IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN NIGERIA: MODERATING ROLE OF GOVERNANCE

Abstract

Nigeria has attracted significant Foreign Direct Investment (FDI) with the expectation of driving 
growth through capital inflows, employment, and technology transfer. However, its actual impact 
remains uncertain due to weak governance, regulatory inconsistencies, and institutional 
inefficiencies. This raises the need to examine whether governance conditions shape the 
relationship between FDI and economic growth in Nigeria. This study therefore examines the 
impact of Foreign Direct Investment (FDI) and economic growth in Nigeria, emphasizing the 
moderating role of governance. While FDI is often viewed as a catalyst for growth through capital 
inflow, employment generation, and technological transfer, its real impact remains ambiguous in 
Nigeria. The study utilizes annual time series data from 1996 to 2023, sourced from the Central 
Bank of Nigeria, World Bank’s World Development Indicators (WDI), and Worldwide 
Governance Indicators (WGI). Employing the Autoregressive Distributed Lag (ARDL) model and 
interaction terms between FDI and governance variables, the study finds that FDI has an 
insignificant effect on economic growth. However, the interaction between FDI and governance 
show a positive and significant effect on economic growth. These findings demonstrate the critical 
role governance play in unlocking the growth enhancing potential of FDI. The study recommends 
structural governance reforms, regulatory consistency, and diversification strategies as essential 
pathways for making FDI a viable tool for Nigeria's economic transformation.