Direct Foreign Investment in Nigeria: An Empirical Analysis

Abstract

Although the presence of foreign capital has been quite evident in most sectors of the Nigerian economy, only a handful of studies have attempted to analyze some aspects of direct foreign investment in the country. Even then, these studies (Hakam, 1966; May, 1965; Edozien, 1968; Langley, 1968; Central Bank of Nigeria, 1964-79) have tended to be descriptive, especially with respect to analyzing trends, incentives, motivations, linkage aspects, and distribution of foreign investment. Thus, there has been virtually no empirical work aimed at statistically evaluating the determinants of direct foreign investment in Nigeria. Consequently, this study has the object of going beyond intuitive and descriptive analysis by providing a comprehensive empirical estimate of determinants of direct foreign investment, using the least squares regression approach. In order to provide the theoretical framework, a number of direct investment hypotheses proposed or considered in the literature are first reviewed. The analysis focuses on direct foreign investment in all industries combined. Apart from possible specification problems connected with separate models for different industries which a disaggregated approach entails, such an attempt is further complicated by the absence or the poor quality of data relating to the larger number of variables which would have to be considered. Taking cognizance of this kind of problem in a developing country such as Nigeria, the only disaggregation to be done is in respect to sources of foreign investment. In this direction, the study analyzes total direct investment as well as direct foreign investment from the United Kingdom and the United States of America. These two countries accounted for over 62 percent of direct foreign investment in Nigeria in 1974.

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