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Macroeconomic Determinants of Foreign Direct Investment and Economic Transformation in Nigeria, 1981–2010: An Empirical Evidence

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  • Panshak Yohanna

    (Panshak Yohanna, Department of Economics, Plateau State University, Nigeria. E-mail: pansholla@yahoo.com)

Abstract

Foreign direct investment is identified as a major catalyst of economic growth and transformation in developing economies of the world including Nigeria given the investment–savings gap. Over the years, Nigeria has witnessed sustained increase in foreign direct investment in the economy. It is however worrisome that it has not been able to transform the economy to any significant level. Consistent efforts have been made by successive governments in Nigeria that focus on policies that would attract foreign direct investment into the economy but the impact has been dismal. Consequently, the country is still characterised by a high level of unemployment, unstable prices, low per capita income, exchange rate volatility, external imbalances and prevalence of a poverty situation. This article aims at determining the macroeconomic determinants of foreign direct investment and its impact on economic transformation in Nigeria. Secondary data for the period 1981–2011 was used for the investigation. Time series estimates are obtained using Ordinary Least Squares (OLS) methodology which includes: stationary and co-integration tests. It was discovered that market size (GDP), human capital (HCAP), infrastructural development (INFRADEV), inflation (CPI) and index of energy consumption (IEC) are positively related to foreign direct investment in Nigeria. Unstable exchange rates (NEXR), interest rate (INT), under developed financial sector (BSTCR) and low per capita incomes have had negative impact on Foreign Direct Investment in the economy. The research recommends increase in energy consumption through regular supply of electricity, increase in GDP, development of human capital and a critical infrastructure to create a competitive and conducive business environment as well as reduction of exchange rate instability, interest rate distortions and development of the financial sector for a meaningful transformation of the Nigerian economy.

Suggested Citation

  • Panshak Yohanna, 2013. "Macroeconomic Determinants of Foreign Direct Investment and Economic Transformation in Nigeria, 1981–2010: An Empirical Evidence," Insight on Africa, , vol. 5(1), pages 55-82, January.
    • Handle: RePEc:sae:inafri:v:5:y:2013:i:1:p:55-82
    DOI: 10.1177/0975087813512055
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    References listed on IDEAS

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