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Foreign Direct Investment (FDI) plays an extraordinary and growing role in global business by providing firms  with  new  markets  and  marketing channels  for  their  products,Incidentally,  Nigeria  has  been a recipient of Foreign Direct Investment (FDI) overtime but the major determinants and their impacts in the growth of the economy have not been fully ascertained. This study sought to:   (i) examine FDI determinants(market  size,  exchange  rate,  inflation  rate  and  degree  of  openness)  in  Pre  deregulated Nigerian  economy  from  (1970  –  1985),  (ii)  examine  FDI  determinants(market  size,  exchange  rate, inflation rate and degree of openness and natural resources) in deregulated economyfrom 1986 – 2010, (iii) evaluate a causal relationship between the growth of the Nigerian economy and FDI within the pre deregulated  era (1970 – 1985) and (iv) investigate whether a bi-directional relationship exists between growth of the Nigerian economy and FDI within the deregulated era (1986 – 2010).  The studyadopted the ex-post facto research design. Annual time series data for 41-years were collated from Central Bank of Nigeria – Statistical bulletin, Federal Office of Statistics and World Bank Handbook of Statistics for the period, 1970-2010. Four major hypotheses were formulated and tested and results revealed that three FDI determinants   (Exchange Rate, Inflation Rate and Degree of Openness) in a pre deregulated Nigerian Economy  had  negative  and  non-significant  impact  on  Foreign  Direct  Investment  in  the  Nigerian Economy, while Market Size had a positive and non-significant impact on Foreign Direct Investment (coefficient of Exchange Rate = -5.15,   P = 0.16; coefficient of Inflation Rate = -0.13,   P = 0.70; coefficient of Degree  of Openness = -4.24,  P = 0.057, coefficient of Market Size = 0.46, P = 0.10).  One FDI determinant (Market Size) in a deregulated Nigerian Economy had positive and significant impact on Foreign Direct Investment in the Nigerian Economy. Inflation Rate had positive and non- significant impact on Foreign Direct Investment in the Nigerian Economy.Two FDI determinants (Exchange Rate, and Degree of Openness) had negative and non-significant impact on Foreign Direct Investment while One  determinant  (Natural  Resources)  had  positive  and  non-significant  impact  on  Foreign  Direct Investment (coefficient of Market Size = 1.32, P = 0.00; coefficient of Exchange Rate = -0.86,  P = 0.12; coefficient of Inflation Rate = 0.5924,  P = 0.06; coefficient of Degree of Openness = -1.14,  P = 0.28; coefficient of Natural Resources = 0.05,  P = 0.97).  There was a positive causal relationship between the growth of Nigerian Economy and Foreign Direct Investment (FDI) within the pre deregulated era (coefficient of correlation = 0.66, P =0.16).  There was bi-directional relationship between growth of the Nigerian economy and Foreign Direct Investment (FDI) within the deregulated era (F statistic = 3.46 > P = 0.05).The study recommends, among others that government should issue efficient fiscal policies that wouldintensify the trade liberalization policy which was initiated under the deregulation programme that started in 1986,  so as  to increase openness  in the economy,  and  improve on the nation’s  business environment.   Above all, this research has contributed to knowledge by providing vital information, andevidence, while employing modified versions of Soumyanada (2009;2010); Yuko and Nauro (2002); Beatrice and Adolf (2004); Rojid et al (2000); Alan and Saul (2004); Omankhanlen (2011)models on the Nigerian situation. It has added to the enrichment of literature on FDI determinants in a developing country- Nigeria.




Foreign Direct Investment (FDI) is a direct investment by a corporation in a commercial venture in another country. Mallampally and Sauvant (1999) define FDI as an investment by multinational corporations in foreign countries in order to control assets and manage production activities in those countries. It plays an extraordinary and growing role in global business by providing a firm with new markets and marketing channels for their products. For a host country or the foreign firm which receives the investment, it provides a source of new technologies, capital, process, products, organizational technologies and modern management practices. All of these are presumed to contribute to economic growth and development in an economy. FDI is important not just for the developing countries but also for developed nations.

