Abstract

TIME SERIES ANALYSIS OF FACTORS AFFECTING FOREIGN DIRECT INVESTMENTS IN NIGERIA

Yakubu Musa 1 and Agwamba E. N.2

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Abstract This study investigated some factors that influence the inflow of foreign direct investment in Nigeria and the relationship that exists between the selected macroeconomic variables. The study employed Vector error correction model to analyze the short and long run relationships among the variables. Innovation forecasting, impulse response function and variance error decomposition was also used to forecast the variability causes. The study found the existence of long run equilibrium among the variables. The study also found that there is bi-directional causal relationship between FDI in Nigeria and Exchange rate, Inflation rate, and Lending rate, while a uni-directional relationship runs from market size and Interest rate to FDI. The study found that own (FDI) shock decreased from short run and ended below its natural path in the long run. It also found that FDI responds negatively to shocks from inflation rate and market size in the long run. FDI response to shocks from interest rate and lending rate, exchange rate and external debt was just above its natural path. The study also found that own shock explains much of the fluctuations experienced by FDI in the short run, which decreases into the long run. Also, in the long run, Market size, interest rate, inflation rate, lending rate, exchange rate, economic globalization and external debt explain much of the contribution to the fluctuation experienced by FDI in the long-run. Keywords: FDI, VEC Model, Nigeria

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