Manufacturing Foreign Direct Investment, Human Capital Development and Economic Growth in Nigeria: ECM Approach

Abstract

This study contributes to the on-going discussion on FDI relation with growth in Nigeria. It examines critically the impact of manufacturing foreign direct investment on economic growth and role played by human capital development in growth process of the country. The main argument of the paper is that FDI is not an aggregate phenomenon. Rather, it has different and even contradicting effects based on its sectoral distribution, whether it is channeled to manufacturing or other sectors of the economy. On the account of this, it should not be treated as a homogenous group. The study uses an endogenous growth model and extends the traditional production function by introducing FDI as a source of human capital accumulation and development. Using time series data between 1981 and 2013, the study employs ECM given its ability to induce flexibility by combining the short-run dynamic and long-run equilibrium models in a unified system, while ensuring theoretical rigour and data coherence and consistency. The study finds a significant positive relationship between manufacturing FDI and economic growth, which establishes the assertion that manufacturing FDI is growth enhancing. Evidence from the study also shows that human capital plays a significant positive role in the growth process of Nigeria.