To this end, Nigerian authorities have been trying to attract FDI through various reforms. Some of the policies that were put in place to attract FDI include; the deregulation of the economy in the 1980s, the New Industrial Policy of 1989, establishment of the Nigerian Investment Promotion Commission (NIPC) in early 1990s, and the late 1990s, the establishment of the Economic and Financial Crimes Commission (EFCC), and the Independent Corrupt Practices Commission (ICPC). The Nigerian Investment Promotion Commission, (NIPC), was established by Decree number 16 of 1995, during the administration of the late General Sani Abacha. It  bills  itself as ‘the one-stop-shop for exploring and planning foreign investment and  new business in Nigeria. The Agency’s mandate is to facilitate foreign investments and advocate on behalf of foreign investors in the  areas  of  favourable  government  policies.  The  Agency  helps  to  create  a  friendly investment climate so that investors can see Nigeria as an investment haven .In the case of EFCC and ICPC, The two agencies were established to assist in fighting corruption in Nigeria. Corruption has led to loss of confidence in Nigeria by foreigners, Nigerian citizens at home and abroad due to activities of fraudsters, corrupt public officials and mis- governance.  Tackling  corruption  by  the  two  agencies  would  lead  Nigeria  into  having valuable economic activities and forestalling foreign investment in the country.

However, from the Business, Trade and Investment Guide (2010 / 2011), it is reported that Nigeria receives the largest amount of Foreign Direct Investments (FDIs) in Africa. FDI inflows have been growing enormously over the course of the last decade for example, from USD 1.14 billion in 2001 and USD 2.1 billion in 2004. Nigeria’s FDI reached USD 11 billion in 2009 (UNCTAD 2009), making the country the nineteenth greatest recipient of FDI in the world. Before then, FDI inflows increased from N786.40 million in 1980 to N2,

193.40 million in 1982, but dropped to N1, 423.50 million in 1985. It later rose from N6,

236.70 million  in 1988 to  N10, 450.00 million and N55, 999.30 million  in 1990  and

1995,respectively. However, the value of FDI fell drastically in 1996 and further rose in

1999 in terms of growth rate, FDI inflows dropped from 95.6 percent in 1971 to -31.20 and –

17.23  percent  in  1976  and  1984,  respectively.  In  1985,  the  FDI  growth  rate  started increasing from 2.75 percent to 182.68 percent in 1986 but dropped in 1987 and 1988, further in 1989. Since the year 2000 up till today, FDI growth has remained positive except in 2001 when the growth rate was -70.00 percent, Central Bank of Nigeria (2010).

While Nigeria is regarded as the self-styled giant of Africa, Rotberg (2008)submits that Nigeria is popularly referred to as the sociopolitical giant of Africa due to its position as the most populous country in Africa and the continent’s largest oil producer. It has an estimated population of over 150 million people. Interestly, the country is the third largest economy in Africa following South Africa and Egypt and has a privileged position as the sixth largest producer and exporter of crude oil in the world, she also has a large abundance of human and material resources, yet failed to attract enough FDI. This is because of the lifestyles of successive regimes in the country. These regimes consistently failed to invest oil money proceeds back into the country, and have also failed to improve existing social systems and infrastructures, poor work ethics, increasing citizen’s dissatisfaction and disaffection with the government. Other reasons why Nigeria have failed to attract FDI in the country includes political structures and politicians attitudes towards development in the country, corporate and large scale organizational irresponsibility, inadequate funding of the education, neglect of health and other key sectors, neglect of the agricultural and other non-oil productive/manufacturing sectors, continued manufacture of poor quality, fake and substandard goods and  services, over dependence on imported goods, poorly regulated

capital and financial market, tribal, ethnic and religious squabbles, homelessness, poverty and hunger, poor maintenance culture, poor planning, lack of security and disregard for human life and property, armed and pen robbery, and others. All these factors when properly handled would help in attracting foreign investors in a country.

