An Examination of the Nexus Between FDI, GDP, and Economic Growth in Nigeria
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Background of the Study
The interplay between Foreign Direct Investment (FDI), Gross Domestic Product (GDP), and overall economic growth is central to understanding the development dynamics of emerging economies such as Nigeria. FDI is widely regarded as a critical source of external capital, capable of stimulating economic growth through capital formation, technological transfer, and improved management practices. In Nigeria, increased FDI inflows have been associated with periods of robust GDP growth, suggesting a positive nexus between these variables (Olu, 2023). Theoretical frameworks based on neoclassical and endogenous growth theories underscore the role of FDI in enhancing productivity and fostering long-term economic expansion. Empirical studies indicate that FDI not only contributes directly to GDP through investment but also indirectly through positive spillover effects in technology, human capital, and productivity improvements (Adebayo, 2024).
However, the relationship is not always linear. External shocks, institutional weaknesses, and sectoral imbalances may distort the transmission of FDI benefits into GDP growth. In Nigeria, where the economy is still transitioning from an oil-dependent structure, the effective integration of FDI into broader economic growth strategies is critical. Recent policy reforms aimed at improving the investment climate have spurred FDI inflows, but questions remain regarding their sustainability and the extent to which they drive comprehensive economic growth. This study intends to examine the complex nexus between FDI, GDP, and economic growth by employing econometric models and analyzing historical data, thereby providing nuanced insights into the conditions that facilitate or hinder this relationship (Ibrahim, 2025).
Statement of the Problem
Although theoretical models suggest a strong positive link between FDI and economic growth via GDP expansion, empirical evidence from Nigeria reveals inconsistencies. Periods of high FDI do not always correspond with proportional increases in GDP, indicating that other factors—such as institutional quality, infrastructural development, and external economic shocks—may influence this relationship (Chinwe, 2023). The challenge lies in isolating the direct effects of FDI from the myriad of other variables that drive growth. Additionally, sectoral imbalances and policy implementation gaps further complicate the relationship. Such discrepancies undermine the reliability of FDI as a predictor of long-term growth and pose challenges for policymakers who depend on stable investment flows to design effective economic strategies. This study aims to clarify the nature of the FDI–GDP–growth nexus and identify the key determinants that either amplify or dampen the growth effects of foreign investment.
Objectives of the Study
• To investigate the relationship between FDI inflows, GDP, and overall economic growth in Nigeria.
• To identify mediating factors that affect the strength of this relationship.
• To recommend policy interventions that maximize the positive spillovers of FDI on economic growth.
Research Questions
• What is the relationship between FDI inflows and GDP growth in Nigeria?
• What factors moderate the impact of FDI on overall economic performance?
• Which policy measures can strengthen the nexus between FDI, GDP, and growth?
Research Hypotheses
• H1: FDI inflows are positively correlated with GDP growth in Nigeria.
• H2: Institutional quality and infrastructure significantly moderate the impact of FDI on economic growth.
• H3: Integrated policy interventions enhance the positive nexus between FDI and GDP growth.
Scope and Limitations of the Study
The study uses national macroeconomic data, FDI records, and GDP statistics over the past decade. Limitations include potential endogeneity issues and the challenge of capturing complex spillover effects.
Definitions of Terms
• GDP: Gross Domestic Product, representing the total economic output.
• FDI: Foreign Direct Investment—capital inflows from abroad.
• Economic Growth: The sustained increase in economic output over time.
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