Assessing the Impact of Foreign Direct Investment (FDI) Flows and their Volatility on Nigeria's Agricultural Sector

Abstract

Foreign Direct Investment (FDI) plays a significant role in shaping the economic landscape of both developed and developing countries like Nigeria, particularly in sectors like agriculture, which are vital for sustainable development and food security. This study aims to evaluate the influence of FDI flows and their volatility on Nigeria's agricultural sector. Using econometric techniques, including Vector Error Correction Model Estimates, this research examines the relationship between FDI inflows, their volatility, and key indicators of the agricultural sector's performance in Nigeria from 1999-2022. The study utilizes data from Central Bank of Nigeria and National Bureau Statistics. The findings of this research contribute to the existing literature by providing empirical evidence on the impact of FDI inflows and their volatility on Nigeria's agricultural sector. Understanding these dynamics is crucial for policymakers, as it can inform strategic decisions aimed at attracting stable and productive FDI inflows to bolster agricultural development while mitigating the adverse effects of volatility. The finding supports the Lensink-Morrisey model that FDI has a positive effect on growth, whereas the volatility in FDI flows has a negative effect. Specifically, FDI volatility was found to impact negatively on agricultural growth and it was significant over the study period; while contributing positively to the sector’s growth, FDI’s coefficient was not significant. This partly supports the Hirschman (1958) hypothesis that the agricultural sector lacks the absorptive capacity to assimilate the technology and managerial spillovers from FDI in most developing economies. The study recommends that policymakers must prioritize strategies that promote stability, inclusivity, and sustainability within the agricultural sector. This includes enhancing regulatory frameworks, strengthening institutional capacity, fostering innovation and technology transfer, and promoting inclusive and sustainable value chains. By addressing these issues, Nigeria can harness the potential of FDI inflows to drive transformative growth, enhance food security, and promote sustainable development in its agricultural sector.