From Windfalls to Equilibrium: Modeling Nigeria’s GDP Growth with Autoregressive Distributed Lag (ARDL) Bounds Testing (1990–2023)

Abstract

This study investigates the short-run and long-run determinants of Nigeria’s real GDP growth from 2003 to 2023, focusing on key macroeconomic variables: exchange rate, foreign direct investment (FDI), inflation, oil price, and real interest rate. Using annual time-series data and rigorous stationarity testing via Augmented Dickey–Fuller and Phillips–Perron methods,
we confirm a mix of I(0) and I(1) series, validating the use of the Autoregressive Distributed Lag (ARDL) bounds-testing framework. The optimal ARDL (2,3,3,0,1) model reveals significant short-run dynamics: a 1% depreciation in the exchange rate reduces GDP growth by approximately 0.04 percentage points, while a 1% increase in lagged oil prices boosts growth by 0.14 points. Notably, a 1% rise in FDI from the previous year is associated with a 1.5-point decline in current GDP
growth, suggesting adjustment frictions or absorptive constraints. The bounds test yields an F-statistic of 3.19 (p ≈ 0.07), indicating possible cointegration at the 10% level and a tentative long-run equilibrium among the variables. Complementary Granger causality tests confirm FDI as a statistically significant short-run predictor of GDP, with oil price showing marginal influence. These findings underscore the need for exchange-rate stabilization, strategic FDI management, and economic diversification beyond oil dependence. The integrated ARDL approach offers a robust framework for policymakers seeking to harmonize short-term stabilization with long-term growth resilience in resource-dependent economies.