IMPACT OF FOREIGN DIRECT INVESTMENT ON THE GROWTH OF AGRICULTURAL SECTOR IN NIGERIA (1981 – 2023)

ABSTRACT This study examined the impact of foreign direct investment (FDI) and macroeconomic variables, specifically inflation and real interest rate, on the growth of Nigeria’s agricultural sector from 1981 to 2023. Agriculture Value Added (AGVA) was employed as the measure of agricultural growth, while FDI inflows, inflation (GDP deflator), and real interest rates were considered as key explanatory variables. Secondary data were sourced from the World Bank’s World Development Indicators (WDI), and the study utilized econometric techniques, including the Augmented Dickey-Fuller (ADF) unit root test, Autoregressive Distributed Lag (ARDL) bounds testing approach, and diagnostic tests for serial correlation, heteroskedasticity, normality, and stability. The findings reveal that the variables exhibit mixed integration orders, and the ARDL bounds test indicated the presence of a long-run cointegration relationship among AGVA, FDI, inflation, and real interest rate. Long-run estimates showed that FDI negatively but insignificantly affected agricultural growth, while inflation had a positive yet insignificant effect. In contrast, short-run dynamics highlighted significant lagged effects of AGVA on current agricultural performance, with the error correction term indicating that approximately 25% of deviations from equilibrium are corrected within one period. These results suggest that, under existing institutional and economic conditions, FDI and inflation do not substantially influence agricultural growth in the long run, although short-term adjustments can still play a role in restoring equilibrium. The study concludes that promoting sustainable agricultural growth in Nigeria requires not only attracting FDI but also ensuring that investments are effectively channeled into productive agricultural areas. Coupled with sound macroeconomic policies and strengthened institutional frameworks, these measures can enhance agricultural productivity, support rural livelihoods, and contribute to national development.