Effect of Primary and Secondary Foreign Direct Investment on Financial Deepening in Nigeria

Effect of Primary and Secondary Foreign Direct Investment on Financial Deepening in Nigeria

Arumona, Jonah Okpe., Oguntade, Adebayo Samuel

Department of Accounting, Faculty of Administration Bingham University

DOI: https://dx.doi.org/10.47772/IJRISS.2025.906000274

Received: 09 May 2025; Accepted: 13 May 2025; Published: 10 July 2025

ABSTRACT

Nigeria’s financial system has shown that the financial deepening of the country seems to be improving over the years but the question that is begging for an answer is that, is the level of primary and secondary foreign direct investment in the country sufficient to widen the quantum of financial deepening required to improve the nation’s economy. The study examines effect of foreign direct investment on financial deepening in Nigeria for the duration of 31 years starting from 1993 to 2023. Secondary data was obtained from Central Bank Nigeria Statistical Bulletin and the data was analysed using Autoregressive Distributed Lag (ARDL) techniques. Findings show that the primary foreign direct investment and secondary foreign direct investment have positive and significant effect on financial deepening. The study therefore concludes that foreign direct investment has significant effect on financial deepening in Nigeria. The study recommends that government should create an enabling and favourable environment that encourages primary foreign direct investment in the extractive and agricultural sector in Nigeria, which will help increase the gross domestic product.

Keywords: Primary Foreign Direct Investment, Secondary Foreign Direct Investment Financial Deepening, Private Sector Credit, Gross Domestic Product, Trade Openness

INTRODUCTION

The development of the financial services industry ensures, through financial intermediation process, that savings, credit and funds are mobilized for trade and investment purposes which ultimately spur real sector activities (Lenyie et al, 2023). This is achieved through financial intermediation process as a form of financial development. Financial deepening (FINDEP) ensures wider consumers of financial products and services are reached with ease, economy and speed with their desired requirements at all strata of the society. FINDEP is indicated by a higher ratio of different financial services provision indicators, such as money supply, stock market capitalization, credit to private sector, insurance sector services and mortgage services to the gross domestic growth (GDP). Generally, the intermediate function of financial sector is to promote economic growth by increasing economic efficiency, investment and financial deepening.

Foreign direct investment is viewed as a major stimulus to economic growth in developing countries because of its ability to deal with two major obstacles namely, shortages of financial resources, technology and skills. This has made it the centre of attention for policy-makers in low-income countries in particular. In order to attract Foreign Direct investment (FDI), developing countries such as Nigeria and Ghana have established pro-investment policies that help firms to open subsidiaries in all parts of the world with relative ease. In this regard, policy makers in developing countries such as Nigeria attract FDI to accelerate economic growth, enhance job creation and ensure poverty reduction. This is based on the premise that FDI is a way of obtaining capital and technology that is not available in the host country (Ajayi et al, 2023). According to the World Bank (2017), Foreign Direct Investment (FDI) can be defined as investment that is made to acquire a lasting management interest (usually 10% of voting stock) in an enterprise and operating in a country other than that of the investors. According to (Ufuoma & Ugochi 2022), foreign direct investment is an inflow of foreign resources in the form of capital, technology, management skills and marketing enterprises into the host country.

Nigeria is the second largest beneficiary of foreign direct investment (FDI) inflows to sub-Saharan Africa (SSA), with only South Africa receiving more FDI than Nigeria (Ayman & Mohammad, 2019). The country remains West Africa’s major FDI recipient. Despite the massive FDI flows into Nigeria, the effect of FDI on financial deepening in Nigeria has not been satisfactory (Ezekiel & Temidayo, 2023). This is due to the fact that FDI inflows are concentrated in extractive areas mostly agriculture and mining and lack of financial strength, technological and required skills serve as obstacles to the conversion, production and manufacturing of products that can be beneficial to the citizens. The nature and impact of foreign direct investment (FDI) at other levels have not been really felt and explored (Ajayi et al, 2023). The objective is to examine effect of primary and secondary foreign direct investment on financial deepening in Nigeria.

H₀₁: Primary foreign direct investment has no significant effect on mutual fund in Nigeria.

H₀₂:  Secondary foreign direct investment has no significant effect on mutual fund in Nigeria

LITERATURE REVIEW

Conceptual Framework

This section reviews existing literature and related views of notable authorities on primary and secondary foreign direct investment and financial deepening in Nigeria.

