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Foreign Direct Investment and Economic Growth in Nigeria: A Vector Error Correction Modeling| Abstract

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Journal of Research in Economics and International Finance

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Foreign Direct Investment and Economic Growth in Nigeria: A Vector Error Correction Modeling

Abstract

Awolusi, Olawumi Dele

The aim of this study was to investigate the long-run equilibrium relationships among the international factors and economic growth, as well as, to assess the short-term impact of inward FDI, trade and domestic investment on economic growth in Nigeria from 1970 to 2010. A multivariate cointegration technique developed by Johansen and Juselius (1990) was employed to investigate the long-run equilibrium relationships. The results of the analysis affirmed the existence of cointegrating vectors in the systems of this country, during the study period (Lee and Tan, 2006). The variables in Nigeria models have a long-run equilibrium relationship with one another and were adjusting in the short-run via three identified channels. however, since the existence of cointegrating vectors (cointegration) in the system of a country only presumed the presence or absence of Granger-causality, which does not indicate the direction of causality between the variables, hence, the short-term impact of inward FDI, trade and domestic investment on economic growth in Nigeria was also tested via Granger Causality test, based on Vector Error-Correction Model. The results of the test revealed a short-run causal effect either running unidirectionally or bidirectionally among the variables for the country. Research implications were highlighted at the end of this report.

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