Fiscal Policy and Foreign Direct Investment Inflow in a Developing Economy: The Nigeria Experience

International Journal of Research and Innovation in Social Science (IJRISS) | Volume II, Issue XI, November 2018 | ISSN 2454–6186

Fiscal Policy and Foreign Direct Investment Inflow in a Developing Economy: The Nigeria Experience

OBAYORI, Joseph Bidemi¹, ABORH, Kemkamma Bright², BOSCO, Itoro Ekpenyong³

¹Department of Economics, Faculty of Social Sciences, Nnamdi Azikiwe University, Awka Nigeria
^{2, 3}Department of Economics, Faculty of Social Sciences, University of Port Harcourt, Nigeria

Abstract:-This study analyzed the impact of fiscal approach on Foreign Direct Investment in Nigeria. The objectives of the study were to; examine the impact of government capital expenditure on foreign direct investment in Nigeria; examine the impact of corporate tax on foreign direct investment in Nigeria; and examine the impact of government debt on foreign direct investment in Nigeria. Based on the stated objectives; secondary data were collected from CBN statistical bulletin and empirical model was estimated using Augmented Dickey Fuller unit root test, co-integration test and complemented with ECM test. The results of the unit root test showed that all the variables were stationary at order one. Also there exist three co-integrating equations amongst the variables in the model. Similarly, the ECM results indicated that the speed of adjustment is 169.6%. Also, the R2 of 63% showed that the model is a good fit. The coefficient of government total debt variable is positively related to FDI. The coefficient of corporate tax is negatively related with Foreign Direct Investment and the coefficient of government capital expenditure is positively related with Foreign Direct Investment. Thus, it could be concluded that a well-articulated and coordinated fiscal policy to attract foreign investment in Nigeria became essential for optimum growth and development of the economy. Therefore, it is recommended that Nigeria government must create enabling environment for foreign investment to thrive. Also, government should increase her capital expenditure and ensure a well combination and coordination of both fiscal and other policies to increase foreign direct investment in Nigeria.

Key Words: Fiscal Policy, Corporate Tax, Capital Expenditure, Government Debt and FDI

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