Primary Foreign Direct Investment

Primary foreign direct investments are investments made in extractive and agricultural sectors, particularly external innovative mining and agricultural operations (Gbenga, 2020).  It entails a foreign entity investing in the production of intermediate materials in another country which can be used for the production of consumer goods. This form of investment is also can also be referred to as greenfield investment, investors have voting shares and participate actively in the management of the entity. According to OECD, primary foreign direct investment is a type of investment that commentates the objective of a resident company or business in one economy in securing a long-lasting interest in a business or company resident in an entirely different economy, which signifies the investors’ intention to have significant control over the operations of the business. Primary foreign direct investment is where a parent company builds its operations in a foreign country from the ground up, which may include the construction of new production facilities, building of new distribution hubs, offices, and living quarters. It is essentially a direct investment in new facilities or the expansion of existing facilities. Multinationals can produce goods at a lower cost because of advanced technology, which aids efficient processes and availability of resources (arable land, labour, intermediate goods, etc.).

In Greenfield investment, the profits from production are not reinvested into the local economy, but instead into the multinational’s home economy. In this type of foreign investment, the profits earned are repatriated to the parent company overseas, which means, profits are not reinvested in the local economy where the multinational resides. This is in contrast to local industries whose profits flow back into the domestic economy to promote growth.

Secondary Foreign Direct Investment

Secondary foreign direct investment are investments directly made in the manufacturing sector (SFDIM) which include transfer of technology, upgrading of domestic human capital through management capacity building and enhanced access to industrial countries’ markets for their emerging manufacturing industries. This class of FDI does not involve acquiring a long-term interest or control in the foreign company. It involves investment through secondary markets, foreign securities, and financial returns.  Economically, secondary foreign investment provides a platform for the financial market of the local economy to develop and also contributes to diversification of funding sourcing for businesses and government in developing nations like Nigeria. It also places the domestic financial market on a global trajectory.

SFDIMs also promote local productivity through linkages to service suppliers and the labour force as well as by serving as models of working practices and managerial techniques (Afamefuna et al, 2019). The effort by several African countries to improve their business stems from the desire to attract FDI. In fact, one of the pillars on which the New Partnership for Africa’s Development (NEPAD) was to increase available capital to US $ 64 billion through a combination of reforms, resource mobilization and a conducive environment for FDI (Oke et al, 2023). Unfortunately, the efforts of most African countries to attract FDI have not been yielding desirable result. This is in spite of the perceived and obvious need for FDI in the continent. Okwuchukwu et al (2021) viewed Nigeria as a country, given her natural resource base and large market size, qualifies to be a major recipient of FDI in Africa and indeed is one of the top three leading Africa countries that consistently received FDI in the past decade. Secondary foreign direct investment can also be referred to as portfolio investments. Essentially, Secondary foreign direct investment encompasses investment into the financial sector, it does not deal with physical ownership of a business.

Financial Deepening

Lenyie et al (2023) opined that financial deepening is an increase in the pool of financial services that are tailored to all levels in the society. It also refers to increase in the ratio of money supply to gross domestic product (GDP) or price index which ultimately postulates that the more liquid money is available in the economy, the more opportunities exist in that economy for continued and sustainable growth (Afamefuna et al, 2019). Financial deepening implies the ability of financial institutions to effectively mobilize savings for investment purposes. It enables the commercial banks perform their intermediary functions and achieve their objectives. Financial deepening, which focuses more on the process of financial intermediation, refers to the expansion of the financial services to all levels of society in terms of depth. George et al (2019), criticized the non-inclusion of the financial intermediaries in the neo classical growth models, the writers reiterated the importance of the finance sector as a whole and opined that banks and other financial intermediaries are equally important in credit creation and their effect on money supply in any economy. They were of the opinion that a full-fledged financial control should replace a traditional approach to monetary policy.

Private Sector Credit to Gross Domestic Product

The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non-profit, rather than being owned by the government. Private sector credit refers to financial resources provided to the private sector by other depository corporations (deposit taking corporations except central banks), such as through loans, purchases of non-equity securities, and trade credits (Osakwe & Akunna, 2022). Private sector credit measures the change in the total value of new credit issued to consumers and businesses. Privately originated or negotiated investments, comprised of potentially higher yielding, illiquid opportunities across a range of risk/return profiles. They are not traded on the public markets. Banking credits to the private sector is guided by the position of the cycle. Naturally, banks are expected to maintain a robust credit position whenever the cycle is experiencing a boom. At the same time bank credits become tepid in period of downswing as banks become more risk aversive to the real sector (Adegbesan, 2022). Gross Domestic Product (GDP) is a vital macroeconomic indicator that reflects a country’s economic performance and growth. It measures the total value of goods and services produced within a country’s borders, regardless of the nationality of the producers. This comprehensive metric provides valuable insights into a country’s economic health, enabling comparisons between countries and analysis of economic trends over time.

