AN EMPIRICAL STUDY OF THE CORRELATION BETWEEN NON-OIL EXPORT GROWTH AND FOREIGN DIRECT INVESTMENT – A CASE STUDY OF NIGERIA ECONOMY WITHIN 2000 TO 2023

Abstract

This paper stand to unveil the dynamic relationship between Foreign Direct Investment (FDI) and non-oil exports in Nigeria, within the context of economic diversification and sustainable development. Despite Nigeria’s rich endowment of natural resources, its heavy reliance on oil exports has led to vulnerability to external shocks, limited economic diversification, and fiscal instability. In the bid to correct economic instability problem, successive governments have introduced several reforms and also established different institutions aimed at boosting non-oil exports and attracting FDI into non-oil sectors through several economic strategies. This study employs different research analysis methods such as descriptive statistics, correlation analysis, Granger causality tests and Augmented Dickey-Fuller Stationarity Test to examine the annual time series secondary data collected from Central Bank of Nigeria (CBN) annual bulletin, National Bureau of Statistics (NBS) annual report as well as World Bank annual reports within the periods of 2000 to 2023, thereby studying the relationship between FDI, non-oil exports, and GDP growth. The research findings reveal a weak positive correlation between FDI and non-oil exports (r = 0.1802), a moderate relationship between non-oil exports and GDP (r = 0.4423), and a stronger correlation between FDI and GDP (r = 0.6850) according to correlation coefficient, while Granger causality results indicate that FDI significantly predicts non-oil export performance (p = 0.0455), but not vice versa, suggesting that while FDI contributes to non-oil export capacity, non-oil exports have yet to attract meaningful FDI inflows as such the relationship  is not mutual. Furthermore, no significant causal relationships were found between GDP and either FDI or non-oil exports, to further confirm previous tests the unit root test established that there is no long term relationship between the study variables as such using FDI to predict non-oil export movement is impossible for now, but FDI can slightly predict GDP movement. These results highlight the untapped potential of FDI in driving non-oil export diversification and emphasize the need for targeted policy reforms, improved infrastructure, and institutional strengthening to align FDI inflows with non-oil sector development. The study recommends sector-specific investment strategies, where the government pull is force towards growth of specific non-oil sectors such as Manufacturing sector, Agricultural sector, services sector to enhance and encourage absorptive capacity, and long-term policy consistency to enable proper implementation of the policy framework as key drivers of inclusive growth and economic transformation in Nigeria.