Empirical Investigation of the Determinants of Foreign Private Investment in Nigeria

Abstract

This study empirically examined the Determinants of Foreign Private Investment (FPI) in Nigeria within 1980 to 2014. The study made use of secondary data sourced from CBN Statistical Bulletin various years. The Error Correction Model was adopted following the stationarity status of the data set. From results, it was observed that Gross Domestic Product (GDP) and Openness (OPNS) were the only significant determinants of Foreign Private Investment in Nigeria within the period under review at 5% level of significance. The economic implication of this result is that GDP which measures the market size of the Nigerian economy in this study was a significant determinant of FPI. Furthermore, OPNS which measures the degree of openness of the Nigerian economy in this study was also a significant determinant of FPI. Therefore, this result suggests that FPI inflow flourishes in countries with liberal trade policies. Political Instability (PI) which was a dummy variable showed that there was no significant difference in the inflow of FPI between the military regime and the civilian regime. The result further indicated that coefficients of GDP and OPNS were significantly positive, indicating that there exists a positive and direct relationship between FPI and GDP, FPI and OPNS. The implication of the result is that when GDP and OPNS increase in Nigeria, FPI increases. The error correction mechanism indicated that the model has an adjustment speed of approximately 52% if there was disequilibrium in the shortrun. The result also showed that bi causality relationship exists between FPI and GDP, and between FPI and OPNS. The implication is that both FPI and GDP cause each other so also is with FPI and OPNS. In the light of these findings, this study recommends that government should pursue economic policies which include addressing socio-economic and infrastructural challenges in Nigeria so as to attract FPI inflows in Nigeria. That government should review her commercial and trade policies like the custom regulations and make them friendly so as to attract FPI inflows in Nigeria. That government should address the issues of low wage rates so as to boost domestic consumption and improve aggregate demand in Nigeria.