Trade Openness

Trade openness is often measured by the ratio of import to GDP or alternatively, the ratio of trade to gross domestic product (GDP). Trade openness is interpreted to include import and export taxes, as well as explicit non-tariff distortions of trade or in varying degrees of broadness to cover such matters as exchange-rate policies, domestic taxes and subsides, competition and other regulatory policies, education policies, the nature of the legal system, the form of government, and the general nature of institution and culture (Azu, 2023). Empirical literature suggests that an open economy attracts the needed technological transfer through trade and thus contributes significantly to the growth of the nation. The positive a priori sign assumed for this variable in this study is therefore due to the theory that openness encourages specialization in the production and marketing of certain goods based on comparative advantages.

Empirical Review

Abiodun (2023), examined the effect of sectoral foreign direct investment on Nigeria’s economic growth between 1981 and 2020 using Dynamic Ordinary Least Square (DOLS).  The sectoral FDIs were classified based on four sectors, namely manufacturing, mining and quarrying, agriculture and services. Based on this classification, four models were estimated. Following the cointegration results, the findings from the DOLS showed that all the sectoral FDIs apart from services and mining and quarrying, had statistically significantly positive effects on economic growth.  Lack of backward linkages accounted for the negative effect of service FDI on growth and the statistically insignificant positive effect of mining and quarrying was as a result of little linkage between the sector and the rest of the economy. The study recommend that government should encourage domestic industry by creating economic linkages and build local capacity to absorb new innovation brought by the foreign investors to the country. The study is limited by variable used as dependent variables

Nwachukwu and Enuenwemba (2023), studied the effect of financial development on foreign direct investment in Nigeria. The study adopted Ex Post Facto research design. Data were obtained from Central Bank of Nigerian Statistical Bulletin from 1999 to 2021. The hypotheses were tested using regression analysis, and the result shows that the credit of the private sector and market capitalization had a positive effect on FDI, although the effects were not statistically significant. The study recommended that government should create a favourable environment that encourages foreign direct investment in the industrial production sector, which will help increase the gross domestic product. The study scope is limited to year 2021 while this study will extend to year 2023.

Ajayi et al (2023), investigated the effect of foreign direct investment on the Nigerian economy with particular emphasis on export growth rate, trade openness, external debt growth rate, foreign portfolio investment, exchange rate and inflation from 1985-2020. Data for the study were obtained from the World Bank Digest of Statistics and Central Bank of Nigeria Statistical Bulletin. The study employed regression analysis of the ordinary least square approach in analyzing the data for the study. Major findings from the investigation demonstrate that the export growth rate, trade openness, external debt growth rate, foreign portfolio investment and inflation rate have no significant effect on the Nigerian economy, while exchange rate has a significant effect on the Nigerian economy. The study recommend that government should embrace export-led growth strategies on long-term development plans. The research observe that if a more auto regressive distributed model is used it may a better result and recommendation.

Lenyie et al (2023), examined the effect of financial deepening on capital market liquidity in Nigeria. The study adopted a descriptive research design. The study utilized secondary data obtained from bulletins from Nigerian Stock Exchange (NSE), Security and Exchange Commission (SEC) and Central Bank of Nigeria (CBN). Capital market liquidity was the dependent variable while capital market liquidity proxied by narrow money supply, broad money supply, private sector credit, money outside the bank and money market instrument was the independent variable. Ordinary least square methods of cointegration, granger causality test, unit root test and Vector error correction model were used for data analyses. The study found that proxies of financial deepening explain 57.5% of variation in capital market liquidity. The study also found that financial deepening (narrow money supply, broad money supply, private sector credit, money outside the bank and money market instrument) has significant effect on Nigeria’s capital market liquidity. The study thus concludes that capital market development in Nigeria depends on financial deepening. The study recommends that monetary and macroeconomic policy regulators should sustain high level of financial deepening in Nigeria, and that incidences of poor capital market liquidity should be minimized by channeling private sector credits to the real sector of the economy. The study is limited by variables used which is capital market liquidity.

