DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN NIGERIA

Abstract

This study examines the short- and long-run determinants of foreign direct investment (FDI) in Nigeria from 1980 to 2022, addressing the persistent challenge of attracting sustainable foreign investment amidst fluctuating macroeconomic conditions. Key variables explored include investment inflows, exchange rate, degree of openness, GDP growth rate, inflation rate, and infrastructure. Utilizing the Autoregressive Distributed Lag (ARDL) model, the study found that GDP growth rate, exchange rate, and degree of openness are critical determinants of FDI both in the short run and long run. Notably, these variables maintain a significant influence over FDI in the long run, emphasizing their importance for long-term investment strategies. Additionally, the analysis revealed a long-run equilibrium relationship between FDI and the macroeconomic variables, suggesting that changes in these factors will impact FDI flows over time. To harness the full benefits of FDI inflows, the study recommends policies that promote greater openness to trade, ensure exchange rate stability, and support sustained GDP growth, thereby creating a more favorable environment for foreign investors and contributing to Nigeria's economic development.