Decoupling FDI from Governance: A Mediation Analysis of the FDI-Economic Performance Relationship in Nigeria’s Oil and Gas Industry.

Abstract

Nigeria’s oil and gas sector presents a critical developmental paradox: substantial FDI inflows alongside persistent governance inefficiency and regulatory weaknesses that appear to have undermined sectoral economic performance. There is a dearth of empirical studies on the decomposition of FDI from governance using an appropriate analytical technique for Nigeria’s oil and gas industry. This study investigates whether governance quality acts as a mediator in the FDI–economic performance nexus within the industry. It demonstrates that…Devising a three-stage Auto-regressive Distributed Lag (ARDL) mediation framework and the Sobel test on a 51-year longitudinal dataset (1973–2024), the study introduces a novel Oil and Gas Investment Governance Index (OGIGI) to quantify sectoral absorptive capacity. The empirical results demonstrate a significant direct positive relationship between FDI and sectoral output (β = 0.319, p = 0.027), confirming that foreign capital remains a primary driver of sectoral productivity. However, governance quality fails to serve as a transmission mechanism; FDI exerts a negative influence on institutional quality, and the indirect effect remains statistically insignificant (p ≈ 0.54). These findings highlight a "decoupling" phenomenon, wherein the industry operates as a resource enclave, insulating multinational activities from host-country governance structures. The study concludes that mere investment attraction is insufficient for sustainable development. To convert FDI into institutional gains, Nigerian policymakers must move toward "linkage-based" reforms, integrating FDI with mandatory local content and structured transparency frameworks to ensure that investment drives both productivity and governance strengthening.