Emeka and Aham (2023), examined the role of the domestic financial sector development in the relationship between foreign direct investment (FDI) inflows and inclusive growth in Nigeria over the period, 1981-2020 using annual time series. Empirically, the result reveals that the FDI exerted a significant positive effect on inclusive growth when the domestic financial sector has reached a certain minimum level of development. The result further shows that the FDI alone has a significant negative effect on inclusive growth. This is evidence that the domestic financial sector development is a pre-condition for FDI to effectively promote inclusive growth in Nigeria. The study recommend that policymakers need to extend the financial sector development by further promoting reforms that will translate FDI inflows into inclusive growth. The study scope ended in year 2020 which is cannot be generalize for the current economy.

Oke et al (2023), investigated the impact of foreign direct investment on capital market capitalization in Nigeria. It makes use of secondary data spanning through 34 years (1986-2020). The study employed ordinary least square (OLS), Johansen co-integration and Error correction model. The result of the study revealed that all variables except FDI maintain positive/direct relationship with the dependent variable (MC). The long run model revealed that only money supply (M2) was negatively related to market capitalization (MC) while the remaining variables (FDI, SPI and INF) maintained positive relationship with market capitalization (MC). This implies that in the long run, about 96% of the slight difference of MC explained by all the exogenous variables together with the lagged variables. Based on the findings, the study showed that there are short-run and long-run relationships between the dependent and the independent variables. Therefore, the study recommended that since foreign direct investment is a significant determinant, efforts should be made by government and monetary authority to encourage foreign direct investment into Nigeria. The study scope ended in year 2020 which cannot be generalized for the current economy, but the scope of this present study will end in year 2023.

Azu (2023), examined the dynamic and interrelationship among foreign direct investment, trade openness and economic growth in Nigeria. Annual time series for Nigeria from 1980 to 2020 was analyzed using the dynamic Classical Multiple Linear Regression Model, also a pre-estimation test of unit root was first conducted using two approaches. The result shows that a 1% increase in FDI would have the reverse effect on economic growth, reducing it by 19% annually, with all other parameters being constant. It demonstrates unfavorable trends for foreign direct investment and trade openness, demonstrating a weak correlation between these variables and the Nigerian economic growth index. Another component of the model that has dynamic long-term impacts on economic growth is the historical growth trajectory. The results imply that the most recent adjustments to Nigeria’s economic indicators have an effect on the present set of economic growth. In order to encourage exports and FDI inflow and to create a business environment that will support Nigeria’s output growth dynamics, the essay suggests expanding trade liberalization. In order to allow indigenous enterprises to fully engage in the global economy, it was also suggested that Nigeria’s government develop policies to broaden the scope of foreign trade. The study scope ended in year 2020 which is cannot be generalize for the current economy.

Ezekiel and Temidayo (2023), examined role of financial deepening and nexus between exchange rate volatility and foreign investment in Nigeria from 1986 to 2020 using the Autoregressive Distributed Lag Cointegration procedure. The result showed that exchange rate volatility stimulates foreign investment in the short run while it reduces foreign investment in long run. However, the combined effect of financial deepening and exchange rate volatility shows that financial deepening helps to alleviate the adverse effect of volatile exchange rate in the long run. This study suggested that the depth of the financial sector matters in easing the adverse effect of exchange rate volatility on foreign investment in the long run. The study recommended that policymakers are encouraged to further strengthen the financial sector by introducing appropriate regulations and reforms to broaden the depth of the financial sector in order to boost the confidence of foreign investors in the economy. The study scope ended in year 2020 which cannot be generalized for the current economy.

Ufuoma and Ugochi (2022), examined the role of foreign direct investment in the economic development process of Nigeria. Specifically, the study focused on the impact of foreign direct investment on economic development, proxy by human development index (HDI). The constructed model included other factors that affect economic development such as trade openness, government expenditure and inflation. Annual data from 1990 to 2020 was used for the study and sourced from the United Nation Development Report (UNDR), United Nations Conference on Trade and Development (UNCTAD), World Development Indicator (WDI) and Central Bank of Nigeria (CBN) Statistical Bulletin. In estimating the economic development model, unit root, autoregressive distributed lag (ARDL) and Toda and Yamamoto methods were employed. The result indicated that foreign direct investment had negative and significant impact on economic development. Similar relationship was established between trade openness and economic development. These results were supported by the Toda and Yamamoto result as there was no evidence of causality relationship between foreign direct investment and economic development. The study recommended that basic infrastructure should be provided by the government as this would boost real sector activities and appropriately redirect foreign direct investment inflow away from extractive sector to the productive sectors of the Nigerian economy

