Dynamics of Foreign Direct Investment, Macroeconomic Stability, and Sustainable Manufacturing Development in Nigeria
Article Sidebar
Main Article Content
Abstract
This paper examines the effects of foreign direct investment (FDI) on the performance of Nigeria's manufacturing sector using annual time series data from 1981 to 2023. Using the Autoregressive Distributed Lag (ARDL) framework and its error correction specification, this paper examines the short- and long-run dynamics between manufacturing value added (MANV), manufacturing capacity utilization (MCAP), and FDI inflows (FDIR) as well as key macroeconomic variables: exchange rate, external reserves, balance of payments, inflation, and interest rate. Unit root and bounds tests confirm the combination of stationary and cointegrated variables, and thus the appropriateness of the ARDL approach. The empirical findings show that exchange rate volatility, external reserves, and inflation are key drivers of manufacturing performance, while economic growth and export competitiveness are key determinants of FDI inflows. The error correction terms across the models show strong adjustment toward long-run equilibrium, which underscores the importance of macroeconomic stability, export diversification, and productivity-enhancing FDI in driving sustainable industrial growth. The findings offer new evidence on the role of FDI in promoting manufacturing performance and contribute to the literature on development finance and industrialization, as well as providing insights for policymakers on strengthening the resilience and competitiveness of the manufacturing sector.
Metrics
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Aghion, Bergeaud, A., P., Blundell, R., & Akcigit, U. (2015). Innovation and top income inequality (NBER Working Paper No. 21247). National Bureau of Economic Research. https://doi.org/10.3386/w21247
Alfaro, L., Chanda, A., Kalemli-Özcan, Ş., & Sayek, S. (2010). Does foreign direct investment promote growth? Exploring the role of financial markets on linkages. Journal of Development Economics, 91(2), 242–256. https://ideas.repec.org/a/eee/deveco/v91y2010i2p242-256.html
Alfaro, L., Kalemli-Özcan, Ş., & Sayek, S. (2009). FDI, productivity and financial development. The World Economy, 32(1), 111–135. https://doi.org/10.1111/j.1467-9701.2009.01159.x
Asongu, S., & Odhiambo, N. M. (2022). Financial access and value added in Sub-Saharan Africa: Empirical evidence from the agricultural, manufacturing and service sectors. World Affairs. https://doi.org/10.2139/ssrn.4015011
Asteriou, D., Pilbeam, K., & Pratiwi, C. E. (2020). Public debt and economic growth: Panel data evidence for Asian countries. Journal of Economics and Finance, 45(1), 270–287. https://doi.org/10.1007/s12197-020-09515-7
Bahmani-Oskooee, M., & Gelan, A. (2018). Exchange-rate volatility and international trade performance: Evidence from 12 African countries. Economic Analysis and Policy, 58(1). https://doi.org/10.1016/j.eap.2017.12.005
Bank-Ola, R. F., Akintaro, A. A., & Adediwura, M. O. (2020). Foreign direct investment and manufacturing output in Nigeria: An ARDL approach. International Journal of Management, Social Sciences, Peace and Conflict Studies, 3(4). https://www.ijmsspcs.com/index.php/IJMSSPCS/article/view/139
Chekwa, C., Onwuchekwa, C., Adeyinka, S., & Ezirim, U. I. (2025). Macroeconomic causes of foreign direct investment in Nigeria. Journal of Applied Business and Economics, 27(2). https://doi.org/10.33423/jabe.v27i2.7606
Giwa, B. A., George, E. O., Okodua, H., & Adediran, O. S. (2020). Empirical analysis of the effects of foreign direct investment inflows on Nigerian real economic growth: Implications for sustainable development goal-17. Cogent Economics & Finance, 8(1), Article 1727621. https://doi.org/10.1080/23311886.2020.1727621
Irwanto, M. M., Rosalia, O., Firayani, F., & Chin, J. (2025). The impact of technological innovation on the productivity of the manufacturing industry. Nomico, 2(1), 38–50. https://doi.org/10.62872/s83ghe74
Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605–627. https://doi.org/10.1257/0002828041464605
Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(2), 407–437. https://doi.org/10.2307/2118477
Mojekwu, J. N., & Ogege, S. (2012). Foreign direct investment and the challenges of sustainable development in Nigeria. Journal of Research in International Business and Management, 2(7), 190–198. https://www.interesjournals.org/articles/foreign-direct-investment-and-the-challenges-of-sustainable-development-in-nigeria.pdf
Rodrik, D. (2021). Why does globalization fuel populism? Economics, culture, and the rise of right-wing populism. Annual Review of Economics, 13, 133–170. https://doi.org/10.1146/annurev-economics-070220-032416
United Nations Conference on Trade and Development (UNCTAD), (2021). World investment report 2021: Investing in sustainable recovery. United Nations. https://unctad.org/webflyer/world-investment-report-2021
United Nations Conference on Trade and Development (UNCTAD), (2022). World investment report 2022: International tax reforms and sustainable investment. United Nations. https://unctad.org/webflyer/world-investment-report-2022
United Nations Conference on Trade and Development (UNCTAD), (2023). World investment report 2023: Investing in sustainable energy for all. United Nations. https://unctad.org/webflyer/world-investment-report-2023