IDEAS home Printed from https://ideas.repec.org/a/sae/inafri/v5y2013i1p55-82.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0975087813512055
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0975087813512055?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Tokunbo S. OSINUBI & Lloyd A. AMAGHIONYEODIWE, 2010. "Foreign Private Investment And Economic Growth In Nigeria," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 5, pages 105-127, June.
    2. Kenneth A. Froot & Jeremy C. Stein, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1191-1217.
    3. Hausmann, Ricardo & Fernández-Arias, Eduardo, 2000. "Foreign Direct Investment: Good Cholesterol?," IDB Publications (Working Papers) 1319, Inter-American Development Bank.
    4. Abu Nurudeen, Obida Gobna Wafure & Elisha Menson Auta, 2011. "Determinants of Foreign Direct Investment: The Case of Nigeria," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 50-67, August.
    5. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January.
    6. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(2), pages 190-207.
    7. John H Dunning, 1980. "Towards an Eclectic Theory of International Production: Some Empirical Tests," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 11(1), pages 9-31, March.
    8. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "Foreign Direct Investment: Good Cholesterol?," Research Department Publications 4203, Inter-American Development Bank, Research Department.
    9. World Bank, 2010. "World Development Indicators 2010," World Bank Publications - Books, The World Bank Group, number 4373, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muzurura, Joe, 2016. "Determinants of foreign direct investment (FDI) in Zimbabwe: What factors matter?," MPRA Paper 99873, University Library of Munich, Germany, revised 04 Jun 2016.
    2. Razin, Assaf & Goldstein, Itay, 2003. "An Information-Based Trade-off Between Foreign Direct Investment and Foreign Portfolio Investment: Volatility, Transparency and," CEPR Discussion Papers 3747, C.E.P.R. Discussion Papers.
    3. Tidiane KINDA, 2010. "Increasing Private Capital Flows To Developing Countries: The Role Of Physical And Financial Infrastructure In 58 Countries, 1970-2003," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
    4. Sèna Kimm Gnangnon, 2020. "Trade Openness and Diversification of External Financial Flows for Development: An Empirical Analysis," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 22-57, June.
    5. Ngongan, Elie, 2014. "Physical Infrastructures and Attractiveness of Private Capital in Sub-Saharan African (SSA) Countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(1), pages 7-21.
    6. Dunning, John H., 2000. "The eclectic paradigm as an envelope for economic and business theories of MNE activity," International Business Review, Elsevier, vol. 9(2), pages 163-190, April.
    7. Jagadish Prasad Sahu & Santosh Kumar Dash, 2021. "What Explains FDI Inflows to ASEAN Countries? Evidence from Quantile Regressions," Journal of Asian Economic Integration, , vol. 3(1), pages 25-37, April.
    8. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, vol. 74(1), pages 94-119, January.
    9. Nandipha Dondashe & Andrew Phiri, 2018. "Determinants of FDI in South Africa: Do macroeconomic variables matter?," Working Papers 1802, Department of Economics, Nelson Mandela University, revised Jan 2018.
    10. David Umoru & Gladys A. Nwokoye, 2018. "FAVAR Analysis of Foreign Investment with Capital Market Predictors: Evidence on Nigerian and Selected African Stock Exchanges," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(1), pages 12-20, March.
    11. Isabel Faeth, 2009. "Determinants Of Foreign Direct Investment – A Tale Of Nine Theoretical Models," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 165-196, February.
    12. Agarwal, Jamuna Prasad & Gubitz, Andrea & Nunnenkamp, Peter, 1991. "Foreign direct investment in developing countries: the case of Germany," Open Access Publications from Kiel Institute for the World Economy 423, Kiel Institute for the World Economy (IfW Kiel).
    13. Toure Mamoudou & Cédric Achille Mbeng Mezui, 2017. "Working Paper 271 - Facteurs déterminants des IDE en Afrique," Working Paper Series 2388, African Development Bank.
    14. Mr. Norbert Funke & Mr. Faisal Ahmed & Mr. Rabah Arezki, 2005. "The Composition of Capital Flows: Is South Africa Different?," IMF Working Papers 2005/040, International Monetary Fund.
    15. Najeh Bouchoucha & Saloua Benammou, 2020. "Does Institutional Quality Matter Foreign Direct Investment? Evidence from African Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(1), pages 390-404, March.
    16. Soliman, Mohamed M., 2005. "The Effect of Currency Crises on Foreign Direct Investment Activity in Emerging Markets," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 1(2), pages 1-18.
    17. Sahiti Arben & Ahmeti Skender & Ismajli Hysen, 2018. "A Review of Empirical Studies on FDI Determinants," Baltic Journal of Real Estate Economics and Construction Management, Sciendo, vol. 6(1), pages 1-11, March.
    18. Tidiane Kinda, 2007. "Increasing Private Capital Flows to Developing Countries : The Role of Physical and Financial Infrastructure," Post-Print hal-00171934, HAL.
    19. Chandra, Ramdas & Newburry, William, 1997. "A cognitive map of the international business field," International Business Review, Elsevier, vol. 6(4), pages 387-410, August.
    20. Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, vol. 29(4), pages 1161-1169.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:inafri:v:5:y:2013:i:1:p:55-82. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.