Dynamic Relationship between Foreign Direct Investment and Trade in Nigeria’s Non-Oil Sector

Abstract

This chapter investigated the dynamic relationship between foreign direct investment and trade in Nigeria’s non-oil sector between 1981 and 2015. Foreign Direct Investment (FDI) has long been a burning topic of great interest and debate in several economies around the world. In the literature, there are many reasons as to why FDI has become a much-discussed topic of interest by scholars and policy makers. Our empirical results showed a significant complementary relationship between Nigeria's inward non-oil FDI stock and non-oil exports. Meanwhile, no relationship was observed between inward non-oil FDI stock and non-oil import and non-oil total trade. The study adopted the Multinational Enterprise Theory. The theory intended to address the apparent inadequacy of the comparative advantage framework in explaining trade and foreign investment and concentrate on the timing of innovation, effects of economies of scale, and, to some extent, the role of uncertainty. In order to accomplish this, inward FDI stock in Nigeria's non-oil industry complements the sector's exports, hence increasing non-oil exports automatically. We also found that, particularly over the short term, economic development strengthened the complimentary link between inward FDI stock in the non-oil sector and aggregated and disaggregated trade metrics.  Therefore, appropriate inward FDI stock is required to boost the export performance of Nigeria’s non-oil sector, which would help diversify the fiscal revenue and foreign exchange sources away from the traditional oil and gas sector.