Aliyu et al (2022), examined the long-run nexus between foreign direct investment (FDI) inflows and exchange rate (EXC) in Nigeria using the Gregory-Hansen, and Bayer-Hanck cointegration approaches from 1980 to 2019. The result showed that there is presence of long-run association between FDI and exchange rate in Nigeria. The Dynamic Ordinary Least Square (DOLS) technique was employed to establish the impact of FDI on the exchange rate. A negative nexus was found between the two variables. This implies that an increase in FDI brings about an appreciation of the naira and vice versa. The study recommended that the Nigerian Government should strive to engage in activities that would minimize the outward leakages of naira by attracting foreign investors into businesses, primarily in the oil sector. The study scope ended in year 2019 which cannot be generalized for the current economy.

Theoretical Framework

Product Life cycle Theory of FDI

This theory was developed by Raymond Vernon in 1970. At the early stage, a new product is first produced and sold in home market. When the home market is saturated, the product will be exported to other countries. The firm starts to open subsidiaries in locations where cost of production is lower when the competition from the rival firms become intense and the product reach its maturity. This theory was for a set of studies that regarded the spreading of multinational firms as being sequential, taking place in stages. The firm would initially supply the export markets, then establish trade representatives abroad, and eventually end up setting up production outfit in target markets by way of subsidiaries. Agarwal (1980) explains that product life cycle is conceived in three stages. In the first stage when the product is new it is produced by the innovating firm in its home market, because of the greater need for efficient co-ordination between research and development ( R & D) and the production units as well as the availability of demand for it there. The second stage is marked by the maturity and export of the product to countries having high level of income. Expansion of demand and growing competition in these markets lead eventually to FDI of the innovator into these countries for local production of the product. The third stage is characterized by a complete standardization of the product as well as its production technique which is no longer an exclusive possession of its innovator. Price competitions from other producers’ forces innovators to now invest in developing countries to seek cost advantages, especially labor costs and other factor costs such as land and materials

Eclectic Theory of FDI

John Dunning (1958) developed an eclectic theory of FDI which is called OLI paradigm. O, L and I refer to ownership advantage, location advantage and internalization advantage respectively. The theory emphasized that operating in a foreign country has many cost and these cost include a failure of knowledge about local market, cultural, legal and many others. Therefore, foreign firm should have some advantages that can offset these costs. Ownership advantage is the specific advantage that gives power to firms over their competitors. These include advantage in technology, in management techniques, easy access to finance, economies of scale and capacity to coordinate activities. Location advantages on the other hand, are advantages firms take in order to reap the benefit of specific advantages. These include accessibility and low cost of internal resources, adequate infrastructure, political and macroeconomic stability. Therefore, the location advantage of a host country is one essential factor that determines the investment decisions of TNCs. Internalization is the ability of the firm to internalize some activities to protect their exclusive right on tangible and intangible assets, and defend their competitive advantage from rival firms. Accordingly, all the three conditions must be met before firms open subsidiaries in a foreign country (Soderstein, 1992; Laar, 2004).

For purpose of this study, the researcher aligns with the eclectic theory of FDI because the theory takes a holistic approach to examining entire relationships and interactions of the various components of a business and the economy as a whole. It also provides a strategy for expansion through FDI.

METHODOLOGY

The methodology employed is the expo-facto research design. Ex post facto design examining how an independent variable, present prior to the study, affects a dependent variable. The target population and sample size of the study is thirty one (31) year from 1993-2023.The study employed secondary data collection. The study variable were obtained from Central Bank of Nigeria Statistical bulletin for the year. Thus, the Autoregressive Distributed Lag (ARDL) model below is used to test the research propositions of the study and the study adapt the model of Osakwe & Akunna (2022) GDPGRt = a0 + a1PSCt+Ut

Model

PSC to GDP = f(PFDI), (SFDI),(TO) ……………………………………………………..(i)

From the above function, the following model is derived:

Model

PSC to GDP = β₀ + β₁PFDI_it + β₂SFDI_it +β₃TO_it+ ϵ_it……………………………………………………..… (ii)

Where:

β₀                                  = The autonomous parameter estimate (Intercept or constant term)

β₁ – β₄              = Parameter coefficient of Foreign Direct Investment

PSC to GDP    = Private Sector Credit to Gross Domestic Product

PFDI               = Primary Foreign Direct Investment

SFDI                = Secondary Foreign Direct Investment

TO                   = Trade Openness

ϵ_it                     = Stochastic Error term

Table 3.1: Variables Measurement

Source: Researcher’s Compilation (2024)

RESULT AND DISCUSSION

Descriptive Statistics

Descriptive statistics gives a presentation of the mean, maximum and minimum values of variables applied together with their standard deviations obtainable.

