Modelling the Effect of Foreign Direct Investment on Poverty Reduction in Nigeria: Application of Cochrane Orcutt Techniques (COET).

Abstract

The study examined modelling the effect of foreign direct investment and poverty reduction in Nigeria. Cochrane Orcutt Estimating Techniques (COET) was adopted as a tool in fitting the model where poverty reduction (POV) measured by GDP per capital served as response variable, while Direct Foreign Investment (FDI), Inflation rate (INFR), Federal Government Expenditure (FGE) and Unemployment rate (UEMPR) served as explanatory variables. The data used were collected from the Central Bank of Nigeria statistical bulletin, (published 2025, chn.gov.ng), and World Bank group (data.worldbank.org) for the period of 34 years, from 1991 to 2024. SPSS Software Package (version 25) was used to carry out the analysis. At the initial stage of the analysis least square regression was estimated. However, Durbin-Watson statistic has identified the presence of autocorrelation in the error terms of the model, this necessitated the application of Cochrane Orcutt transformation. The transformation of the model improved the Durbin-Watson statistic and increased the coefficient of determination〖 R〗^2, confirmed a better model fit. The findings suggest that increased inflows of FDI can serve as a building block for poverty reduction in Nigeria through employment generation, technology transfer, capital formation, and increased productive activities. Finally, the study recommends establishment of investment- approachable polices, practical economic management, inflation control measure and strategic public spending to reduce poverty level and improve sustainable economic growth in Nigeria.