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Dolado - Lütkepohl Causality Tests between Foreign Direct Investment and Economic Growth in Nigeria

R. Alimi () and Adesola Ibironke

MPRA Paper from University Library of Munich, Germany

Abstract: Foreign direct investment (FDI) is often seen as an important catalyst for economic growth in the developing countries. It affects the economic growth by stimulating domestic investment, increasing human capital formation and by facilitating the technology transfer in the host countries. The main purpose of the study is to re-investigate the causation between foreign direct investment and economic growth in Nigeria for the period 1970-2010. This study made use of two different methodologies to test the Granger non-causality: the Dolado - Lütkepohl test (Toda-Yamamoto causality tests.) using the VARs in levels, and the standard Granger causality test. The study found that there is a unidirectional causality between the series, running strictly from foreign direct investment to real GDP, which was corroborated at lag length of 4 when we used the standard causality test. We also found that there is a feedback effect on the economic growth arising from FDI inflows after eight years. We conclude that FDI inflows should be encouraged, as it will engender the economy to continue to witness growth in domestic product and subsequently more inflows of FDI.

Keywords: FDI; Economic Growth; Nigeria (search for similar items in EconPapers)
JEL-codes: E22 F14 O40 (search for similar items in EconPapers)
Date: 2012-06
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