DETERMINANTS OF FOREIGN DIRECT INVESTMENT INFLOWS IN NIGERIA

Abstract

This study examined the determinants of foreign direct investment (FDI) inflows in Nigeria from 1991 to 2020. The independent variable is FDI determinants measured by market size (real gross domestic product), exchange rate, inflation rate, and degree of trade openness. Meanwhile, the dependent variable is FDI inflows measured by proportion of FDI net inflows to GDP ratio. The study sourced data from the Central Bank of Nigeria (CBN) Statistical Bulletin (2020) and the World Bank Data Base (2020). The study adopted the Autoregressive Distributed Lag (ARDL) methodology through the instrumentality of Econometric Views (E-Views) version 99.0. The study affirmed that the FDI inflows and its drivers exhibited mixed integration, co-integrated, relatively stable, Homoskedastic, free from Multicolinearity problem, and well-specified. Further, market size (real gross domestic product) and exchange rate had a high direct effect on FDI both on the short and long run while inflation rate had a high dampening effect on FDI inflows to the Nigerian economy. However, degree of trade openness had a minimal dampening effect on FDI inflows to the Nigerian economy. Hence, the study concludes that market size (real gross domestic product), exchange rate, and inflation rate are the major determinants of FDI inflows into the Nigerian economy. As such, the study recommends among others: that for FDI inflows to increase continuously, there is need for continuous expansion of the country's GDP via production incentives.