What Determines Foreign Direct Investment Inflows To Nigeria?

Abstract

FDI flow is important to the development process of developing countries. FDI is necessary for supplementing domestic savings and encouraging investment. Despite this, FDI flow to Nigeria has been low. It then becomes pertinent to identify the determinants of FDI in the WAMZ so as to increase FDI flow to the country. The study covers the period 1980 to 2013. The unit root stationarity test was used to check for the presence of unit root among the variables; the cointegration test for examining Lon run relationship among the variables in the model and then the vector error correction model was used to identify short run equilibrium determinants of FDI in Nigeria. The findings of the study reveal that the significant determinants of FDI are GDP, FDI lag two, exports, exports lag two, exchange rate and inflation which have a positive relationship with FDI and interest rate lag two, imports lag one, exchange rate lag two which have a negative relationship with FDI. This study recommends that the Nigerian government should endeavour to create favourable environment and policies that can attract more FDI into the productive sectors of the economy.

Key words: Foreign Direct Investment (FDI), Nigeria, cointegration, error correction model.