AN ECONOMETRIC ANALYSIS OF THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT FLOWS TO NIGERIA

ABSTRACT

The study examines the determinants of foreign direct investment flows in Nigeria. Specifically, the study examined the effects of exchange rate, gross domestic product, inflation, stock market capitalization and interest rate on foreign direct investment flows in Nigeria. The nature of this study necessitated the use of secondary data. The error correction method (ECM) was utilized to estimate the dynamic relationships amongst   co-integrated variables. The findings of the study showed that exchange rate exerts a long run negative effect on foreign direct investment flows which also appears to be statistically significant at 5 percent. Gross domestic product exerts a long–run positive influence on foreign direct investment flows which also appears to be statistically significant at 5 percent. Inflation has a long run negative influence on foreign direct investment flows which is also significant as indicated by the t-value at 5 percent level. Stock market capitalization has a long run positive effect on foreign direct investment flows which is also significant at 5 percent. Interest rate is observed to have a long run negative effect on foreign direct investment flows and also significantly as indicated by the t-value at 5 percent level. To conclude, we observe that short-run fluctuations will converge at the long-run estimates. The study recommends that Nigeria has to focus on strengthening the macro-economic environment to attract foreign direct investment.