An Examination of the Feldstein-Horioka Puzzle for Nigeria: The Mediating Role of Foreign Direct Investment

Joel Isaac Okon, Chizoba Emmanuella Didigu, Blessing-Oxford Udeme Udofia, Nnaemeka Ugwuegbulam and Diken Oseki
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Joel Isaac Okon: Central Bank of Nigeria
Chizoba Emmanuella Didigu: Author
Blessing-Oxford Udeme Udofia: Author
Nnaemeka Ugwuegbulam: Author
Diken Oseki: Author

East African Finance Journal, 2025, vol. 4, issue 2

Abstract: The relationship between savings rate and the rate of investments in an economy has been studied under the Feldstein-Horioka hypothesis to detect whether a higher domestic saving rate in a country is correlated with a higher rate of domestic investment. In the case of Nigeria, these rates have been exhibiting a declining trend over the years. As such, this paper was geared towards ascertaining whether the Feldstein-Horioka hypothesis could be valid in Nigeria with a consideration of the influence of foreign direct investment (FDI). The study utilized data from 1981 to 2020 which were analysed using the ordinary least squares (OLS) approach, the autoregressive distributed lag (ARDL) bounds testing approach, and the ARDL error correction. Findings revealed high saving-retention coefficients both with and without FDI. The ARDL result established the existence of a long-run relationship and produced a conditional long-run elasticity implying that increases in savings rate increase the rate of investment. Though the coefficient is low, it supports the Feldstein-Horioka hypothesis that domestic investments are spurred by domestic savings.

Keywords: Investment; Savings; Foreign Direct Investment; Feldstein-Horioka Puzzle; Monetary Policy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:cwk:eafjke:2025-20

DOI: 10.59413/eafj/v4.i2.9

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