In trying to correct all these problems in the country, Nigeria stuck to rather hostile policies for private sector development in general and FDI in particular. The policies are geared towards the investment incentives that would revive the economy, accelerate growth and development  and  reduce  poverty.  The  federal  government  of Nigeria  has developed  a package of incentives for various sectors of the economy making efforts to provide an enabling environment that is conducive to the growth and development of industries, inflow of foreign direct investment (FDI), shield existing investments from unfair competition, and stimulate the expansion of domestic production capacity. In Thandika (2001), study, he opines that Policy makers across the region of Africa have hoped that attracting FDI with the bait of high tariff protection and generous incentives packages would provide the catalyst for a “late industrialization” drive.

The World Bank Report (2003) reports that Nigerian government’s policy of economic deregulation and liberalization has opened up new windows of opportunity to all investors wishing to invest  in the country’s economy. In this connection, an interest rate regime supportive of the real sector of the economy as well as an exchange rate that is market determined are the object of government policy. The security of life and property of the citizens are  being  vigorously pursued with the  reorganization and  strengthening of the Nigerian police force.  In addition, the Nigerian investment promotion council (NIPC) has been strengthened to enable it serve as a one-stop office for clearing all the requirements for investment in the country. The tariff structure is being reformed with a view to boosting local production. Government has also  introduced a new visa policy to enable genuine foreign investors to procure entry visa to Nigeria within 48 hours of submission of required documentation. The existing “expatriate quota” requirement for foreign nationals working in Nigeria is in the process of being replaced with “work permit” which will be administered by the Nigerian investment promotion council (NIPC).

Nigeria only cautiously and recently in the mid 1980s, embarked on a reform path-but this was characterized by frequent interruption by political shocks and policy reversals.

Asiedu (2002) reports that during the last 15 years, Nigeria has not managed to attract significant amounts of FDI. And this is because of high investment risks in Nigeria. The FDI environment in Nigeria improved after the deregulation which started from 1986, although it is  still  less  accommodating – sometimes hostile-and inadequate to  attract  high quality, efficiency-seeking FDI. Nigeria’s FDI framework has successfully catapulted the nation to the top of the investment table in sub-Saharan Africa, but the government is committed to bringing in even more investment.

There was an upsurge of FDI, in the 1980, but Nigeria did not take advantage of it, primarily because of micro economic instability, frequent policy reversals, restrictions on some sectors of FDI and on the repatriation of profit and capital. But in 1986, there was considerable amount of FDI inflow into Nigeria, and this was at the time when some of the restrictions were lifted and infrastructure sectors were opened to private participation (the 1986 adjustment program constitute a bold policy response to attracting foreign investors, and to also correct internal and external imbalance).

Asiedu (2004a) notes that FDI determinants in one region may not be the same for other regions.   At the same time, the FDI determinants in a country within a region may be different  from one  another  and  from one  period to  another.  Looking  at  the  Nigerian economic growth and development, Ekpo and Umoh (2011) notes, that Nigeria has had a truncated history. They grouped the growth and development of the country into four. That is the pro-oil boom decade (1960 – 70), the period of the oil boom (1971 – 1977), the period of stabilization and structural adjustment (1986 – 1993), and the period of guided deregulation (1994 – 1998).

Ekpo and Umoh (2001) submit that in the period, 1960 – 70, the Gross Domestic product (GDP) recorded 3.1 percent growth annually. During the oil boom era, roughly 1970 – 78, GDP grew positively by 6.2 percent annually – a remarkable growth. Then in the 1980s, the

GDP had negative growth rates. In the period, 1988 – 1997, which constitutes the period of structural adjustment and economic liberalization, the GDP responded to economic adjustment policies and grew at  a positive rate of 4.0 percent. Also, in the  year after independence, industries and manufacturing sectors had positive growth rates except for the period 1980 – 1988 where industry and manufacturing grew negatively by -3.2 percent and -2.0 percent respectively.

The Nigerian economy performed well during the years after independence and into the initial oil boom years but Nigeria did not take advantage of this to lure FDI into the country. It was after the oil boom, that Nigeria started coming up with some policies to stabilize and deregulate the economy to attract FDI. By deregulation, the Nigerian government tries to remove or simplify government rules and regulations that constrain the operation of market forces. It brings about competitiveness when the forces of demand and supply come into play. And at the same time, the prices of the products involved would also be realistic. It may increase the cost of living, and make the cost of transportation high but it creates job opportunities in a country.


