Abstract:

Existing literature in modern macroeconomics is saturated with evidence on the relationship between foreign direct investment (FDI) and economic growth in Nigeria and other emerging market economies. However, there are minimal empirical examinations of the industrial linkage effects of FDI flows to the Nigerian economy. Given the growing concern for sustainable industrial development and commitments to investment promotion in the country, it is imperative at this time to assess the effects of foreign direct investment on Nigeria`s real sector growth. Consequently, this study set out to empirically examine the effect of FDI inflows into Nigeria on Real Gross Domestic Product (RGDP) growth. The model constructed was estimated using the robust GMM estimation technique which takes care of the problem of endogeneity and autocorrelation inherent in Ordinary Least Square. The study found that labour quality has a positive and significant effect on RGDP in line with theory and the empirical findings of Ruane and Udun (2000, 2001) on the spillover effect of FDI on labour productivity in Irish manufacturing industry. Equally, it was noted that capital intensity displayed a significant negative effect on RGDP in Nigeria contrary to the theory. This study therefore recommends that policy makers in Nigeria should incorporate into broad policy, improvement in capital intensity as a bedrock to grow the economy through FDI spillover effects.