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Do Regulatory Quality, Government Effectiveness and Rule of Law Matter to Foreign Direct Investment in Nigeria?

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  • Hassan O. OZEKHOME

    (Department of Economics, Samuel Adegboyega University, Ogwa- Edo State, Nigeria.)

Abstract

A strong institutional framework, which embeds rule of law, regulatory quality and government effectiveness, is critical to foreign direct investment drive. In general, the effectiveness and predictability of the judiciary, quality of contract enforcements, including property rights, government effectiveness, regulatory framework, stability of the political system, as well as macroeconomic environment are indispensable to private enterprise and foreign direct investment inflows in resource-scarce countries, necessitating this study. Employing the Generalized Method of Moments (GMM) estimation techniques on annual time series data covering the period from 1970 to 2020 and the Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS) for robustness check, the empirical findings show that regulatory quality, government effectiveness and rule of law matter to FDI inflows in Nigeria. Political stability and exchange rate are positively related to FDI, although the effects are not significant. Infrastructure development (measured by ICT) has a significant impact on FDI, while Inflation rate (a proxy for macroeconomic policy environment) and control of corruption are negatively related to FDI inflows. Based on the foregoing findings, it is important that sound regulatory framework and government effectiveness be developed, in addition to an efficient legal framework that support FDI inflows. Increased investment in critical infrastructure, stable political and macroeconomic environments and a competitive exchange rate are other important ways of promoting foreign direct investment inflows in Nigeria

Suggested Citation

  • Hassan O. OZEKHOME, 2022. "Do Regulatory Quality, Government Effectiveness and Rule of Law Matter to Foreign Direct Investment in Nigeria?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 160-175, April.
    • Handle: RePEc:rjr:romjef:v::y:2022:i:1:p:160-175
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    2. Mohammed N. Abu Alfoul & Reza Tajaddini & Hassan F. Gholipour & Omar Bashar & Fouad Jamaani, 2024. "The Impacts of ICT on Economic Growth in the MENA Countries: Does Institutional Matter?," Politická ekonomie, Prague University of Economics and Business, vol. 2024(3), pages 446-477.
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    More about this item

    Keywords

    institutions; regulatory quality; enforceability of contracts; macroeconomic policy; GMM;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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