FOREIGN DIRECT INVESTMENT IN ENERGY SECTOR AND IT'S IMPACTS ON ECONOMIC GROWTH IN NIGERIA
Abstract
This study investigates the impact of foreign direct investment (FDI) inflows into Nigeria’s energy sector on economic growth, covering the period 1982–2024 using annual time-series data sourced from the World Bank Development Indicators, Central Bank of Nigeria Statistical Bulletin, and National Bureau of Statistics. The energy sector, comprising oil, gas, and electricity, has historically attracted significant foreign investment due to Nigeria’s abundant natural resources and rising domestic energy demand. The Autoregressive Distributed Lag (ARDL) bounds testing approach was employed to examine both the short-run and long-run dynamics between economic growth (proxied by real gross domestic product) and key independent variables, namely FDI, energy sector contribution (ESC), manufacturing output (MANU), inflation (INF), and exchange rate (EXR). Unit root tests revealed a mixture of I(0) and I(1) series, justifying the ARDL technique. The findings show that FDI and manufacturing output exert positive and significant effects on economic growth in the long run, highlighting their role as drivers of capital accumulation, industrialization, and technological spillovers. Conversely, inflation negatively influences growth, reflecting macroeconomic instability, while exchange rate depreciation exhibited a positive but unexpected effect, suggesting complex dynamics in Nigeria’s external sector. The error correction term confirmed a moderate speed of adjustment towards long-run equilibrium. Diagnostic tests validated the robustness and stability of the estimated model. The study concludes that while FDI inflows into the energy sector contribute to growth, their benefits are constrained by structural bottlenecks, policy inconsistencies, and weak institutional frameworks. It recommends strengthening regulatory reforms, improving infrastructure, diversifying energy sources, and ensuring macroeconomic stability to maximize the developmental gains of energy-sector FDI in Nigeria.
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