FOREIGN DIRECT INVESTMENT (FDI) AND STRUCTURAL TRANSFORMATION: A LONG-RUN ANALYSIS OF THE MANUFACTURING SECTOR
Abstract
This study examines the critical relationship between Foreign Direct Investment (FDI) and structural
transformation within the manufacturing sector from 1980 to 2025. Utilizing a quantitative, longitudinal
research design, the research investigates whether foreign capital serves as a genuine engine of growth
or merely creates isolated economic enclaves. The analysis is anchored in an endogenous growth
framework, employing the Autoregressive Distributed Lag (ARDL) bounds testing approach to evaluate
long-run equilibrium and short-run dynamics among key economic variables. The empirical model
incorporates Manufacturing Value Added (MVA) as the dependent variable, with FDI, trade openness,
human capital, gross fixed capital formation, and the real effective exchange rate serving as primary
explanatory and control factors. Diagnostic tests, including the Augmented Dickey-Fuller unit root test,
confirm a mixture of I(0) and I(1) integration orders, justifying the ARDL methodology. Findings from the
F-Bounds test indicate a stable, long-term cointegrating relationship between FDI and industrial output.
Specifically, the results reveal that while the immediate impact of FDI is statistically insignificant, its
transformative benefits on manufacturing value added manifest significantly with a four-year time lag.
Conversely, trade openness exerts a strong and immediate positive influence on sectoral growth. These
results emphasize the necessity for host nations to enhance their absorptive capacity through human
capital development and strategic industrial policies to successfully harness foreign investment for
resilient, technologically advanced, and sustainable long-run structural transformation in the mid-21st
century.
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Published in JOURNAL OF ACCOUNTING, FINANCE & MANAGEMENT DISCOVERY WUKARI
ISSN: 2714-2574
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