Impact of Foreign Direct Investment on Manufacturing Sector Output Growth in Nigeria

Abstract

The role of the manufacturing sector in economic growth and development cannot be over-emphasized. Economic theory enthuses that economic growth can be further realized when the manufacturing sector makes steady positive contribution in the overall GDP growth rate. In an attempt to harp on this, this study investigates the impact of foreign direct investment (FDI) on manufacturing sector output growth in Nigeria for the period 1970 – 2016 using OLS and Granger causality tests analysis. Due to various constraints including paucity of funds capital, the positive contribution of the manufacturing sector has not been encouraging. So the need for foreign capital inflow may be a welcome development. Thus, the study estimates a logarithmic model of the impact of FDI inflow on manufacturing output growth in Nigeria in order to assess its possible contribution to economic diversification of the Nigerian economy which has been heavily dependent on the energy sector. The findings of this study reveal that there is a long-run relationship between FDI and manufacturing sector output growth (MSOG) though statistically insignificant. Granger causality result shows that there is a unidirectional causality from FDI and MSOG. The study recommends that the variables; electricity generation, exchange rate, private sector credit and political stability which show significant relationships to MSOG should be given priority by the government policy makers to diversify the economy through the manufacturing sector.