Abstract

This study examined the dynamic relationship between Foreign Direct Investment (FDI) in Nigeria’s crude oil sector and sustainable development over the period 1990-2024. Despite substantial FDI inflows into the petroleum sector over three decades, broad-based economic development has remained elusive, raising questions about the development effectiveness of resource-seeking FDI. Using impulse response analysis within a Vector Error Correction Model (VECM) framework, we trace the temporal response patterns of sustainable development proxied by real GDP per capita and complemented by robustness checks using alternative indicators to shocks in oil sector FDI, oil prices, government oil revenue share, and the exchange rate. Our findings reveal three important patterns. First, sustainable development responds negatively to FDI shocks in years two and three −0.23% at trough before turning marginally positive by year seven, suggesting that the capital-intensive nature of modern oil extraction constrains near-term development benefits. Second, oil price shocks explain approximately four times more variation in sustainable development (25.6%) than oil sector FDI (7.8%), highlighting Nigeria's persistent commodity dependence. Third, exchange rate depreciation attracts FDI in the short run but discourages investment in the medium term, indicating that currency volatility ultimately outweighs competitiveness effects. These findings suggest that oil sector FDI is neither a development panacea nor irrelevant its contribution depends critically on complementary policies including local content enforcement, exchange rate stability, and genuine economic diversification. We conclude that Nigeria's development strategy should shift from attracting FDI volume toward maximizing investment quality and spillovers while accelerating non-oil sector growth.