Economic growth in Nigeria: does domestic or foreign investment matter?

Abstract

This study investigates whether domestic investment or foreign direct investment plays a more decisive role in shaping Nigeria’s economic growth, while accounting for key macroeconomic conditions. The study employs an Autoregressive Distributed Lag (ARDL) model built on annual time series data for the period from 1980 to 2024. The results reveal that domestic investment exerts a positive and statistically significant effect on economic growth in both the short and long-run. Foreign direct investment stimulates growth in the short-run but shows a negative long-run association, suggesting weak sectoral linkages and limited structural transformation. Policy efforts should prioritize domestic resource mobilization, lower borrowing costs, and redirect foreign investment toward productivity enhancing sectors such as agriculture, manufacturing, information and communication technology, to ensure sustainable and inclusive economic growth in Nigeria.