Relationship between FDI and international trade – evidence from Nigeria

Abstract

Foreign direct investment (FDI) is now an important factor in the development of an economy considering the benefits that come with it. This study aims to investigate the relationship between FDI and international trade from an exports perspective. A correlation analysis was performed to determine whether there is a relationship between the two variables. Findings show that there is a strong positive relationship between FDI and exports. A regression analysis using OLS showed a very significant relationship between the two and revealed that an increase in FDI causes an increase in the country’s exports. The composition of exports is limited as oil accounts for more than 90% of Nigeria’s exports, thereby exposing the country to external shocks. This study recommends that more efforts should be made to diversify the economy by attracting FDI to non-oil sectors such as agriculture, manufacturing, and mining in order to diversify the export base.