Modeling the Assessment of Household Income and FDI Influence on Nigerian Economic Growth using Vector Autoregressive Approach
The Nigerian economy has supported sustainable economic development with a variation of GDP for the past decades and at present. This research is to investigate the current relationship between the determinants of economic development and GDP in Nigeria for the period 1981 to 2017. This study used household final expenditure, FDI, government spending, export, and import to predict the variation of GDP. Initially, we performed the three root unit tests for each selected variable to validate whether the series is stationary or not before determining an optimal lag order and cointegration equation between the series. To assess the relationship within the variables, we applied Johansen cointegration tests. The Akaike Information Criterion (AIC) was used to evaluate the optimum lag order. The error correction term (ECT) was calculated to measure the GDP's adjustment speed to its equilibrium point. Also, Granger causality effects were assessed and the variance decomposition of the forecast error was also predicted. The results from ADF, PP, and KPSS test gave a strong conclusion that the series is stationary at the first difference. An adjustment coefficient value (-0.0858) implies an 8.58 percent-speed correction of the preceding year's deviation from the long run. The ECT's significant p-values (0.0187) showed a long-run relationship between the selected independent variables and GDP. Thus, the estimated error variance of 67.13 percent of GDP would be triggered in the long term by FDI net inflows. So, it means that FDI has a major effect on the Nigerian economy and GDP variation. From FDI to household consumption, government spending, import, as well as export, unidirectional causality effect of Granger was observed. Our study recommends policymakers concentrate on foreign direct investment inflows to ensure sustainable economic development to enhance the GDP value in this country. Policymakers are strongly encouraged to ensure political and economic stability to attract more foreign investors. Financial resources ...