Impact of Fiscal Policy Instability on Foreign Direct Investment in Nigeria

Abstract

Fiscal policy is the planning of revenue and expenditure levels and pattern by government to influence the circular flow, or specifically to promote full employment production, price stability and national welfare. The need for a more stable macro-economic environment in Nigeria through sound fiscal and monetary actions is still paramount. This study investigated the impact of fiscal policy instability on Foreign Direct Investment (FDI). The objective of this study was to find out if measures of fiscal policy a significant effect on the FDI instability. The data used for this study was obtained through secondary source. This data included Nigeria’s gross domestic product, foreign direct investment, government revenue, government expenditure, balance of payment and government total debt from 2000-2014. Data showing the Foreign Direct Investment (FDI) from 2000-2014 was also obtained. The regression analysis technique was used to test the hypotheses. The study founded that coefficient of determination R² explained a total variation of 93% (percent) of the dependent variable (FDI) which means that measures of fiscal policy instability are important predictor of FDI. The study revealed that fiscal policy measures of the federal government have not significantly improved FDI. The study concluded that Fiscal Policy instability on FDI could be as a result of the insufficient domestic investment to accelerate growth, hence, recommended that there should be improvement in the overall fiscal operations of the Federal Government to ensure sound and stable macroeconomic environment that will attract investors.

Keywords: Fiscal Policy, FDI and Macroeconomic Environment