The Effect of GDP and FDI on National Inflation Rates and Income Distribution in Nigeria
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Background of the Study:
GDP growth and FDI are two critical indicators of economic progress in Nigeria. While GDP growth reflects the overall expansion of the economy, FDI brings in external capital, technology, and managerial skills that can stimulate development. However, these positive developments can also influence inflation and income distribution in complex ways. Rapid GDP growth may lead to increased aggregate demand that, if not matched by supply, results in inflationary pressures. Simultaneously, FDI can enhance productivity, yet its benefits may be unevenly distributed, potentially widening income disparities (Adeniyi, 2023). The dual impact on inflation and income distribution necessitates a thorough investigation to determine whether the economic growth spurred by FDI and domestic production is translating into equitable wealth distribution and price stability. This study explores how the interplay between GDP and FDI shapes national inflation rates and income distribution, with an emphasis on understanding the balance between growth and equitable economic outcomes (Babatunde, 2024). Such analysis is critical for refining fiscal policies that can mitigate inflationary trends while ensuring the benefits of economic expansion are widely shared (Chinaza, 2025).
Statement of the Problem:
Despite strong GDP growth and increasing FDI inflows, Nigeria continues to struggle with persistent inflation and growing income inequality. The challenge is that the benefits of economic expansion are not equitably distributed, and inflationary pressures remain high, undermining real income gains. Current policies may not adequately address the conflicting impacts of rapid growth and external investment on price levels and income distribution, creating a pressing need for an integrated analytical framework (Ibrahim, 2023).
Objectives of the Study:
- To examine the influence of GDP and FDI on national inflation rates.
- To analyze the impact of these factors on income distribution in Nigeria.
- To propose policy recommendations that balance growth with equitable income distribution.
Research Questions:
- How do GDP growth and FDI inflows affect national inflation rates?
- What is the relationship between these economic indicators and income distribution?
- Which policy measures can reconcile growth with equitable income distribution?
Research Hypotheses:
- H1: Higher GDP growth is associated with increased inflation if not matched by supply-side improvements.
- H2: FDI positively contributes to GDP growth but may exacerbate income inequality if benefits are not widely shared.
- H3: Integrated fiscal policies can moderate inflation and promote a more equitable income distribution.
Significance of the Study:
This study is significant as it bridges the gap between macroeconomic growth and social equity. By analyzing the dual impact of GDP and FDI on inflation and income distribution, the research provides policymakers with critical insights for designing strategies that foster sustainable growth while ensuring broad-based income benefits and price stability (Okeke, 2024).
Scope and Limitations of the Study:
The study is limited to the analysis of GDP and FDI effects on inflation and income distribution in Nigeria, excluding other external factors such as global market trends.
Definitions of Terms:
• Inflation: The rate at which the general level of prices for goods and services rises.
• Income Distribution: The manner in which a nation’s total income is divided among its population.
• FDI: Foreign Direct Investment, representing capital inflows from abroad.
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