Foreign Direct Investment and Employment Generation in Nigeria: Evidence from ARDL Approach

Abstract

This study examines the relationship between foreign direct investment (FDI) and employment in Nigeria over the period 1990–2025. The analysis is motivated by the expectation that FDI can expand productive capacity, introduce technology and managerial expertise, stimulate domestic business activity and create employment, while recognising that these effects depend on the sectoral and technological composition of investment. Annual time-series data were analysed using descriptive statistics, the Augmented Dickey–Fuller unit-root test, the Autoregressive Distributed Lag (ARDL) framework, the ARDL bounds procedure, an error-correction model and post-estimation diagnostic and stability tests. Employment is specified as the dependent variable, while FDI, gross domestic product (GDP), gross fixed capital formation (GFCF), inflation and trade openness are explanatory variables. The estimated ARDL model indicates a positive and statistically significant short-run coefficient for FDI. The estimated long-run FDI coefficient is also positive but statistically insignificant at the 5 percent level. GDP is positive but only marginally significant at the 10 percent level; GFCF is negative and statistically significant; inflation is statistically insignificant; and trade openness is positive and significant in the reported long-run equation. The coefficient for error correction is a negative number which also a significant value, i. e. the speed of adjustments is at approx. one quarter a year. But, at the present level of the 5%, the bound- test value (2.820191) is in the range that the critical bounds of the upper and lower levels. So there is little support provided to cointegration evidence by the data. The diagnostic test further reveals that there is presence of heteroskedasticity, and residuals are not normally distributed, and there is a chance of a functional form or specification issue in these econometric models. First, the results obtained from stability test in the source paper showed that the coefficients are stable. Taking into account all these pieces that the conclusion that must drawn from the study is only that the employment gains in the short-run are correlated with FDI. But, one cannot conclude from the findings that the long-run effect is statistically significant or that is an established causal relationship. So, the measures should center on attracting investments with emphasis on providing jobs, developing links with local suppliers/domestic firms and upgrading, investment in infrastructure, the development of workers' skills and creation of macroeconomic stability.