Nigeria has been a recipient of Foreign Direct Investment (FDI) overtime but the major determinants  and  their  impacts  in  the  growth  of  the  economy  have  not  been  fully ascertained.  This  is  especially  when  viewed  against  the  backdrop  of  foreign  direct investment in the country. At the same time even when regarded as a major recipient in Africa, Nigeria is still gambling with mass poverty, very weak manufacturing sector, real sector under development, still a mono culture country and over dependent on oil sector.

The Foreign Direct Investment in Nigeria has not really translated to the growth of the economy and this raises questions as to the key determinants during different ethos notably the pre and post deregulated economy in the Nigerian history. The issue becomes whether the appropriate measures to really attract foreign direct investment are being followed in the country.

It is a known fact that Nigeria is the most populous country in Africa with a population of over 150 million people and also with a GDP that is second only to South Africa’s. Yet, following the period of independence in 1960 to the years of military rules, there were poor economic management of Nigerian resources; also during that time, Nigeria experienced a prolonged period of economic stagnation, rising poverty levels and the decline of its public institutions. Ngozi, and Philip,(2007) reported that the Nigeria’s economic performance in the two decades prior to economic reforms was generally poor. Over the period, 1992 to

2002, the annual GDP had average of about 2.25 percent with an estimated population growth of 2.80 per annum. This implies a contraction in per capital GDP over the years that had resulted in a deterioration of living standards for most citizens. An inflation level which is one of the determinants of FDI inflows were, averaging about 28.94 percent per annum over the same period. Human development is also one of the determinants of FDI inflows, by 1999; most of Nigeria’s human development indicators were worse than, or comparable to that of any other least developed country.

A  major  challenge  for  the  Nigerian economy was  its  macroeconomic volatility driven largely by external terms of trade shocks and the country’s large reliance on oil export earnings. According to World Bank report (2003) by some measures, Nigerian economy ranked among the most volatile in the world for the period, of 1960 to 2000.Though, FDI  is accepted to be a stimulant to economic growth, most of the empirical research that has been undertaken in this area has used panel data for a number of countries to establish the causal relationships. In the aspect of FDI determinants, the results of studies carried out on the linkage between FDI determinants in a country are not unanimous in their submissions.

The results submitted by some researchers in this field of FDI determinants and the impact of FDI determinants in the Nigerian economy are still not clear. Ekpo (1997), examined the relationship between FDI and some macro economic variables for the period 1970-1994 and discovered that political regime, real income per capita, rate of inflation, world interest rate, credit rating, and debt service explained the variance of FDI inflows to Nigeria. Adutse, (2008) submits that the growth and development of Africa and indeed Nigeria’s economy depends largely on foreign direct investment (FDI) which has been described as the major

carrier  for  transfer  of  new  scientific  knowledge  and  related  technological  innovation. During thepre-deregulated era, Nigeria witnessed a lot of tight policies which restricted FDI inflows into the country. But in the era of deregulation, Nigeria witnessed a lot of changes in the economy especially in aspect of infrastructure, financial system, privatization and liberalization of the oil sector and some other sectors of the economy. These necessitated the inflow of FDI in the country. Since 1986, when deregulation started, foreign direct investment in Nigeria has been on the increase therefore making Nigeria the nineteenth greatest recipient of FDI in the world, UNCTAD, (2009)


The Objectives of the study include:

i.      To determine the causal factors of Foreign Direct Investment in a pre-deregulated Nigerian economy,

ii.     To  determine  the  causal  factors of Foreign Direct  Investment  in  a  deregulated

Nigerian economy,

iii.    To  ascertain  whether  there  is  a  causal  relationship  between the  growth of  the

Nigerian economy and FDI within the pre deregulated era, and

iv.    To determine whether there was bi directional causal relationship between growth in the Nigerian economy and Foreign Direct Investment within the deregulated era.


Our research questions derive from the objectives of the study include:

i.      What  factors  determined  foreign  direct  investment  in  pre  deregulated  Nigerian economy and to what extent?

ii.     Were there factors that determine foreign direct investment in deregulated Nigerian economy and to what extent?

iii.    To what extent was there a causal relationship between growth of the economy and foreign direct investment (FDI) within the pre deregulated era?

iv.    To what extent was there a bi directional causal relationship between growth of the economy and foreign direct investment (FDI) within the deregulated era?


