Empirical Analysis of the Impact of Foreign Private Investment on Capital Formation in Nigeria

Abstract

The study empirically determines and explores the economic impact of foreign private investment on the economic growth and development of Nigeria over the period under study which is between 1980 and 2015. Unit root test was conducted based on ADF and PP technique, and all the variables were found to be stationary at level. Johansen co integration test was also employed to check the long run relationship among the variables of study, the result reveal the existence of long run equilibrium. Short run relation was also examined using ECM technique, result confirm a short run relation among the variables. OLS method was employed to estimate the parameters of the model. Empirical result from revealed that, Foreign Private Investment (FPI) has a negative and significant effect on capital formation in Nigeria. Therefore we can reliably conclude that foreign private investment impacted negatively on the domestic capital formation in Nigeria within the period under study (1980-2015). We therefore recommend that; government should take good measures to control inflation. Additionally adequate efforts should be made to mobilize desired gross national savings which would be big enough to attract direct foreign private investment. And finally efforts should be made by government to reduce exchange rate distortions and or misalignment, increase export of locally manufactured goods and raw materials in a bid to raise value of the local currency, the naira; earn more foreign exchange and allow market forces to properly fix the exchange rate.