Linkages between Foreign Direct Investment, Domestic Investment and Economic Growth: Evidence from Nigeria

FDI is the purchasing of an existing company or establishing a new company in a foreign country Rutherford (1992), according to modernization theories FDI can enhance growth in less developed countries but the dependency theorists contend that dependence on foreign investment is expected to affect the growth and income distribution negatively. Also FDI can crowd out or crowd in domestic investment depending on the sector FDI is allocated to and also depending on the country. This research is conducted base on this argument. This research empirically analyzed the linkages between foreign direct invest, domestic investment and economic growth in Nigeria. The research is conducted using annual time series data from the period of 1980 to 2013. The study employs Johansen multivariate cointegration test and Vector Error Correction model (VECM) as the estimations techniques. The result of the study reveals that foreign direct investment (FDI) domestic investment (DI) and economic growth have a long-run equilibrium relationship according to the Johansen Multivariate cointegration test. And the VECM result shows that the speed of adjustment of the variables towards their long-run equilibrium is 52.55%. Keywords: Foreign Direct Investment (FDI), Domestic Investment (DI), Economic growth, Nigeria, Time series, Cointegration, Vector error correction model (VECM).