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Abstract
Remittance inflows and foreign direct investment (FDI) are widely acknowledged as vital external financing sources for developing countries, providing resources that can foster capital formation, employment, and economic transformation. In Nigeria, however, the extent to which these financial inflows contribute to sustained economic growth has been debated, with mixed evidence emerging across different periods and studies. Against this background, the study aimed to assess the short-and long-run effects of remittance inflows and FDI on real gross domestic product in Nigeria from 1981 to 2022.
The research was anchored on growth theories that emphasized the role of capital inflows in augmented domestic savings and investment, particularly the neoclassical growth model. Using time series data spanning 42 years, the study employed correlation analysis, Augmented Dickey Fuller unit root tests, Johansen cointegration test, and the Error Correction model to investigate the stationarity properties of the variables, their long run relationships, and the dynamics of adjustment between the short run and long run.
The findings revealed that FDI exerted a positive significant impact on economic growth in the short but an adverse and insignificant effect in the long run in Nigeria. Conversely, remittances had an insignificant effect in the short run but it contributed positively and significantly to long run growth. Base on these outcomes, the study recommended that policy reforms should prioritize quality over quantity of FDI, strengthen domestic value chains, improve the business environment and channel remittances through innovative mechanisms such as diaspora bonds and matched savings programs to promote sustainable economic growth.
The research was anchored on growth theories that emphasized the role of capital inflows in augmented domestic savings and investment, particularly the neoclassical growth model. Using time series data spanning 42 years, the study employed correlation analysis, Augmented Dickey Fuller unit root tests, Johansen cointegration test, and the Error Correction model to investigate the stationarity properties of the variables, their long run relationships, and the dynamics of adjustment between the short run and long run.
The findings revealed that FDI exerted a positive significant impact on economic growth in the short but an adverse and insignificant effect in the long run in Nigeria. Conversely, remittances had an insignificant effect in the short run but it contributed positively and significantly to long run growth. Base on these outcomes, the study recommended that policy reforms should prioritize quality over quantity of FDI, strengthen domestic value chains, improve the business environment and channel remittances through innovative mechanisms such as diaspora bonds and matched savings programs to promote sustainable economic growth.
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