This study examines the role of foreign direct investment (FDI) in economic development within the Nigerian context using annual time series data spanning from 1981 to 2023. The data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin (2023) and the World Bank Development Indicators (2024). Real Gross Domestic Product (RGDP) was used as a proxy for economic development, while other explanatory variables included foreign direct investment, exchange rate, domestic savings, government expenditure, and trade openness. Employing the error correction model (ECM) technique, the study investigates both the short-run and long-run dynamics among the variables. The findings reveal that FDI has a positive and statistically significant impact on economic development in the short run, with effects that persist over several periods. Exchange rate movements show a mixed influence, indicating the implications of currency instability. Domestic savings exhibit inconsistent and largely negative short-run effects, while government expenditure has a positive and significant impact. Trade openness does not significantly affect economic development in the short term. The study concluded that foreign direct investment plays a vital role in promoting economic development in Nigeria, with evidence of significant short-run effects. Based on these findings, the study recommends strategies to attract productive FDI, stabilize exchange rates, efficiently utilize domestic savings, prioritize growth-enhancing public expenditure, and reform trade policies to support local production and sustainable economic growth in Nigeria.
Ayogoi et al. (2025) studied this question.