An Evaluation of the Relationship Between FDI Inflows, GDP Growth, and Inflation in Nigeria
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Background of the Study:
Foreign Direct Investment (FDI) inflows, GDP growth, and inflation form a critical nexus that significantly influences Nigeria’s economic performance. Recent economic reforms and global investment trends have resulted in fluctuating levels of FDI, which in turn impact GDP growth and inflationary trends (Adeniyi, 2023). As Nigeria seeks to diversify its economy and reduce its reliance on oil revenues, attracting FDI has become a strategic priority. Empirical evidence suggests that higher FDI inflows can spur economic growth by injecting capital, technology, and managerial expertise into the economy (Obi, 2024). However, the relationship is complex; while FDI can stimulate GDP growth, it may also contribute to inflationary pressures if the increased demand outstrips supply. This study investigates the interplay between FDI inflows, GDP growth, and inflation by analyzing recent economic data and policy interventions. The research contextualizes these relationships within the framework of global economic integration and domestic fiscal management, highlighting the dual challenge of fostering growth while maintaining price stability (Ibrahim, 2025). By understanding the dynamics among these variables, the study aims to offer policy recommendations that maximize the developmental benefits of FDI while mitigating adverse inflationary impacts.
Statement of the Problem:
Despite efforts to attract FDI and stimulate GDP growth, Nigeria faces persistent inflationary pressures that undermine economic stability. The anticipated benefits of FDI, such as enhanced productivity and job creation, have been partially offset by rising inflation, which erodes purchasing power and dampens consumer confidence (Chinaza, 2023). Additionally, the inconsistent application of fiscal and monetary policies has led to an imbalanced relationship among FDI, GDP, and inflation. This study seeks to identify the factors that disrupt the positive linkage between FDI inflows and GDP growth and to examine how these disruptions contribute to inflationary trends. The objective is to provide a clearer understanding of the challenges that impede the realization of sustainable economic growth and to propose policy measures that can better align these interrelated variables (Uche, 2024).
Objectives of the Study:
- To examine the relationship between FDI inflows, GDP growth, and inflation in Nigeria.
- To identify factors that disrupt the positive effects of FDI on economic growth.
- To recommend policy interventions that stabilize inflation while promoting growth.
Research Questions:
- What is the relationship between FDI inflows, GDP growth, and inflation in Nigeria?
- Which factors hinder the beneficial impact of FDI on GDP growth?
- What policy measures can mitigate inflation while attracting FDI?
Research Hypotheses:
- H1: FDI inflows have a positive effect on GDP growth.
- H2: Uncontrolled FDI growth contributes to inflationary pressures.
- H3: Coordinated fiscal and monetary policies can harmonize the effects of FDI, GDP, and inflation.
Significance of the Study:
This study is significant because it evaluates the complex relationships among FDI inflows, GDP growth, and inflation. The insights gained will help policymakers design comprehensive strategies that attract investment, promote economic growth, and maintain price stability, thereby fostering a more balanced economic environment (Afolabi, 2024).
Scope and Limitations of the Study:
This study focuses solely on the interrelationship between FDI inflows, GDP growth, and inflation in Nigeria, without extending to other external economic factors.
Definitions of Terms:
• FDI Inflows: The amount of investment received from foreign investors.
• GDP Growth: The increase in the country’s economic output over time.
• Inflation: The rate at which prices for goods and services increase.
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