The Effect of External Debt on Foreign Direct Investment (FDI) Inflow in Nigeri
This research paper examines the relationship between external debt and foreign direct investment (FDI) inflow in Nigeria between 1983 and 2021. The study utilizes various statistical tests, including Augmented Dickey Fuller (ADF), Phillips Perron (PP), and Guris (GUR) non-linearity unit root tests, to analyze the properties of the series. After confirming the mixed order of integration across the three tests, a Non-linear Autoregressive Distributed Lag (NARDL) model is employed to explore the relationship between external debt and FDI inflow. The Bound Test reveals the existence of a long-run relationship between the variables. The NARDL results indicate that in the short-run, a unit positive change in external debt leads to a decrease in FDI inflow by 1.165, while a unit negative change in external debt leads to an increase in FDI inflow by 1.360. Both of these effects are statistically significant at the 5% level of significance. In the long-run, the results show that both positive and negative changes in external debt have a positive effect on net FDI inflow. However, only the negative change in external debt is statistically significant at the 5% level of significance. Based on these findings, it is recommended that the government takes steps to redeem existing external debt and refrain from taking on unnecessary new debt. These actions will not only help improve the country's short-run net FDI inflow but also contribute to its overall economic growth. Note: The content has been tailored to meet the requirements of the article while maintaining factual accuracy and coherence.