EFFECT OF CORRUPTION ON FOREIGN DIRECT INVESTMENT IN NIGERIA

Hamza Yunusa, Jibrin Zakari, Aliyu Umar

Abstract


Many researches have been conducted on Foreign Direct Investment (FDI) and other variables. However, corruption and FDI relationship has not been adequately investigated in Nigeria. This study therefore, examines the effect of corruption on FDI in Nigeria using the Fully Modified Ordinary Least Square (FMOLS) and Canonical cointegration Regression (CCR) estimators, to analyze quarterly data from 1996 to 2018. In addition, the study considers the role of other potential determinants of FDI including GDP, political instability, exchange rate, trade openness, infrastructure and ease of doing business on FDI. The result of the Johansen cointegration test indicates that there is at least one cointegrating equation. The results of the FMOLS and CCR estimators indicate that an improvement in corruption index increase the inflow of FDI to Nigeria. Also, GDP, political instability, exchange rate, trade openness and infrastructure all have a significant and positive impact on FDI, while an improvement in the ease of doing business has a positive and significant effect on FDI. Based on these findings, this study makes the following recommendations. First, government can introduce appropriate policies to reduce corruption. Second, these policies should be complemented with measures that raise GDP, upgrade of poor infrastructure, strengthen the political institutions, stable exchange rate and boost the ease of doing business in Nigeria.


Keywords


Corruption; CCR; Foreign direct investment; FMOLS; Infrastructure; GDP; Nigeria

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References


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