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DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN NIGERIA: A STRUCTURAL VAR APPROACH
ABSTRACT: Foreign direct investment is considered one of the ways through which a nation’s economy could grow. As much as it associated with capital flight, foreign direct investment is also associated with transfer of technology and exchange of ideas that could trigger economic development. Nigeria as a country has benefitted immensely from the flows of FDI and the sustenance of which is very paramount to the economic growth and development. This study therefore examines the determinants of FDI in Nigeria. This, with a view of identifying the macroeconomic variables that influence FDI in the country. The study employs the use of Structural Vector Autoregression (SVAR) in analyzing the determinants of FDI in Nigeria. The unit root tested conducted showed that all the variables were non stationary, but were made stationary after first differencing The coefficients of the explanatory variables showed that of all the variables considered namely; inflation rate (INF), exchange rate (EXR), degree of openness (DOP), infrastructure (INFRA) and growth rate of GDP (RGDP), only infrastructure was found to be negatively related to FDI. Both the SVAR estimates and the impulse response function confirmed this position. The Variance decomposition confirmed inflation rate and exchange rate as the most significant variables that determine FDI in Nigeria. It was recommended among others that social amenities like good road, electricity, Information and communication technology should be improved upon to have an improved FDI.
Keywords: Foreign Direct Investment, Structural VAR and Economic growth