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Tax and Foreign Direct Investment in Nigeria: A Dynamic Estimation Approach

Author

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  • Ozekhome, Hassan O.

    (Samuel Adegboyega University, Edo State, Nigeria)

Abstract

This paper empirically investigates the nexus between tax and foreign direct investment (FDI) in Nigeria, over the period 1986-2020. Employing the dynamic system GMM estimation technique, the findings show that a high tax regime has a destabilizing effect on FDI inflows. Lagged FDI (a measure of agglomeration effects, relating current FDI to past FDI inflows) is positively and significantly related to FDI. Growth rate of real GDP (a measure of economic size) is positively and significantly related to FDI. It is also evident that infrastructure has a positive but weak impact on FDI. The paper recommends institutional reforms in tax to entrench an investment- friendly environment, as well as increased infrastructure investment spending, particularly, ICT, and a stable political and macroeconomic environment to stimulate FDI inflows to Nigeria. =

Suggested Citation

  • Ozekhome, Hassan O., 2022. "Tax and Foreign Direct Investment in Nigeria: A Dynamic Estimation Approach," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(2), pages 115-124, June.
    • Handle: RePEc:ris:jecdev:0020
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    References listed on IDEAS

    as
    1. Hassan O. Ozekhome, 2017. "Does Democratic Institutions And Foreign Direct Investment Affect Economic Growth? Evidence From Nigeria," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 2(2), pages 27-36, September.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Jianjun Miao & Pengfei Wang, 2014. "Lumpy Investment and Corporate Tax Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1171-1203, September.
    4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    5. Abdoul’ Ganiou Mijiyawa, 2015. "What Drives Foreign Direct Investment in Africa? An Empirical Investigation with Panel Data," African Development Review, African Development Bank, vol. 27(4), pages 392-402, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Tax; Foreign Direct Investment; Cost of Capital; GMM;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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