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DOES DEMOCRATIC INSTITUTIONS AND FOREIGN DIRECT INVESTMENT AFFECT ECONOMIC GROWTH? EVIDENCE FROM NIGERIA

Hassan O. Ozekhome ()
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Hassan O. Ozekhome: Department of Economics and Statistics, University of Benin, Benin City, Nigeria

Oradea Journal of Business and Economics, 2017, vol. 2, issue 2, 27-36

Abstract: A reciprocally re-enforcing relationship exists between institutions, foreign direct investment and economic growth. Sound institutional framework which supports foreign direct investment is significant for driving rapid Economic growth. An important factor that has undermined rapid and sustained economic growth is the weak institutional structure, decrepit state capacity and low level of foreign direct investment in Nigeria. Democratic structures reflected in the rule of law, effectiveness and predictability of the judiciary and enforceability of contracts proceedings is imperative for accelerating economic growth. Employing the Generalized Method of Moments (GMM) estimation techniques on annual time series data covering the period from 1981 to 2015, the relationship between these variables was empirically investigated. The empirical findings reveal that democratic institutions and foreign direct investment are significant variables influencing economic growth in Nigeria. In particular, the results, using Nigerian data, show that weak institutions have a destabilizing impact on growth. The impact of FDI on the other hand is found to be positive and significant. Therefore, sound institutional framework, as well as appropriate and consistent macroeconomic policies that encourage foreign direct investment to propel rapid economic growth in Nigeria needs to be put in place.

Keywords: Democratic Institutions; Foreign direct investment; Economic growth; Nigeria GMM (search for similar items in EconPapers)
JEL-codes: F35 F43 O14 C13 (search for similar items in EconPapers)
Date: 2017
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