DETERMINANTS OF FOREIGN DIRECT INVESTMENT INFLOW IN AN EMERGING ECONOMY: THE NIGERIA EXPERIENCE

The resources to finance the optimal level of economic growth and development in Nigeria are in short supply. This is because, Nigerian economy is plagued with rising poverty, low domestic savings, low tax revenue, macroeconomic instability, political instability, unstable exchange rate and limited foreign exchange earnings amongst others. As a result of these, the country inevitably resorts to policy that will enhance the flow of foreign direct investment in order to bridge the gap between the resources available to her and what is required for her advancement. Given these situations, the study examined the determinants of foreign direct investment inflow in Nigeria from 1980-2015 with the use of time series data obtained from the NBS and CBN statistical bulletin. It employed the econometric techniques of co-integration, ECM and Chow test approach to analyze the data. The Augmented Dickey Fuller unit root test result showed that all the variables were stationary at first difference. The Johansen co-integration test result showed that there is a long run equilibrium relationship amongst the variables. The coefficient of the ECM has the hypothesized negative sign and statistically significant at 5% level. The dynamic model is a good fit because the R2 is 61%. Moreover, the parsimonious ECM result has the speed of adjustment of 84.1% and also showed that exchange rate stability, political stability, economic growth as well as favourable corporate tax were positively and significantly related to FDI in Nigeria during the period of study. The structural break test showed that the determinants of the inflow of FDI in Nigeria before and after the era of stable democracy were significant in explaining the development of the economy. Based on these findings, the study recommends amongst others that; government should create an enabling political and investment environment to attract more of foreign investment in Nigeria. Also, government should make concerted effort to increase the annual economic growth rate and make tax friendly policy in order to market the economy and attract foreign investors in the country. JEL: F21, G11, E44 Article visualizations