Macroeconomic Consequences of Foreign Direct Investment in Nigeria: An Empirical Analysis

Abstract

This study examines the impact of macroeconomic determinants on foreign direct investment (FDI) in Nigeria between 1980 and 2012. Different methods and techniques were employed ranging from Augment Dickey Fuller test, Engel-Granger co-integration, Ordinary Least square, Error Correction and Granger causality test for the data sets. The findings indicated that market size measured by output growth, openness to trade and infrastructure attracts FDI significantly as they causes an increase on FDI inflows by 2.35%, 3.2%, and 0.46% respectively. Moreso, political instability was found to have negative insignificant impact towards attracting foreign direct investment in Nigeria. Other macroeconomic variables reported are exchange rate and inflation rate, positive but insignificant. Furthermore, only output growth and inflation rate granger cause FDI in Nigeria. There is need for continuous increase and growth of the nation’s output, trade growth, sustainable infrastructural facilities and stable political system as they have significant impact on FDI inflows.

Keywords: Macroeconomic factors, FDI, ECM, Granger causality, Nigeria.