The hypotheses of this study are:

i.          Causal  factors  (Market  size,  Exchange  rate,  Inflation  rate,  Openness,  Natural resources) are not foreign direct investment (FDI) determinants in a pre-deregulated Nigerian Economy.

ii.        Causal  factors  (Market  size,  Exchange  rate,  Inflation  Rate,  Openness,  Natural resources) are not foreign direct investment (FDI) determinants in deregulated Nigerian economy.

iii.       There is no causal relationship between the growth of Nigerian Economy and foreign direct investment (FDI) within the pre deregulation era.

iv.    There is no bi-directional relationship between growth of the Nigerian economy and foreign direct investment (FDI) within the deregulated era.

These Hypotheses follow largely from the works of(Soumyanada (2009; 2010); Yuko and Nauro (2002);   Beatrice and Adolf (2004);Rojid et al   (2005); Ben- Taber and Giorgioni (2007); Alan and Saul (2004);Omankhanlen, (2011);Asiedu, (2002, 2006;Olajide, (2010); Obida and Abu, (2010); Anyanwu, (1998); Iyoha (2001); LVNa and Lghtfoot (2006); Isabel (2005); Ewe-Gylee (2001); fungi,  lizaka, Lee and Parker (2000); Shatz and  Variables, (2000);Khondoker,A.M. (2007;  Mehmet,  (2002);  Fuat  and  Ekrem,  (2002)  from  which models are specified and improved upon in chapter three of my work.


For  the  purpose  of  our  study,  the  Nigerian  economy  is  grouped  into  two:  the  FDI

determinants  in  pre  (1970  â€“  1985)  and  the  deregulated  Nigerian  Economy  (1986  â€“

2010).This study covered the periods, 1970-1985 and 1986-2010.These periods were chosen because they were the periods of pre and deregulation in the Nigerian economy. The pre deregulation in the economy was the period when prices of many products were fixed by executive fiat and were driven by related policies. For instance, the exchange rate regime in place was driven by the fixed exchange rate policy. Credit disbursements by banks were driven by credit ceilings along sectoral lines and determined by the central Bank of Nigeria, among other regulation driven policies of government.  During this era Nigeria depended on

import not only for equipments and machineries but also for intermediate goods and raw materials including food. It was age of prohibitions in which the economy was almost being choked to  death by innumerable regulations.    During this  period,  FDI  in Nigeria was relatively low.

The  deregulation  era  started  in  1986  driven  by  the  structural  Adjustment  Programme (SAP),  which  marked the  beginning of economic deregulation and  lingering period of liberalization with the objectives of

          Restructuring and diversifying the economic base of the economy and reducing the dependency on oil

          Achieving fiscal balance and reducing the deficit in the balance of payment in the medium term.

       Laying the foundation for non-inflationary growth in the medium and long term.

This is also the period of official change in policy direction towards FDI in the country. (See Structural Adjustment Programme Document)

The thrust of the measures for deregulation was to promote competition and efficiency through greater reliance on market forces. During this period of post deregulation, import licensing  was abolished.    There was partial removal of exchange control reduction of government borrowings and strengthening of the use of treasury bills as an effective tool of monetary control.


The results from this study will allow a re-appraisal of the competing theories of FDI determinants in a country. This study is one of the most important topics, not only in developing countries that need presence of FDI like Nigeria but globally as testified by the number of papers, books and international conferences on this subject that have taken place over  the  last  few  years.  Also,  the  subject  matter  is  very  important  to  the  Nigerian government now that it has big challenge of reshaping the economy.

The question of the FDI determinants in the pre and post deregulated Nigerian economy is fundamental in the heart of government especially in its quest of attracting foreign investors to come in and invest. It is anticipated therefore, that this study would be a great deal of interest to the following;

–    Investors,

–    The government,

–    The  academics,

–    The policy makers,

–    Researchers,

–    The general public and

–    Also  add  to  the  literature  by providing  new  study evidence  on  Foreign Direct

Investment determinants in the Nigerian economy.

