Journal of Applied Finance & Banking

Foreign Direct Investment (FDI) and standard of living in Nigeria

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• Abstract

  The subject of interrelationship that exists between foreign direct investment (FDI) and standard of living has been an issue of both theoretical and empirical investigations. This study, thus examined the relationship between foreign direct investment and standard of living measured by per capita income (PCI) in Nigeria over 1986 – 2009 period using time series data. The study employed Vector Auto regression (VAR) model because of the fact that the variables are integrated of different orders in their Unit Root Tests. Test involving Impulse Response Analysis and Variance Decomposition reveal that the relationship between FDI and standard of living is insignificant. Thus, the past values of FDI could be used to predict the future behavior of standard of living in Nigeria only to a lesser extent. Thus, the policy implications underscore the need for institutional and macroeconomic policy framework that would redirect steps in making FDI to contribute positively to the standard of living in Nigeria by channeling the available FDI into industrial, productive sector of the economy.