Table 4.1: Descriptive Statistics Result

Source: E-View 12 Output, (2024)

Table 4.1 presents the descriptive statistics of the effect of primary and secondary foreign direct investment on financial deepening in Nigeria during the period of thirty one year 1993 to 2023. The table shows that private sector credit to gross domestic product (PSC TO GDP) as a measure of financial deepening has a mean of 13.6538, with a standard deviation of 5.48312 as well as a minimum value of 6.22000 and maximum value of 20.7700 respectively. Given that the range between the minimum and maximum is quite wide, it implies financial deepening are stable as the standard deviation indicated that there is no much slightly wide dispersion of the data from the mean value. For the primary foreign direct investment and secondary foreign direct investment as shows a mean value of 30.2680 and 166.963 with standard deviation of 22.4636, 38.6346 and a minimum and maximum value of 8.19000, 103.420, 95.1000 and 250.8300 respectively. This implies primary foreign direct investment and secondary foreign direct investment witnessed a marginal increase during the study period, as the standard deviation is not so large compared to the mean, together with the low range between the minimum and maximum values. Trade openness as control variable has a mean value of 16.55323 with minimum value of 5.10000 and maximum value of 29.8000.

Table 4.2: Correlation Matrix

The correlation matrix table presents correlation between dependent and independent variables and the correlation among the independent variables themselves.

Source: E-View 12 Output, (2024)

In table 4.2 correlation analysis is used to quantify the association between two continuous variables. In correlation analysis, we estimate a sample correlation coefficient, more specifically the Pearson Product Moment correlation coefficient. The result presented above confirms that primary foreign direct investment and secondary foreign direct investment has a strong and weak positive correlation which are 0.565127 and 0.347625 with private sector credit to gross domestic product while trade openness as control variable has a strong positive correlation with private sector credit to gross domestic product at value of 0.811498.

Unit Root Test (PSC TO GDP at 1st Difference)

Source: E-View 12 Output (2024)

From the table above, Augmented Dickey-Fuller (ADF) indicated that the Probability value under the ADF is 0.0009, less than 0.05 at 1st difference. This implies that private sector credit to gross domestic product (dependent) variable was non-stationary at level but 1st difference. Similarly, the Augmented Dickey-Fuller (ADF) t-Statistic (-4.675985) is greater than the absolute critical values of (-2.971853) at 5% level of significance. This implies the Null Hypothesis must be rejected and it can be concluded that Mutual Fund has no unit root and the data is stationary.

Unit Root Test (PFDI at 1st Difference)

Source: E-View 12 Output (2024)

From the table above, the traditional test of Augmented Dickey-Fuller (ADF) indicated that the Probability value under the ADF is 0.0000, less than 0.05 at 1st difference. This implies that primary foreign direct investment (independent) variable was non-stationary at level but 1st difference. Similarly, the Augmented Dickey-Fuller (ADF) t-Statistic (-7.220022) is greater than the absolute critical values of (-2.971853) at 5% level of significance. This implies the Null Hypothesis must be rejected and it can be concluded that primary foreign direct investment (PFDI) has no unit root and the data is stationary.

Unit Root Test (SFDI at Level)

Source: E-View 12 Output (2024)

From the table above, the traditional test of Augmented Dickey-Fuller (ADF) indicated that the Probability value under the ADF is 0.0042, less than 0.05 at level. This implies that secondary foreign direct investment (independent) variable was stationary at level. Similarly, the Augmented Dickey-Fuller (ADF) t-Statistic (-4.021627) is greater than the absolute critical values of (-2.963972) at 5% level of significance. This implies the Null Hypothesis must be rejected and it can be concluded that secondary foreign direct investment has no unit root and the data is stationary.

