An Investigation of the Relationship Between GDP and FDI Inflows in Nigeria
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Background of the Study
Foreign Direct Investment (FDI) is a pivotal element in the global economic landscape, influencing technological transfer, job creation, and overall economic development. In Nigeria, the interplay between GDP and FDI inflows has garnered significant attention as policymakers seek to harness international capital to drive domestic growth (Uche, 2023). Over recent years, fluctuations in GDP have raised questions about their impact on attracting FDI. A growing GDP is typically seen as a sign of economic stability and potential, encouraging foreign investors to commit capital. However, in Nigeria, despite episodes of robust GDP growth, FDI inflows have been inconsistent due to factors such as policy uncertainty, regulatory challenges, and infrastructural deficits (Adesina, 2024).
The relationship between GDP and FDI is complex. While a healthy GDP may signal market potential and reduce perceived risks, other structural factors—such as the ease of doing business, political stability, and macroeconomic management—play decisive roles in influencing investor decisions. Scholars have noted that FDI not only contributes to GDP growth but is also influenced by the overall economic environment, suggesting a bidirectional relationship (Ibrahim, 2025). Moreover, the Nigerian economy’s heavy reliance on the oil sector further complicates the picture, as fluctuations in global oil prices can affect both GDP performance and investor confidence.
This study intends to investigate the intricate relationship between GDP and FDI inflows in Nigeria by analyzing data from recent economic cycles. It will explore how GDP performance influences FDI and, conversely, how increased foreign investment can catalyze further economic growth. By applying robust econometric techniques and examining sector-specific trends, the research aims to provide insights that will inform both policymakers and investors on strategies to enhance the positive feedback loop between domestic economic performance and international investment (Okonkwo, 2023).
Statement of the Problem
Despite Nigeria’s potential as a lucrative market, FDI inflows remain erratic and appear only loosely correlated with periods of GDP growth. While theory posits that a rising GDP should attract more foreign capital, practical challenges—such as political instability, regulatory unpredictability, and infrastructural inadequacies—have often deterred investors (Chukwu, 2023). This disconnect raises concerns about the effectiveness of current economic policies in creating an environment conducive to sustained FDI. Moreover, the sectoral concentration in oil and gas has overshadowed other potential areas of investment, limiting the diversification of the investment portfolio and, consequently, the broader impact on GDP.
The problem is further exacerbated by the cyclical nature of both GDP and FDI, where external shocks—such as global economic downturns or abrupt policy changes—create uncertainties that deter long-term investments. This study addresses the challenge of understanding why robust GDP performance does not always translate into proportionate FDI inflows in Nigeria. By analyzing the structural, regulatory, and external factors at play, the research aims to pinpoint the key determinants that undermine the expected positive correlation between GDP and FDI. This understanding is critical for formulating policies that can stabilize FDI inflows and leverage them for sustainable economic development (Adewuyi, 2024).
Objectives of the Study
• To examine the relationship between GDP performance and FDI inflows in Nigeria.
• To identify the key barriers that hinder the translation of GDP growth into increased FDI.
• To suggest policy reforms that can enhance the attractiveness of Nigeria to foreign investors.
Research Questions
• How does GDP growth influence FDI inflows in Nigeria?
• What are the principal factors that deter FDI despite periods of strong GDP performance?
• Which policy measures can effectively improve the correlation between GDP and FDI inflows?
Research Hypotheses
• H1: A positive correlation exists between GDP growth and FDI inflows in Nigeria.
• H2: Structural and regulatory barriers significantly impede the translation of GDP growth into higher FDI.
• H3: Policy reforms aimed at improving the business environment enhance the positive impact of GDP on FDI inflows.
Scope and Limitations of the Study
This study focuses on analyzing secondary data covering FDI and GDP trends over the past decade in Nigeria. Limitations include data inconsistencies, the influence of external economic shocks, and the challenge of isolating FDI determinants from other macroeconomic factors.
Definitions of Terms
• FDI: Foreign Direct Investment, referring to investment from external sources in domestic enterprises.
• GDP: Gross Domestic Product, representing the total economic output of a country.
• Structural Barriers: Institutional and regulatory obstacles that impede economic efficiency.
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