Journal of Economics and Allied Research Vol. 7, Issue 1 (March, 2022) ISSN: 2536-7447 35 | Page FOREIGN INVESTMENT, DOMESTIC INVESTMENT AND SUSTAINABILITY OF THE MANUFACTURING SECTOR OF THE NIGERIA ECONOMY DOMINIC. A. IORTYER* AND MARTINS ONUH Department of Economics, Federal University Lokoja P.M.B 1154 Lokoja (correspondence) E-mail: iortyerdominic@gmail.com Tel. 08081868999 E-mail: donmartinogeneral@gmail.com Tel. 08055572659 ABSTRACT This paper examines the impact of foreign and domestic investment on the output of the manufacturing sector from 1980 – 2020. To achieve the objectives of the study, an econometric model of Vector Error correction Model (VECM) was specified and estimated. This was to determine the short and long run causality among the variables captured in the model. Stationarity check was conducted using the correlogram approach and all the variables were stationary at first difference. Appropriate lags for the model were selected based on the result of the Akaike and Hannan Quine information criteria. The Johansen cointegration was carried out to determine the long run relationship among the variables. In addition, the normalized Johansen equation was to establish the long run impact of the independent variables (foreign investment, domestic investment and exchange rate) on the dependent variable (manufacturing sector output). Findings revealed that, external investment inflow and domestic investment have long run positive impact on the manufacturing sector. Conversely, the real exchange rate shows a negative long run impact on the manufacturing sector but statistically significant. Also VECM test for causality revealed the existence of both short and long run causality among the variables. Based on the strength of findings, the study recommends that deliberate investment promoting policies capable of stimulating foreign and domestic investment should be sustained. For it will enhance growth in the manufacturing sector and by extension the economy. KEY WORDS: investment, foreign, domestic, growth, green –field, crowding-out JEL Code: E6; E60; E62 1. INTRODUCTION Over the years countries of the world have mutually helped each other to grow and developed. This has been made possible through the instrument of international trade and foreign investment. This interaction is necessitated by the fact that no country exists and survives in isolation. In line with this, external investment between the advanced countries and the developing countries is necessary. The advanced countries with their technical knowledge and financial resources can transform the raw materials of the developing nations into finished goods as well as increase in foreign exchange. The role of external capital investment especially foreign investment to the manufacturing sector of the economy cannot be over emphasized. In Nigeria, successive governments supported by the strong industrial and academic forces have identified the instrumentality of foreign and domestic investments as important tools for growth and development. The flow of foreign investment into the Nigeria economy has not ceased due to the open nature of the economy. There are some scholastic arguments whether foreign investment is really beneficial and how significant this benefit is to economic growth. Proponents have argued that multinational corporations in developed countries have actually become a threat to host countries as they are now subversive and exploitative. Multinational corporations are in reality the representation of the global corporation around countries as they see the state as the only unit of analysis in international relation. These arguments above and indeed many more have necessitated a critical look and finding out of whether the often acclaimed benefits of foreign investment are significant or not economic growth.