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DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN NIGERIA (1980 – 2011)
Abstract
One of the arguments for pursuing Foreign Direct Investment (FDI) by countries is the belief that FDI bridges the gap between rich and poor nations by promoting economic growth and development in addition to generation of technological transfers. However, empirical studies have found divergent views on the effect of FDI on growth and development. This paper examines the determinants of Foreign Direct Investment (FDI) in Nigeria during 1980 – 2011. It aimed at determining functional relationships that exist between GDP, wage rate, interest rate and relative openness index, and the extent to which each variable has influenced FDI inflow to Nigeria. The paper contributes to existing studies by using the multiple regression analysis in testing whether the set of independent variables explained the dependent variable. The study found that a significant relationship existed between GDP and inflow of FDI as well as real wage rates and inflow of FDI. It also found no significant relationship between FDI in flow and the relative openness index as well as lending rate and FDI inflow in the years under review. Based on the findings, it was concluded that Nigeria being a latecomer to the quest for FDI, campaigns for inward flow of FDI have not yielded the desired result. Specifically, it was found that improvement in GDP would lead to an improvement in inflow of FDI. Per capita income is too low to effectively draw FDI into sectors that will generate positive externalities. When the wage rates increase in Nigeria, it will have a positive impact on the FDI inflow. To address the problem, it was recommended that; government must follow through with the reform programmes and pursue policies that will increase the GDP and income per capita, address the issue of poor wage rates, review trade and investment policies as well as customs and banking regulations.
Key Words: FDI, Interest Rate, Wages, Relative Openness, Lending Rate.