Investors: This study is vital for investors in the sense that it would provide information on the determinants of FDI in Nigeria and would also help them to analyze every aspect of their targeted investments in the country.

Government:  This study plays an important role in shaping, designing and implementing fiscal policies and at the same time would help the government to think about new and better ways of doing things and provides new understandings and discoveries that benefit our society.

Academics: This study would impact knowledge to academics in the area of FDI and its determinants in Nigeria.

Policy makers: The study would help the policy makers in the country to better plan and address issues and come up with solutions.

Researchers:This study would enable the researchers to investigate and understand trends and relationships of variables involved in this study and probably build on it in their studies on FDI determinants.

General Public: This study would help to educate the public, help them become more aware of what actually attracts investment in Nigeria.

This study is also different from previous studies in scope in terms of coverage. Therefore, it contributes to the literature by examining the relationship between FDI determinants in the Nigerian economy.


Recipient Country: This  is  a  country which receives FDI  from foreign investor in a recipient country.

Host Country: This is a nation in which representatives or organizations of another state are present because of government invitation and or international agreement.

Fiscal Balance: This refers to the amount of money government has from tax revenue and the proceed of assets sold, minus any government spending when the balance is negative. The government has a fiscal deficit when the balance is positive and negative when government has a fiscal surplus.

Trade barriers: This is government-induced restrictions on international trade. The barriers can take many forms, including the following: Tariffs, Non-tariff barriers to trade,  Import licenses,  Export  licenses,  Import  quotas, Subsidies, Voluntary Export  Restraints, Local content requirements, Embargo.

Tariff: A tariff may be either tax on imports or exports (trade tariff), or a list or schedule of prices for such things as rail service, bus routes, and electrical usage (electrical tariff, etc.).

Resource  seeking  FDI:  This  is  investment  focused  on  extracting  or  refining  natural resources such as petroleum, natural gas, or timber. The investment is seeking access to existing resources, such as Exxon Mobil investing in oil production in the North Sea.

Nigerian Economy: The Nigerian economy is one of the most developed economies in Africa. It is a middle-income nation with developed financial, communication and transport sectors. It has the second largest stock exchange in the continent. The petroleum industry is central to the Nigerian economic profile. It is the 12th largest producer of petroleum products in the world. The industry accounts for almost 80% of the GDP share and above 90% of the total exports.

Natural resources: These are factors of production that are not man made; they include land, water, air and all the minerals that they contain.

Exchange Rate:  In finance, an exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) is the rate at which a country’s currency is exchanged for another country’s currency.

Investment incentives:  These are government schemes aimed at stimulating private sector interest in specified types of capital expenditure, or investment in areas of high unemployment or backwardness. These incentives may take the form of direct subsidies (investment grants) or corporate income tax credits (investment credit) that compensates the investors for their capital costs.

Inward FDI for an economy: This can be defined as the capital provided from a foreign direct investor (i.e. the coca cola company) residing in a country, to that economy, which is residing in another country. (i.e. Nigeria’s economy).

Privatization: This is a process of selling a public corporation to private shareholders.

Liberalization: This refers to the relaxation of previous government restriction, usually in areas of social or economic policy

Emerging markets: This refers to nations with social or business activity in the process of rapid growth and industrialization.

FDI determinants: These are causal elements of factors that influence FDI.

Nigerian Investment Promotion Commission (NIPC): This is  a  Federal Government Agency  in  Nigeria  established  to  encourage,  promote,  and  coordinate  investments  in Nigeria. The Agency provides services for the grant of business entry permits, licenses, authorizations and incentives in a One-Stop-Shop and transparent manner to meet the needs of investors.

SAP:  Structural  Adjustment  Programmes are  economic  policies  which  countries  must follow in order to qualify for new world bank and international monetary fund (IMF) Loan that helps then make debt repayment on the older debts owed to commercial banks, government and the world bank. Although SAPs are designed for individual countries but have common guiding principles and features which include export led growth, privatization and liberalization and the efficiency of the market.

This material content is developed to serve as a GUIDE for students to conduct academic research



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