Unit Root Test (TO at 1st Difference)

Source: E-View 12 Output (2024)

From the table above, the traditional test of Augmented Dickey-Fuller (ADF) indicated that the Probability value under the ADF is 0.0000, less than 0.05 at 1st difference. This implies that trade openness (independent) variable was non-stationary at level but 1st difference. Similarly, the Augmented Dickey-Fuller (ADF) t-Statistic (-7.555534) is greater than the absolute critical values of (-2.971853) at 5% level of significance. This implies the Null Hypothesis must be rejected and it can be concluded that trade openness has no unit root and the data is stationary.

Table 4.3: Summary Results of Augmented Dickey-Fuller Unit Root Tests

Note: **indicate significant at 5% levels; Source: E-View 12 Output (2024)

The summary results of the Augmented Dickey-Fuller Unit Root Tests for all the four variables of the study; private sector credit to gross domestic product (PSC TO GDP), primary foreign direct investment (PFDI), secondary foreign direct investment (SFDI) and trade openness (TO) have mix of unit root at level and first difference.

H₀₁: Primary foreign direct investment has no significant effect on private sector credit to gross domestic product in Nigeria.

H₀₂:  Secondary foreign direct investment has no significant effect on private sector credit to gross domestic product in Nigeria

Table 4.4: Autoregressive Distributed Lag (ARDL)

Source: E-View 12 Output (2024)

This study examined effect of primary and secondary foreign direct investment on financial deepening in Nigeria during the period of thirty one year 1993 to 2023 in Nigeria. From table 4.4 above, the coefficient of multiple determinations (R²) is 0.92 and in line with the time series nature of the data used in this study, the regression model shows that the range of values between adjusted R² and R² falls between 92%, and 89% respectively. This indicates that about 92% of the total variations in private sector credit to gross domestic product (PSC TO GDP) is explained by the variations in the independent variables (PFDI, SFDI and TO), while the remaining 8% of the variation in the model is captured by the error term, which further indicates that the line of best fit is highly fitted. The autoregressive distributed lag result for the independent variables showed that there is a positive and negative relationship between primary foreign direct investment, secondary foreign direct investment and private sector credit to gross domestic product with a corresponding positive and negative probability value of 0.0242 and 0.6806 which is less and greater than 5%. However, when taken collectively, the regressors (PFDI and SFDI) against the regressed (PSC TO GDP), the value of F-statistic is 35.77280 and the value of the probability of F-statistic is 0.00000. This result implies that the overall regression is both positive and statistically significant at 5%.

DISCUSSION OF FINDINGS

This study examines effect of foreign direct investment on financial deepening in Nigeria.  The findings of this study is on the basis of formulated hypotheses, models and analysis carried out. This study found that generally, primary foreign direct investment and secondary foreign direct investment positive  and negative significant effect on private sector credit to gross domestic product in Nigeria from this study are compared with that of previous studies.

Firstly, assess effect of primary foreign direct investment on financial deepening in Nigeria revealed that a negative have significant on private sector credit to gross domestic product in Nigeria, The findings do disagree with the findings of Nwachukwu and Enuenwemba (2023), who find positive relationship between financial development and foreign direct investment in Nigeria but agree the work of Emeka and Aham (2023), had negative role of the domestic financial sector development in the relationship between foreign direct investment. Secondly, secondary foreign direct investment on financial deepening in Nigeria revealed that a positive have significant on private sector credit to gross domestic product in Nigeria The result agrees to the findings of Ajayi et al (2023), investigates the effect of foreign direct investment on the Nigerian economy but the study disagree with work of Oke et al (2023), investigates the impact of foreign direct investment on capital market capitalization in Nigeria.

CONCLUSION AND RECOMMENDATIONS

The study was undertaken to examine effect of primary and secondary foreign direct investment on financial deepening in Nigeria from 1993-2023 in Nigeria. The study conclude that primary and secondary foreign direct investment has significantly effect on private sector credit to gross domestic product in Nigeria. Based on the findings of this study and the conclusion made, the following recommendations are made to policy maker and stakeholder in Nigeria:

1. The government should create a favourable environment that encourages primary foreign direct investment in the extractive and agricultural sector in Nigeria, which will help increase the gross domestic product.
2. Policymakers need to extend the financial deepening by further promoting reforms that will translate secondary foreign direct investment inflows into Nigeria for economic growth.

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RAW DATA

The figures are in Biilion (N’B)

Source: Central Bank of Nigeria Statistical Bulletin, (2023)