An Investigation of the Impact of FDI and Inflation on National Income in Nigeria
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Background of the Study
Foreign Direct Investment (FDI) and inflation are two pivotal macroeconomic variables that significantly influence national income. In Nigeria, increasing FDI inflows are perceived as a catalyst for economic development, while persistent inflation has the potential to erode real income and destabilize economic performance (Adeyemi, 2023). The interplay between these variables is crucial; FDI can stimulate productive capacity and generate employment, thereby boosting national income. However, when inflation is high, it can offset these gains by diminishing the purchasing power of income and increasing the cost of capital. Recent fiscal and monetary policy reforms in Nigeria have sought to attract FDI while curbing inflationary pressures to foster a conducive economic environment (Okoro, 2024). Empirical studies suggest that the effectiveness of these reforms largely depends on the delicate balance between stimulating investment and maintaining price stability (Balogun, 2025). This study explores how FDI and inflation jointly impact national income by analyzing historical data, policy interventions, and market responses. The research further examines the extent to which FDI can mitigate the adverse effects of inflation on economic output and how sustained inflation might undermine the benefits of increased foreign capital inflows. This investigation is critical as it provides insights into the formulation of policies aimed at achieving sustainable economic growth in Nigeria.
Statement of the Problem
Despite various policy measures, Nigeria continues to experience volatile national income due to fluctuating FDI inflows and persistent inflation. The simultaneous occurrence of high inflation and inconsistent FDI has led to uncertain income trends, impeding long-term economic planning (Adeyemi, 2023). The existing literature does not fully clarify the extent to which FDI can counterbalance inflation’s negative impact on national income. This uncertainty necessitates an in-depth investigation into the dynamic relationship between FDI, inflation, and national income, particularly in the context of evolving fiscal policies (Okoro, 2024; Balogun, 2025).
Objectives of the Study
- To examine the impact of FDI on national income in the presence of inflation.
- To assess how inflation moderates the relationship between FDI and national income.
- To propose policy measures that optimize the benefits of FDI despite inflationary pressures.
Research Questions
- How does FDI influence national income amid inflationary trends in Nigeria?
- What role does inflation play in moderating the impact of FDI on national income?
- Which policy interventions can effectively balance FDI inflows and inflation control?
Research Hypotheses
- FDI positively influences national income in Nigeria.
- High inflation negatively moderates the positive impact of FDI on national income.
- Policy measures that control inflation enhance the contribution of FDI to national income.
Significance of the Study
This study is significant as it provides a comprehensive analysis of the dual impact of FDI and inflation on national income in Nigeria. The findings will offer policymakers valuable insights into crafting strategies that attract foreign investment while maintaining price stability, thereby promoting sustainable economic growth (Adeyemi, 2023; Okoro, 2024; Balogun, 2025).
Scope and Limitations of the Study
This study is limited to investigating the impact of FDI and inflation on national income in Nigeria. It focuses exclusively on these macroeconomic variables without addressing other potential influences such as fiscal policies or external economic shocks.
Definitions of Terms
• Foreign Direct Investment (FDI): Investment from foreign entities into domestic businesses or assets.
• Inflation: The rate at which the general level of prices for goods and services is rising.
• National Income: The total income earned by a nation’s residents from production of goods and services.
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