FOREIGN DIRECT INVESTMENT DETERMINANTS IN PRE AND DEREGULATED NIGERIAN ECONOMY
ABSTRACT
Foreign Direct Investment (FDI) plays an extraordinary and growing role in global business by providing firms with new markets and marketing channels for their products, Incidentally, Nigeria has been a recipient of Foreign Direct Investment (FDI) overtime but the major determinants and their impacts in the growth of the economy have not been fully ascertained. This study sought to: (i) examine FDI determinants(market size, exchange rate, inflation rate and degree of openness) in Pre deregulated Nigerian economy from (1970 – 1985), (ii) examine FDI determinants(market size, exchange rate, inflation rate and degree of openness and natural resources) in deregulated economy from 1986 – 2010, (iii) evaluate a causal relationship between the growth of the Nigerian economy and FDI within the pre deregulated era (1970 – 1985) and (iv) investigate whether a bi-directional relationship exists between growth of the Nigerian economy and FDI within the deregulated era (1986 – 2010). The study adopted the ex-post facto research design. Annual time series data for 41-years were collated from Central Bank of Nigeria – Statistical bulletin, Federal Office of Statistics and World Bank Handbook of Statistics for the period, 1970-2010. Four major hypotheses were formulated and tested and results revealed that three FDI determinants (Exchange Rate, Inflation Rate and Degree of Openness) in a pre deregulated Nigerian Economy had negative and non-significant impact on Foreign Direct Investment in the Nigerian Economy, while Market Size had a positive and non-significant impact on Foreign Direct Investment (coefficient of Exchange Rate = -5.15, P = 0.16; coefficient of Inflation Rate = -0.13, P = 0.70; coefficient of Degree of Openness = -4.24, P = 0.057, coefficient of Market Size = 0.46, P = 0.10). One FDI determinant (Market Size) in a deregulated Nigerian Economy had positive and significant impact on Foreign Direct Investment in the Nigerian Economy. Inflation Rate had positive and non- significant impact on Foreign Direct Investment in the Nigerian Economy. Two FDI determinants (Exchange Rate, and Degree of Openness) had negative and non-significant impact on Foreign Direct Investment while One determinant (Natural Resources) had positive and non-significant impact on Foreign Direct Investment (coefficient of Market Size = 1.32, P = 0.00; coefficient of Exchange Rate = -0.86, P = 0.12; coefficient of Inflation Rate = 0.5924, P = 0.06; coefficient of Degree of Openness = -1.14, P = 0.28; coefficient of Natural Resources = 0.05, P = 0.97). There was a positive causal relationship between the growth of Nigerian Economy and Foreign Direct Investment (FDI) within the pre deregulated era (coefficient of correlation = 0.66, P =0.16). There was bi-directional relationship between growth of the Nigerian economy and Foreign Direct Investment (FDI) within the deregulated era (F statistic = 3.46 > P = 0.05).The study recommends, among others that government should issue efficient fiscal policies that would intensify the trade liberalization policy which was initiated under the deregulation programme that started in 1986, so as to increase openness in the economy, and improve on the nation’s business environment. Above all, this research has contributed to knowledge by providing vital information, and evidence, while employing modified versions of Soumyanada (2009;2010); Yuko and Nauro (2002); Beatrice and Adolf (2004); Rojid et al (2000); Alan and Saul (2004); Omankhanlen (2011)models on the Nigerian situation. It has added to the enrichment of literature on FDI determinants in a developing country- Nigeria.