EFFECT OF FOREIGN DIRECT INVESTMENT ON MANUFACTURING SECTOR OUTPUT IN NIGERIA, 1981–2020

Abstract

This study is an analysis of the effect of Foreign Direct Investment (FDI) on manufacturing sector output in Nigeria. The motivation for this study is drawn from Nigeria’s dependence on external intervention which has created macroeconomic instability in inflation rate, exchange rate and unemployment rate. The aim is to estimate the impact of these variables on manufacturing output. Secondary data were sourced from various issues of the Central Bank of Nigeria (CBN) Statistical Bulletin. The study used the autoregressive distributed lag model (ARDL) estimation technique to evaluate the causality between the dependent variable (manufacturing output) and the independent variable (FDI). The findings revealed that Foreign Direct Investment (FDI) and Gross Fixed Capital Formation (GFCF) have positive impact on manufacturing output both in the short and long run, while unemployment rate, interest rate and inflation rate have negative and significant impact on manufacturing output in Nigeria. The study concluded that FDI and GFCF have significant impact on manufacturing output in Nigeria both in short and long run. It, therefore, recommends that government policy should be concentrated on promoting ease of doing business as a means of attracting foreign direct investment. Gross Fixed Capital Formation should be promoted. Also, monetary and fiscal policies in relation to interest rate, exchange rate and inflation rate should be professionally managed, devoid of politics to facilitate manufacturing sector performance in Nigeria.