DETERMINATION OF FOREIGN DIRECT INVESTMENT CAUSATION AND SHOCKS: EMPIRICAL EVIDENCE FROM NIGERIA

Chinedu B. Ezirim
Ucheoma I.Ezirim
University of Port Harcourt, Nigeria

ABSTRACT

This study set out to unravel the actual causal variables of foreign direct investment
inflow in Nigeria using current data for the (1986–2018) periods that synchronizes with the
advent of the comprehensive structural adjustment program of 1986. Use was made of the
generalized linear model, causality, cointegration, error correction, impulse response functions,
and variance decomposition techniques. The study found the existence of long-run equilibrium
causal relationship between the variables; such that long-rum causality flowed jointly from
exchange rates, interest rates, inflation, tax, and unemployment rate to foreign direct investment
ratio to GDP. From the findings of the pairwise causality analysis, FDI inflows to Nigeria are
determined mainly by three factors, namely interest rates, inflation and taxes. Unemployment and
exchange rates are minimal in their causal effects. In the long-run, all the modeled factors are
joint-causative arguments explaining FDI inflows to Nigeria.

Keywords: Foreign direct investment, interest rates, inflation, taxes, Nigeria