Determinants of Foreign Direct Investment in Nigeria: An Empirical Investigation

ABSTRACT: This thesis examines the long-run determinants of Foreign Direct Investment in Nigeria based on empirical evidence. The research covers a period between 1970 and 2009 and utilizes the Vector Error Correction Mechanism (VECM). Our result provide evidence which indicates that the size of Nigeria domestic market size, the liberalization policy and openness of the economy as well as a stable domestic currency are significant in attracting FDI. We found evidence for higher inflation in the long run. We present the result of the impulse response and the forecast error variance that is due to exogenous shocks of the variables in the VECM model. If we ignore the own shock, the shocks of the model in response to RGDP (Real Gross Domestic Product), INF (Inflation), REER (Real Effective Exchange Rate), OPP (Openness) are found to be significant and positive over the forecast period. Recommendations to strengthen the Nigerian investment environment by reducing the obstacle to doing business, improving Nigeria’s economic management, repositioning the Nigerian investment agencies and export promotion schemes are proffered as important and significant in attracting FDI in Nigeria and increasing her share of FDI as a percentage of world FDI stock. Keywords: Foreign Direct Investment, Impulse response, Vector Error Correction Mechanism, Nigerian investment agencies, export promotion, forecast error variance. …………………………………………………………………………………………………………………………