Effects of the Determinants of Foreign Direct Investment in Nigeria

Abstract

Most nations all over the world institutes policies to attract more Foreign Direct Investment (FDI) inflows. Identifying the key determinants of FDI inflows is therefore seen as an important task for policy makers. This study therefore, investigates the major determinants of FDI in Nigeria spanning from 1986-2017. Secondary source of data were used for the study which were first subjected to stationarity test using Augmented Dickey Fuller and Phillips Perron test. Findings showed that all variables were found to be integrated into the order of one. Cointegration analysis showed that there exist a long run relationship among the variables. Based on these findings, Error Correction Mechanism was used in testing the hypotheses. The result showed that exchange rate, GDP, first lag of GDP, military expenditure, first lag of military expenditure, political stability and financial development are the major determinants of FDI inflows to Nigeria. The study therefore recommends among others that, government at all levels should tackle the menace of insecurity ravaging the economy and portraying the country as insecure thereby creating a secured environment for FDI inflows. Democratic regimes should be sustained and investment policies should be instituted or improved on, in order to create a friendly environment to attract more FDI inflows.