment, exchange rate of Naira to dollar and inflation rate on Nigeria economic growth using RGDP as proxy. A linear dynamical Autoregressive Distributed Lag (ARDL) modeling technique was utilized to evaluate the short-run dynamics and long-run relationship of economic growth in Nigeria. The study covered the period from 1970 to 2023, and annual secondary data were obtained from the Central Bank of Nigeria (CBN) statistical bulletin. The result ascertained a distinctive long-run relationship among the variables which revealed that there is a significant relationship between foreign direct investment, exchange rate, inflation rate and economic growth in Nigeria. Also, it was shown from the empirical result that inflation rate and the exchange rate have positive and insignificant influence on real gross domestic product in Nigeria in the long-run while foreign direct investment revealed an irrelevant consequence on Nigeria economic growth in the long run. The findings ascertain the significance of FDI, exchange rate, and inflation contributions to Nigeria economic growth. This work therefore recommends that policy makers should erect a suitable policy that encourages moderate inflation rate and enabling environment for foreign investors that would enhance exports thereby yield a stable and realistic exchange rate.