THE DETERMINANTS OF FOREIGN-DIRECT-INVESTMENT (FDI) INFLOWS IN NIGERIA

Due to the importance of foreign direct investment (FDI), scholars are always keen to explore FDI determinants and analyze their implications. Nevertheless scholars have proposed mixed viewpoints of FDI and interpreted its determinants differently, which do not contribute to the knowledge advancement and amalgamation of FDI literatures. The current research, therefore, aims to advance the knowledge of FDI determinants in Nigeria through a new investigation on the key determinant factors affecting Nigeria's inward FDI. Data were collected from UNCTAD (1970-2014) and analyzed by auto-regressive distributed lag tests (ARDL). A comprehensive theory-based model was developed accounting for many variables, such as the interest rate, external debt, oil rents, the Gross Domestic Product (GDP) growth rate, trade and exchange rate volatility. The analysis of FDI determinants in the Nigerian economy yielded reliable, robust, and economically meaningful results thereby offering an insight into the driving factors of inward FDI. Findings indicate that the interest rate, external debt, oil rents, and GDP growth are all important determinants, possessing a long-run effect on FDI. Different from the literature, however, trade and exchange rate volatility are barely important to FDI. Several policy implications flow from the findings. From a policy point of view, regarding the GDP growth rate, there should be concerted efforts to boost the performance of the non-oil sector in Nigeria through more investments in the agricultural and industrial sectors making the growth of the economy spread across other sectors and, in turn, encouraging inward FDI in such areas. Countries such as Nigeria, endowed with natural resources, should pursue policies targeted at full deregulation (privatisation) of their natural resource sector to better utilize the abundance of their natural resources thereby attracting additional FDI. Nigeria should also pursue better debt management practices. When debts are acquired, they should be targeted towards future consumption and longer-term investments. Most importantly, as an import-dependent economy, the Nigerian government should also formulate export-driven and appropriate fiscal policies that will stabilize Nigeria's trade relationship with other world economies. The Nigerian government should create the necessary environment that will regulate macroeconomic and specifically monetary policy (interest rate) which is essential for the attraction of FDI inflows into the economy. Finally, Nigeria should ensure that the quality of exportable commodities is improved to enhance international competitiveness. JEL Classifications: E01, O19, Q34 Keywords: ARDL; Cointegration; Foreign Direct Investment; FDI; Model; Nigeria.
INTRODUCTION Over the past three decades, Foreign Direct Investment (FDI) has been subjected to considerable scrutiny in terms of its potential benefits (e.g., on employment, knowledge and technological spillovers) and [...]