An Institution Economics Approach to Foreign Direct Investment Analysis in Nigeria

Abstract

This research is an institution economics approach to foreign direct investment analysis in Nigeria spanning 1995 to 2021, using autoregressive distributed lag (ARDL) model. It employed FDI as the dependent variable, while business freedom (BF) and trade freedom (TF) are the independent variables. FDI data were sourced from World Development Indicator (WDI), while BF and TF data were sourced from Index of Economic Freedom. Descriptive statistics were used to reveal behavioral tendencies of the data; both Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests established mixed series of I(0) and I(1). F-bound test and Nayaran table showed long-horizon nexus between the series. The study found that in the long-horizon, the coefficients of both BF and TF have positive nexus with FDI, but are not statistically significant at 5% level of significance. Consequently, it was recommended that policy makers should improve on the openness and transparency with which businesses and trade are carried on within the economy, and interaction with other business people and government at the global level. In addition, deliberate efforts should be made to remove institutional rigidities and bureaucratic impediments to trade and investment.