Foreign Direct Investment Inflow and Household Consumption Nexus: an Evidence from Nigeria

Abstract

Foreign direct investment (FDI) plays a significant role in economic development, particularly in emerging economies, especially in augmenting household incomes to boost consumption. However, statistics shows a fluctuating pattern of consumption expenditure over time, indicating its erratic nature in Nigeria leading to low standards of living. The study, therefore, empirically evaluates the impact between foreign direct investments on household consumption in Nigeria from 1981 to 2023. The annual secondary time series data were obtained from the Central Bank of Nigeria (CBN) and World Bank Indicators (WDI) database, 2023 editions. A semi-log-linear ARDL model which specified final consumption expenditure of households as a function of foreign direct investment inflow, inflation rate, official exchange rate, gross domestic product per capita and trade openness was formulated. The variables were tested for stationarity using the Augmented Dickey-Fuller Structural Break Unit root test and indicates that the variables were integrated between I(0) and I(1). The Bounds test for cointegration analysis shows evidence of long run relationship among the variables in the model. The Autoregressive Distributed Lag (ARDL) result indicates that all the time series variables were statistically insignificant in the short run except inflation rate and gross domestic product per capita and significant in the long run except trade openness. Granger causality result reveals that there is a significant unidirectional causal relationship running from HFCE↔GDPPCa between gross domestic product per capita and final consumption expenditure of households in Nigeria. Sequel to the findings, the study recommends, among others, that there is need for the government and relevant agencies to once again stimulate and encourage the investors’ confidence in the country, by assuring the security of lives and properties through the achievement of an uncompromised security and business environment in the productive sectors of manufacturing, agricultural, etc., in the country by ensuring adequate security measures capable of quelling the traumatic experiences orchestrated by farmers-herders clashes, kidnappings, armed robbery, etc., so as to achieve a high, rapid and sustained agricultural productivity, and hence sustained economic growth.