Causal Relationships between Financial Development, Foreign Direct Investment and Economic Growth the Case of Nigeria

Abstract

This study examined the causal relationships among financial development, foreign direct investment and economic growth in Nigeria over the period 1970 to 2009. The study utilized the Augmented Dickey-Fuller (ADF) for unit root test and the variables were found to be stationary, though not in their level form but in their first difference. The Johansen and Juselius (JJ) co-integration technique indicated the presence of co-integration among the variables. The tri-variate vector error correction model (VECM) test for the causal relationships showed the presence of causality among financial development, foreign investment and economic growth. The study concluded that financial development and foreign direct investment have a statistically significant causal influence on economic growth.