Determinants of Foreign Direct Investment in Nigeria: An Empirical Analysis

Abstract

The role of foreign direct investment in the development of Nigerian economy cannot be over emphasized. Foreign direct investment provides capital for investment, it enhances job creation and managerial skills, and possibly technology transfer. This paper investigates the determinants of foreign direct investment in Nigeria. The error correction technique was employed to analyze the relationship between foreign direct investment and its determinants. The results reveal that the market size of the host country, deregulation, political instability, and exchange rate depreciation are the main determinants of foreign direct investment in Nigeria. The authors recommend the following policies among others: expansion of the country's GDP via production incentives; further deregulation of the economy through privatization and reduction of government interference in economic activities; strengthening of the political institutions to sustain the ongoing democratic process; gradual depreciation of the exchange rate; and increased investment in the development of the nation's infrastructure.

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