International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Determinants of Foreign Direct Investment in Nigeria “Evidence from Co- Integration and Error Correction Modeling”
Eugene Maghori

This study investigates the determinants of Foreign Direct Investments (FDI) in the Nigerian economy using annual time series data for the periods 1970 to 2010. Utilizing the Error Correction Modeling (ECM) technique, the results show that the major determinant of foreign capital inflow in the economy is the ratio of external debt to Gross Domestic Product both in the short run and long run. However, some factors such as the size of the national income, the degree of openness to trade, the existing stock of foreign capital in the previous period, inflation rate and exchange rate are well maintained through to the long run. The study recommends that government should place less emphasis on policies that encourage external borrowing and embrace those that strengthen and stabilize the economy: such policies are those designed to maintain price and exchange rates stability, reduction in fiscal deficit, increase in domestic investments and the diversification of the economy for export trade among others. These are crucial to foreign capital inflow to the economy.

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