The Short-Run and Long-Run Determinant of Foreign Direct Investment (FDI) in Nigeria (1980 – 2014) Using ARDL (Bound Test) Approach

International Journal of Research and Innovation in Social Science (IJRISS) | Volume II, Issue IV, April 2018 | ISSN 2454-6186

The Short-Run and Long-Run Determinant of Foreign Direct Investment (FDI) in Nigeria (1980 – 2014) Using ARDL (Bound Test) Approach

Olukayode, MAKU¹, Aduralere Opeyemi, OYELADE²

  ¹Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria
²University of Ibadan, Nigeria

Abstract: – The study examined the short-run and long-run determinant of foreign direct investment (FDI) in Nigeria using ARDL (bound test) approach (1980 – 2014). The variables used are foreign direct investment (FDI), gross domestic product per capita (GDPPP), broad money supply (M₂), trade (TRAD), inflation, consumer prices (INF), official exchange rate (EXCH), general government final consumption expenditure (GOVEEXP), school enrollment, secondary (EDU) and total electricity net consumption (ELECTCON). The data were sourced from the World Development Indicators (2015) between 1980 and 2014. The study implements ARDL model to investigate the existence of a long-run relation among the series and the dynamic model of the short-run effect. Apparently, the use of ARDL is of the submission that it can be applied irrespective of the order of integration of the variables (irrespective of whether regressors are purely [1(0)], purely [1(1)] or mutually co-integrated). The results of the study showed that there exist a long-run and short-run relationship among the variable and that the result of the long run ARDL model showed that in the long run, school enrollment (EDU), total electricity net consumption (ELECTCON), broad money (M2) and trade (TRAD) stimulate foreign direct investment (FDI) in Nigeria while the result of the short-run dynamic model shows that in the short-run, school enrollment (EDU), total electricity net consumption (ELECTCON), exchange rate (EXCH), inflation (INF) and trade (TRAD)are significant in determine foreign direct investment (FDI) in Nigeria. The study recommended that the government should invest more in infrastructure (like electricity, education, transportation, telecommunication, etc) so as to enhance the competitiveness of the environment of investment and ultimately increase FDI inflows. Also, the monetary authority should control money supply, exchange rate, inflation rate as well as GDPin other to encourage FDI in Nigeria.

Keywords: FDI, gross domestic product per capita (GDPPP), M2, trade, inflation, exchange rate, government expenditure, school enrollment and total electricity net consumption, ARDL

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