Evaluating the Impact of FDI Growth on Overall Economic Stability in Nigeria
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Background of the Study
Economic stability encompasses low inflation, sustainable growth, and predictable fiscal conditions. In Nigeria, achieving such stability is a key policy objective, and Foreign Direct Investment (FDI) is increasingly viewed as a potential stabilizer. FDI can contribute to economic stability by injecting capital, creating jobs, and enhancing technological capabilities. These improvements, in turn, support fiscal consolidation and improve consumer confidence, all of which are essential for maintaining stability (Ibrahim, 2023). However, the benefits of FDI are often counterbalanced by challenges such as volatility in capital flows and the risk of economic overheating if investments are concentrated in certain sectors (Chukwu, 2024).
Recent reforms have aimed to create a conducive environment for FDI by enhancing transparency, reducing bureaucratic inefficiencies, and implementing macroeconomic stabilization policies (Afolabi, 2025). Nevertheless, Nigeria’s experience reveals that while FDI can spur growth, its overall impact on economic stability is influenced by how well domestic policies absorb and integrate foreign capital. This study seeks to evaluate the net effect of FDI on economic stability by analyzing key indicators such as inflation, employment, fiscal balance, and external debt over the period 2020 to 2024.
Statement of the Problem
Despite increased FDI inflows, Nigeria continues to grapple with episodes of economic instability marked by inflationary pressures, fiscal imbalances, and external vulnerabilities. The problem is that while FDI is expected to enhance stability, its benefits are not consistently realized due to the interplay of external shocks, policy misalignments, and sectoral imbalances (Ibrahim, 2023). In some cases, FDI has led to rapid economic expansion without corresponding improvements in domestic productive capacity, resulting in overheating and inflation. This raises concerns about the ability of FDI to serve as a stabilizing force rather than a source of volatility (Chukwu, 2024).
The study aims to determine whether FDI contributes to overall economic stability in Nigeria and to identify the conditions under which its positive effects can be maximized. Addressing this problem is essential for formulating policies that leverage FDI to promote sustainable, inclusive, and stable economic growth (Afolabi, 2025).
Objectives of the Study
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To evaluate the impact of FDI growth on economic stability indicators in Nigeria.
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To identify factors that moderate the stabilizing effects of FDI.
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To propose policy measures that enhance the positive influence of FDI on stability.
Research Questions
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How does FDI growth affect economic stability in Nigeria?
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What factors moderate the relationship between FDI and stability?
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What policy interventions can maximize the stabilizing effects of FDI?
Research Hypotheses
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FDI growth is positively correlated with improved economic stability when supported by robust domestic policies.
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External shocks and sectoral imbalances moderate the impact of FDI on stability.
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Integrated policy reforms will enhance the stabilizing effects of FDI on the Nigerian economy.
Scope and Limitations of the Study
The study examines macroeconomic data on FDI and economic stability in Nigeria from 2020 to 2024. Limitations include the difficulty in isolating FDI effects from global economic conditions and measurement challenges.
Definitions of Terms
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Economic Stability: The condition of low inflation, sustainable growth, and fiscal balance.
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FDI Growth: The rate at which foreign direct investment inflows increase over time.
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Stabilizing Effects: The impact of FDI in reducing economic volatility.
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